Credit Crunch Impacting Burgeoning Medical Receivables Market

With capital markets essentially dormant and hospitals open to selling or placing more self-pay receivables sooner, accounts receivable management experts say it may be the best time ever to be in the medical receivables management business.

Unfortunately, it also may be the worst time. 

The recession and credit crunch that is swelling medical bad debt portfolios is also affecting medical debt collectors’ and buyers’ ability to grow their business, said Michael Lamm, an associate with ARM consulting firm Kaulkin Ginsberg.

“Everyone is eager to find capital resources,” Lamm said. “We’re seeing more people come to us looking for capital because they can’t find it anywhere.”

That doesn’t mean the money isn’t there to invest, said Mark Russell, a director with Kaulkin Ginsberg. Although prices have dropped significantly in the past year because liquidation rates are down, buyers are convinced there’s room for prices to fall even lower.

“Debt buyers are more consistently requiring low prices,” Russell said. “They are not only budgeting in future liquidation declines, but also profit margins.”

Even if medical receivables buyers are waiting for prices to fall or credit to flow more freely, there’s no reason for well managed medical debt collectors to sit on the sidelines. Action Collection Agency of Middleboro, Mass. is proof of that.  Owner Jay Gonsalves said his 40-person medical collections company is growing because hospitals are focused on recovering as many outstanding receivables as possible.  Gonsalves, who also is president of collection industry association ACA International, said his company has won new first party and insurance follow up work. He is moving the business into new office space in about a month and anticipates adding more staff.

“(Hospitals) are hurting like everyone else,” Gonsalves said. “They are looking to accounts receivable management companies because of the resources we have, skill set and infrastructure.”

Gonsalves said he is funding his company’s expansion through company earnings, financing from regional banks he has worked with for years, and national leasing companies. He said regional banks and leasing companies may be good funding options for other well managed agencies.

However, many agencies don’t need to make heavy investments to grow their business, Russell said. That’s especially true for profitable agencies where the investment is primarily in personnel, because that type of investment, helps pay for itself, he said.

“I strongly believe that taking on additional clients or placements does not cause a need to take on substantial investment,” Russell said.

Gonsalves added that some agencies may be able to take on more clients and placements by investing in a few additional phone lines or adding analytical technology.  The key, he said, is working smarter.

“There are various scoring technologies to make sure you’re working on the right accounts and working inventories prudently,” Gonsalves said.

If taking on additional clients or placements requires the collector to double the size of their staff in a short amount of time in the current economic environment, collectors should scale back their growth plans, according to Russell. 

“Curtail your growth so you can effectively manage it,” Russell said. “You don’t want to be swamped with expenses and not have sufficient receivables coming in quickly enough.”

Editor’s Note: Kaulkin Ginsberg is the parent company of insideARM.com