Healthcare practice funding: reimbursement lag, denials and what a lender can take

You provided the service. The patient left. Now a third party who was not present decides how much of your charge is payable, whether it is payable at all, and when. A healthcare receivable is not a bill to a customer; it is a claim subject to adjudication, and that single difference shapes every funding product offered to a practice.

Gross charges are not the number

Between what you bill and what you bank sit contractual adjustments, patient responsibility, coding corrections, denials and appeals. A lender does not care about billed charges. It cares about net collectible value: what your specific payer mix, at your specific contracted rates, with your historical denial and write-off experience, actually converts into cash, and how long that takes.

This is why a practice with strong-looking gross receivables can be offered less than expected. The underwriter has applied its own haircut to your ledger, payer by payer.

Commercial and government receivables are different assets to a lender

For funding purposes the ledger splits along payer lines, and the split matters more than most practice owners expect.

Why medical A/R financing is its own product

A general factor buying commercial invoices is buying a stated amount. A medical receivables funder is buying an estimate, and it prices, monitors and documents accordingly. Expect a borrowing base built on net collectible value rather than face value, weekly or monthly reporting from your practice management system, aging tests, payer concentration limits, and lockbox or control-account arrangements.

Expect the funder to want to understand your billing operation itself: who codes, who scrubs claims, what your first-pass acceptance looks like, how appeals are worked. Denial management is credit quality in this trade.

Equipment: long lives, long terms, and obsolescence risk that is not uniform

Diagnostic imaging, dental chairs, surgical and sterilisation equipment, lasers, exam room build-out. Useful lives are long and resale markets exist, which supports equipment financing on terms matched to the asset.

Two cautions. First, software and service contracts are frequently bundled into the finance agreement; a five-year lease that includes a service plan is partly a services contract and should be priced as one. Second, some categories carry real obsolescence and reimbursement risk — if a modality's reimbursement is reduced, the equipment's economics change while the payment does not.

Practice acquisition is its own financing problem

Buying a practice means buying goodwill, a patient panel, a payer contract set, a lease and some equipment. Goodwill is most of the value and none of the collateral. SBA-backed lending is a common route for exactly that reason, with programme rules published by the SBA and each participating lender applying its own overlay.

The diligence points that actually move the deal: whether payer contracts and provider numbers transfer or must be re-credentialled, how long credentialling takes with each payer, the seller's transition commitment, and the state's rules on who may own a practice. Corporate practice of medicine doctrines vary by state and constrain ownership structures in some of them. Re-credentialling delay is the most commonly underestimated cash risk in a practice purchase, because you can own the practice and be unable to bill for months.

What to have ready

• An aged A/R report by payer, with gross charges, contractual adjustments and net expected
• Payer mix by percentage of collections, not by patient count
• Denial rate and top denial reasons, if your system reports them
• Twelve months of collections by month
• A copy of your practice management and clearinghouse reporting
• Provider credentialling status for every payer
• Equipment schedule and existing lease or loan documents
• Lease for the premises, with term and options

What to ask, and what to refuse

Ask exactly how the borrowing base is calculated and which payer categories are excluded. Ask whether a lockbox or control account is required and who instructs it. Ask what a payer contract termination or a credentialling lapse does to availability. On equipment, ask what is bundled into the payment and what the end-of-term obligation is.

Refuse any structure that purports to redirect government programme payments without counsel confirming the arrangement is compliant; the exposure is not just contractual. Refuse a facility that advances against gross charges rather than net collectible value, because an advance you cannot repay from actual collections is a shortfall with a schedule attached. And refuse to buy a practice on a timeline that assumes instant credentialling.