In an ideal healthcare system there wouldn’t be the need for physician small business loans or factoring. Accounts receivable would be stress-free. Your private practice would receive payment at the exact time you offer medical care. But we live in an imperfect world. Collecting payments for your medical services is stressful – and not simple by any means. When you first dreamed of opening your own private practice you may not have realized all the details involved in running an accounts receivable department. Now that your practice is open, you’ve discovered the difficulties.
And you’re not the only one. According to Madelyn Young’s “Accounts Receivable Best Practices,“
According to the Medical Group Management Association, on average, U.S. medical practices are failing to collect 25% of the money they’re owed for treating patients. That means $125 billion is left on the table every year. The convoluted processes of revenue cycle management and accounts receivable allow too many underpayments, denials and ignored claims to fall through the cracks.
This quote might bring up some pain points in your medical practice. You know that a percentage of your patients haven’t paid on time and insurance claims seem to have fallen into the twilight zone. It feels like an eternity between when services are performed and payments are received. But, you know that money needs to be collected.
Your Medical Practice is a Business
You became a doctor for many reasons — you care about patients, you like being your own boss, and you want to make money. In the midst of all this you are ordering supplies, returning phone calls, and training employees. It can be easy to lose sight of the fact that your medical practice is a business. In a CNN Money article, Parija Kavilanz quotes Marc Lion, chief executive officer of Lion & Company CPAs:
Small business 101: A private practice is like a small business. “The only thing different is that a third party, and not the customer, is paying for the service,” said Lion . . . “On average, there’s a 10% to 15% profit leak in a private practice.” Much of that is tied to money owed to the practice by patients or insurers. “This is also why they are seeing a cash crunch.”
This is one of the biggest problems in healthcare: accounts receivable. Let’s say you’re a careful businessman, watching over your medical practice with the utmost attention. You monitor the cash flow. You pay bills on time. You file claims to insurance companies right away. Even if you’re doing everything “right,” you can still find your medical practice with a cash shortage because so much money is tied up in accounts receivable. You’re waiting for patients’ checks to go through. You’re waiting for Medicaid and Medicare reimbursements from the government. You’re waiting for insurance companies to pay claims. There’s a gap between the time your patients walk out the door and the time you receive payment for services rendered.
Do you have options? For some medical practices, this cash shortage has led doctors to apply for business loans to keep them afloat. Kavilanz writes, “From 2000 to 2011, Small Business Administration loans to physicians’ offices, including private practice doctors and mental health specialists, ballooned to $675 million from less than $60 million.” While business loans can work effectively to provide cash when money is tight, industry experts don’t look on this trend favorably. Kavilanz suggests doctors are living on business loans.
Are there other options? You bet! There are preventable measures, as well as financial assistance, available.
Accounts Receivable: Blessing or Curse?
The pattern of providing medical services (and products), but not receiving full payment is all too common. Our current healthcare system is broken when it comes to payments. You have to find a way to make profits despite a less-than-ideal system.
Accounts receivable is more complicated than just the ebb and flow of cash. You have to pay your bills while collecting payments from multiple sources at the same time. It’s no easy task. But you know you have to keep profits a priority in your medical practice. What happens if you can’t make your business profitable? You might have to take a cut in salary or cut back on staff. You might have to cut some of your products or services. And none of these results are part of your plan.
So what can you do without applying for a business loan? First, consider how you can improve processes in accounts receivable. Brian Kueppers, founder and chief executive officer of APEX Print Technologies, wrote a step-by-step guide for improving your billing statements. Kueppers suggests redesigning your billing statements, which can lead to the following benefits:
- Improved clarity = greater likelihood patients will pay their bills
- Improved collections
- Reduced incoming call volume
- Decreased use of outside collections services
- Lower postage costs
Imagine your patients having no trouble understanding their medical bills from your office. Imagine fewer phone calls from confused patients, wondering how much they owe versus how much insurance paid. Imagine sending out bills once instead of two, three, and four times. Realistically, making your billing statements ultra-clear will not work for every patient. But it’s bound to help some of them make their payments on time.
Xavier E. Martinez, a content writer specializing in medical billing, suggests three techniques for maximizing accounts receivable:
- Purge old data
- Collect from recurring patients
- Run reports on collection trends
Always adapt the best accounts receivable practices you can find for your. Both Kueppers and Martinez have some solid advice. But don’t stop there. Research. Ask your colleagues in other medical practices how they handle payments for services rendered. Adapting best practices might be all you need to assure you are not contributing to the $125 billion uncollected funds every year in the U.S.
However, many medical practices need something more substantial that will have an immediate impact.
How a Small Business Loan Can Save the Day
If your medical practice needs an injection of cash to help fill in the gaps between funds going out and funds coming in, a small business loan is one of the guaranteed ways to put money in your business as soon as possible. You can choose between business loans, from a traditional bank or from an alternative business lender, such as United Capital Source. A traditional business loan through a bank requires loads of paperwork, days or weeks to get approval, and usually some kind of collateral. Banks put emphasis on collateral to minimize their risk. If you default on the business loan, they keep the collateral – which could be your medical practice.
Alternative lenders offer business loans to small businesses without collateral. There isn’t much paperwork and you can get approved much faster than through a traditional bank. This means cash in your hands in a couple days, not a couple weeks. A business loan can help you keep your doors open, your employees paid, your supplies well-stocked, your office phones and computers running, your marketing active, and your vendors happy until those insurance payments come in.
Small business loans exist to help medical practices like yours get off the ground or get through a tough season. It’s probably not your fault that your accounts receivable are in bad shape. But now you have some tips to improve in that area. And if you get a business loan, you’ll have the funds you need to keep your business well financed while you’re waiting for all those medical bills to be paid.
Don’t get me wrong — I am not suggesting that every time you get in a bind, just take out another business loan. Too much borrowing will catch up with you. You don’t want to stack one small business loan on top of another. If you’ve already taken out a business loan or two, you might want to consider another form of financial assistance: factoring.
Consider Factoring as an Alternative
In your medical practice you probably receive payment from the following sources:
- Patients pay cash or check
- Patients pay with a credit card
- Insurance companies
- Government insurance (Medicaid, Medicare)
With a cash or check, your medical practice receives the funds directly from the patient. This is usually the fastest form of payment. A credit card depends on the credit card company. As long as the credit card company backs the funds, the funds should transfer to your account in a day or two.
The problem with the insurance companies and the government insurance is multi-faceted. First, there is a delay from the time service is rendered to the time payment is received. Second, there is paperwork. Someone has to file the claim. This takes manpower, time, and accuracy. Third, insurance companies and government insurance don’t always pay what is expected for a number of reasons. This leaves more gaps: gaps between the medical bill and the payment received. Even if the patient pays his deductible, if the insurance doesn’t pay the rest, then you’re back to trying to collect the remainder from a patient who thought he had already paid his portion. These are all signs of a broken system.
Factoring is another option. RTS Financial defines factoring as:
. . . a transaction in which a business sells its accounts receivable, or invoices, to a third party commercial financial company, also known as a ‘factor.’ This is done so that the business can receive cash more quickly than it would by waiting 30 to 60 days for a customer payment. Factoring is sometimes called ‘accounts receivable financing.
Factoring is helpful to businesses which have unpaid invoices or, in the case of a medical practice, unpaid medical bills. Instead of tasking your staff with the job of collecting, you can get a large percentage of that unpaid bill right away by entrusting the job to a factoring company. This third party will pay 70-90% of the value of the medical bill up-front. Then, after they receive full payment from the customer, they will pay the rest of the medical bill to your medical practice, minus a factoring fee.
Factoring works because it doesn’t put your medical practice at risk or in debt. The percentage paid up front depends on your patients’ credit history. Factoring takes the waiting out of the process. You file all your insurance claims, you collect all that you can from your patients, and then send the rest to a factoring company. You get the cash right away — within 24 hours in some cases. And factoring has no limit to the amount of financing.
Don’t let a broken system ruin your medical practice. Every private doctor has to deal with accounts receivable in a system that does not favor the medical professional. You can make big improvements to your accounts receivable by following the good advice of people like Brian Kueppers and Xavier E. Martinez. A business loan and factoring both give you cash right away to help your medical practice survive the gauntlet of insurance claims and government insurance. There’s hope out there for doctors and private medical practices. Don’t be overwhelmed. Companies like United Capital Source are here to help. We care about small businesses.