Better ARM Management May Have Saved NCFE Causalities

Last week four former executives received sentences ranging from five to 15 years for their roles in the downfall of an Ohio-based company that provided loans to health care providers.

Prosecutors say the executives of National Century Financial Enterprises helped bilked investors out of more than $2 billion in a scheme that involved illegal loans, money laundering and mail fraud.

When NCFE folded after filing for bankruptcy protection in 2002, investors in their AAA-rated bonds weren’t the only losers.  Prosecutors say NCFE took down at least 275 health care providers, including small hospitals, independent practices, ambulance services and nursing homes that used payments from their Medicare, Medicaid and insured receivable claims as collateral against loans NCFE made to them.

Prosecutors described many of the providers as “cash strapped.” But some health care providers might have avoided the cash flow problems, and their eventual demise, if they managed their receivables differently – particularly the Medicare and Medicaid receivables.

“The turnaround on Medicaid and Medicare is quick,” said Michael A. DiMarco, chief executive of The Outsource Group, a St. Louis-based accounts receivables management company.  “If you create and submit a clean claim, you can get paid quickly, often in as little as 14 days.”

Many health care providers that regularly borrow against their receivables for operating expenses have high days receivable outstanding (DRO), DiMarco said. 

“If that’s the issue, then the solution is to improve your DRO, not borrow money against your receivables,” he said. “If you can’t do it in house, look for someone that can do it better.”

DiMarco said improving cash flow isn’t just about collecting money.  Health care providers must improve front end patient interaction beginning with registration and treatment.  Patients who present with one ailment may be treated for more costly conditions, which warrant higher reimbursements. 

Likewise, pre-certification to determine if the insurer will cover certain treatments is a must and it will let health providers know what portion of the bill the patient is responsible so it can collect up front or arrange a payment plan. That lessens collections on the back end, DiMarco said.

“There are a whole bunch of things (providers) can do better to result in a cleaner bill with a higher likelihood of being paid in a timely manner,” DiMarco said.

And if receivables management isn’t the problem, the health care provider may need to re-evaluate the location of the business, its insurer contracts and/or the market it serves, said Jim Richards, chief executive of Capio Partners, LLC, a medical debt buyer based in Atlanta, Ga. One or all of those factors may be hindering the business’ profitability.

“Even if you’re managing the [receivables] well, you still may not be set up for profit,” Richards said.  “If not, all the games you play with your receivables are not going to help you.”