In October 2014, Pennsylvania’s medical providers that receive payments from Medicaid woke up to an email from the Department of Public Welfare (“DPW”), the administration that provides care and support to Pennsylvania’s most vulnerable citizens. The email expressed that DPW, in preparation for the new fiscal year, is withholding payments on all submitted claims and is adjusting the time it typically pays from two to four weeks. To a provider, this email was horrifying as medical practices rely on government and commercial insurance payments to cover their accounts payable, payroll and operating costs.
Our client, a medical provider in Pennsylvania, typically bills once a week and gets paid on the bills two weeks later. All of a sudden, this changed to 4 weeks, but that wasn’t the biggest issue. Instead of receiving $450,000 for previous week’s billings the client received just over $1,000. Unless a practice is flushed with capital, and most of them are not, this type of instability from a major payor could easily cause massive headaches or worse – drive a practice out of business.
Luckily, our client had an established medical accounts receivable financing facility with us. Through this facility, we advanced 70% of the bills to DPW within 24 hours of the bills being submitted by the client. During the four week period where DPW was adjusting its payments we continued to advance the medical provider allowing it to continue operations unscathed. Furthermore, we took on the risk of DPW delays/issues and only received our payment when DPW paid the client leaving the client with needed cash to operate the business.
Unfortunately for medical providers, Pennsylvania is not a unique example. Most states and commercial payors frequently delay payments to medical practices making it very difficult to maintain a practice in operations without substantial financial reserves. This case study outlines the need for medical providers in today’s volatile environment to establish a financing facility with a lender that understands the healthcare industry.
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