How Medical Factoring and Medicare Payments Work

Posted by Factor Funding Co. on January 15, 2015

With the 2014 open enrollment period behind us, more Americans are looking forward to receiving the Medicare & You 2015 handbook. Health care industry analysts are predicting increased Medicare enrollments from now until 2020, which means that more business owners whose companies provide medical services will be submitting claims to the Medicare and Medicaid systems in the coming years.


Ever since the Affordable Care Act was enacted in 2010, medical service providers have noticed certain trends in their chosen industry as they pertain to billing:

  • More patients and clients are now insured by Medicare
  • The individual amounts of claims and invoices have gotten smaller
  • Americans are more conscious about getting regular health care
  • Waiting times for processing of Medicare claims are increasing

The fact that more patients are enrolling in Medicare corresponds to an overall demographic trend of aging in the United States. Spikes in patients seeking Medicaid coverage can be explained by the fact that individuals and families in the U.S. are still trying to recover from the Great American Recession.

Financing Insurance Payments

The U.S. health care industry is still trying to adjust to the new provisions of the Affordable Care Act. It is certainly refreshing to see that more Americans are actively seeking medical care these days; however, the immediate economic benefit is mostly being enjoyed by major health insurance carriers, hospitals and major clinics. Owners of small and medium-sized businesses that provide medical services are seeing higher operational costs as a result of an influx of patients and clients. The problem is that insurance and Medicare claims and invoices are actually being paid at a slower rate than before, thereby creating a cash flow issue for smaller health care providers.

Many smaller companies in the medical field are finding it difficult to expand due to cash flow constraints. To a certain extent, financing expansion projects can be accomplished with commercial loans from retail banks, but this does not solve the issue of deficient cash flow. A physician who wishes to open a second medical office may be able to secure new equipment, supplies and a few lease payments on the new location, but what about his or her current expenses? Payroll, ancillary services and utilities must still be paid even when Medicare and insurance providers take their time settling their claims.

More owners of small health care companies are turning to medical factoring as a viable option for improving their cash flow situation. This type of alternative financing can provide immediate working capital based on account receivable items such as invoices and insurance claims. Not all medical factoring firms, however, are able to work with Medicare payments.

Assignment of Medicare Financial Rights

Under normal circumstances, Medicare does not allow its claims to be assigned to other individuals or business entities. For this reason, not all medical factoring will be able to work with clients who submit claims to Medicare. The ones that are set up to provide financing of account receivables are those that have set up a certain structure of their operations. The key is to not have clients resort to notices of assignment since Medicare will not accept them.

In order to provide financing for Medicare claims, medical factoring firms will have to enter a special agreement whereby clients modify their bank accounts in such a way that they can be managed by the financier. This modification is often called a sweep or managed account. The idea is to allow the medical factoring firm to sweep the bank account from time to time for the purpose of collecting payments from Medicare; naturally, this will only be done after a cash advancement has been received by the provider of medical services. In this fashion, an assignment of claim is never filed with Medicare, and the health care provider is still the holder of the bank account authorized to receive payments for claims.

medical factoring ebook