Hospitals are (obviously) an essential part of any society—they come to the aid of the people during health emergencies, take care of public health problems, and help people live healthier, happier, and longer lives.
There’s no doubting the importance of hospitals as a public service. But hospitals, especially those in the United States, are also living, breathing businesses, which are subject to similar financial rules and guidelines as any other business. Hospitals must be able to cover the costs of medical supplies and payroll while quickly and effectively collecting payments for their services.
If only it were that simple.
Due to the dynamic nature of hospitals and the healthcare industry, cash flow is often a problem for hospitals across the country, which can restrict the ability to purchase supplies and pay debts, among other issues.
But what are the specific causes of limited cash flow for hospitals? In this blog, the Los Angeles receivables financing team at The Commercial Finance Group will cover two main factors that can contribute to poor cash flow for hospitals and other medical businesses.
Lots of Business Expenses
Hospitals and medical centers, by nature, have a lot of everyday business expenses—they’re constantly restocking medical supplies, paying for medical waste removal, and of course, compensating their employees. These expenses are absolutely necessary for a hospital to run—but as a result, they can tighten the purse strings of the hospital and prevent business growth that can provide more jobs and create better patient experiences. With limited cash flow and only just enough money to cover the basics, hospitals can often overlook technological upgrades, facility renovations, and other capital purchases that can improve healthcare for all parties involved.
Slow Payment Processes
While there are plenty of expenses for hospitals and other healthcare establishments, there’s also plenty of revenue coming in. After all, hospitals must be paid for providing healthcare services! However, payment for health services isn’t always a quick process, especially when that payment is coming from the federal government. For programs like Medicare and Medicaid, hospital bills are covered by the federal government (through payroll taxes and other taxes), and it because of the large volume of claims coming through these programs, it can take awhile for some of these claims to be paid to the appropriate healthcare institutions. This can slow down the rate in which healthcare businesses receive payments for their services, and ultimately slow down business cash flow in the process.
What’s the problem here?
With so many expenses and not enough cash flow due to systemic shortcomings, hospitals are placed in a difficult financial position, struggling to make ends meet for basic supplies while failing to advance their medical technology and grow their healthcare business (and in some cases, failing to pay their employees in a timely manner). The world of healthcare cannot afford to fall behind technologically, or to have trouble purchasing the supplies they need because Medicare payments are a few days late.
What’s the solution?
There are two solutions that can help healthcare providers avoid cash flow predicaments:
Factoring
While factoring is a popular financing strategy in a number of industries, medical factoring allows hospitals or other medical businesses to finance medical claims, essentially giving your hospital an advance on these claims so you have the operating capital you need. Specialized factoring lines have much more favorable terms than credit lines, and they adapt very well to the ever-changing needs of the medical industry.
Asset-Based Lending
Asset-based loans essentially allow you to finance your marketable assets and, with a healthy dose of collateral up front, you’ll be able to maintain cash flow necessary for growth as medical claims are paid. Asset-based loans require more money up front and harder to acquire than factoring lines, but they also have lower payments and more favorable terms. Ultimately, both could be solid options for helping your healthcare business grow while providing excellent patient care and avoiding cash flow problems.
Talk to The Commercial Finance Group
If your healthcare business is having trouble affording the basics and growing frustrated by delayed claims, talk to The Commercial Finance Group. We can help you find the right financing solutions for your hospital or healthcare establishment so you can sustain healthy growth, pay your employees on time, and provide excellent patient care for a happier, healthier world. Get started with us today.
