by Alleon Capital on 06/09/16 at 3:17 pm
Hey everybody, Ben here and I want to talk really quickly about the difference between medical factoring and traditional factoring. From what I have seen there are two main differences. The first difference is the value of the claim. So in a traditional industry, like trucking for instance, an invoice is $100, and $100 will get paid. In the medical industry it is very different. One medical provider in Florida can charge $100 for a claim and get paid $50, while the same procedure in New York will get reimbursed $60. The reimbursement levels are also different within each insurance company, per the plans that they have. So the first main difference is nailing down the value of the claim, and it is a challenge for medical financing/medical factoring companies.
The second big difference that I found is, in traditional factoring you can assign a claim over. What that means is, let’s use the trucking company for example, the trucking company performs a service and then the factor buys the claim and tells the client of the trucking company to pay the factor directly. So the check will come to the factoring company, they will deposit it, take out their fee, and send the remained back to the trucking company. In the medical world that is either difficult to do or not possible at all, especially when dealing with government receivables like Medicare and Medicaid. So what normally has to happen is the medical factor will create a LockBox on the providers account. The provider will get paid by the insurance carrier into a collections account at the bank. That account is then swept into the factoring company, they do a reconciliation and send the difference back to the provider. You may not think it sounds like a big difference, but there is an added risk for a factor because they are not getting the funds directly. The cash flow isn’t as secure as it is as if it were to come directly to the factor.
So those are some of the main differences between medical factoring and traditional factoring. Again, if you have any questions, feel free to contact me at email@example.com