Small Firms Have a Role in Big Healthcare Portfolio Sales

It makes sense that healthcare systems looking to sell large portfolios of bad debt would turn to asset management companies with deep pockets. But small firms need not fear being left out of such deals, says a healthcare debt buyer.

Large firms may have the capital, but they sometimes lack the relationships and trust many smaller firms enjoy with hospitals and healthcare systems, John Moroz, director of healthcare business development for CarVal Investors, told insideARM.com. “The ability to get to many of these hospitals … that’s what many of these small collection agencies bring to the table,” Moroz said.

CarVal, an asset management firm based in Minnetonka, Minn., teamed with West Asset Management and MEDCLR last December to buy a Tenet Healthcare portfolio of bad debt for $16 million ("Hospitals Eye Tenet Portfolio Sale as They Mull Packaging Debt," 10/22). CarVal provided the capital for the deal valued at $1.2 billion. But it was Tenet’s relationship with WAM, MEDCLR and their network of small agencies that helped make the deal a reality, Moroz said.

“(Tenet) felt comfortable dealing with them because of the relationship they had,” Moroz said. He expects other hospitals and healthcare systems will feel similarly when they look to sell their bad debt.

A hospital remains committed to a community even after it has a sold a debt portfolio generated by the members of that community, industry experts say. The public associates the debt with that hospital, so it must ensure that debt buyers and collectors aren’t overly aggressive or using questionable practices when collecting the debt. “That traditionally has been one of the key concerns for many hospitals sitting on the sidelines,” when it comes to selling bad debt, Moroz said. “They want to make sure their reputation is not harmed.”

Moroz said a hospital selling debt may “strongly suggest” that the buyer talk with the hospital’s primary collections agency to help service the paper. Small agencies interested in being included in future large portfolio buys and collection efforts should start making themselves aware of the key industry players and forge relationships with some of them. But performance is what counts in getting you on top of sellers’ list of agencies they want to continue to work with.

“Whether it’s a large organization or a small mom and pop agency, at the end of the day, it’s all about execution,” Moroz said. “Can you service the paper properly?”