In the post-recession world of tighter credit, the close management of payment cycles, accounts receivable, payables, debt and financing obligations, and cash flow has become even more critical to maintaining healthy businesses. Management of these issues also impacts the successful start-up of new practices, facilities or acquisitions. While these issues apply equally to healthcare market, providers of all types have the added concern of maintaining payment flows from Medicare, Medicaid, and private insurance payors.
The O’Connell & Aronowitz Healthcare Consulting Group (“HCG”) and Health Law attorneys offer a variety of services to assist with financial management, such as:
Monitoring Lending Markets and Real Property Financing Risk: The interest rate policy of the Federal Reserve is deserving of close attention. As the Fed begins to raise interest rates, many businesspeople are unaware that this may impact financing agreements that their companies have entered into. For example, higher rates can trigger higher debt service payments in floating-rate loans.
In addition to that type of financing risk, rising rates can also trigger property financing risks. This is because property values tend to depreciate as interest rates rise as the real estate market compensates for higher financing costs and higher anticipated return on investment (referred to as a “Capitalization Rate,” or “Cap Rate”). This is important because the banking industry generally analyzes the value of collateralizing real estate assets on an annual basis. If a bank discovers that the underlying real estate held as loan collateral has lost value versus the principal balance of the mortgage (a ratio known as “loan to value”), capital calls may be triggered by the bank’s loan agreement. A bank may be legally able to demand additional collateral from the borrower, or even demand complete payment of the outstanding mortgage balance.
Rising rates can also trigger balance sheet covenants in loans and mortgages by causing changes in the current ratio (a measure of the liquidity of a company) and the debt to worth ratio (a measure of the net capital built up over time required by a bank.) Again, these covenants trigger capital calls or accelerated payments of the loan.
Providers must understand that these types of financing risks can occur even if a provider has never missed a mortgage or loan payment, and its financial health is sound.
O&A’s Healthcare Consulting Group and Health Law attorneys work with our clients to assess their financing risks and to develop strategies to review mortgage documentation, access credit in the event of a capital call, and/or re-negotiate the loan transaction.
Facilitating Revenue Cycle Improvements: When a healthcare facility or practice is acquired, there can be a delay in receiving reimbursement until Medicare and Medicaid enrollments are complete. It is, therefore, critical that providers understand the reimbursement cycles in their billing of Medicare, Medicaid, Managed Care Organizations, and private insurance payors.
O&A’s Healthcare Consulting Group and Health Law attorneys can assist providers in navigating the full range of payment cycle issues by developing financing alternatives, and creating and applying management tools to prudently access credit and other start-up or transitional funding. These services include developing appropriate billing practices and guidelines, assisting with proper accounts receivables management, and implementing defensive financial management strategies in the event of reimbursement delays.
Due Diligence: O&A’s Healthcare Consulting Group and Health Law attorneys can also assist providers in conducting full due diligence reviews of other entities before providers enter into mergers or acquisitions. Our consultants and attorneys not only can assess the financial health of an entity, but can also evaluate the entity’s compliance with state and federal healthcare regulations.
Capital Project Analysis and Support: O&A Consultants and Attorneys can also provide financial management advice for capital projects, renovations, acquisitions, and facility maintenance, and can assist facilities and Providers in properly planning for these expenditures.
If your practice or facility needs assistance with these or other issues, our consultants and attorneys are be happy to offer a free consultation to assess your needs. Please contact Nancy Sciocchetti or Carla Williams at (518) 462-5601 for more information.
Nancy Sciocchetti is a senior partner at O’Connell and Aronowitz and supervisor of its Health Law practice. She concentrates in the area of health care and general corporate enterprise development and transactions, representing both for-profit and not-for-profit clients in corporate business transactions.