By: Patrick LaVoie, CEO and Founder of Thrivory, Inc.
Navigating Financial Options to Improve Your Infusion Center’s Performance
Infusion centers play a vital role in the healthcare landscape, providing critical treatments to patients with chronic and complex conditions. However, managing an infusion center’s financial health presents significant headwinds. The steep costs associated with procuring expensive medications, coupled with lengthy reimbursement cycles or the need to float cash for operating expenses, make cash flow management a critical challenge.
This article aims to provide you with actionable insights and strategies to improve cash flow and effectively manage the procurement of high-cost medications. By understanding traditional banking and financing options and making informed financial decisions, your infusion center can achieve greater financial stability and sustainability.
Understanding Your Financial Challenges
Before diving into solutions, it’s crucial to understand the financial challenges unique to infusion centers:
- High Medication Costs: Infusion centers often deal with medications that come with a hefty price tag. Drugs, like Tepezza, can cost upwards of $16k per treatment.
- Lengthy Reimbursement Cycles: Insurance reimbursements can take weeks or even months, straining cash flow.
- Inventory Management: Ordering and storing costly medications require careful planning to avoid both shortages and overstock situations.
- Competitive Pressure: Infusion centers that manage costs effectively and adopt advanced technologies and treatments can offer better services, making them more attractive to patients and referring physicians.
Considerations for Securing the Optimal Financial Solution
Evaluating your financing options is not just about securing funds—it’s about making strategic decisions that can enhance the overall value of your infusion center while mitigating financial risks. With this objective in mind, here are our top three key considerations you should use to evaluate your financing options:
- Cost of Financing: It’s essential to understand the total cost associated with each financing option. This includes interest rates, fees, and any other charges that may apply. Comparing these costs will help you determine which option is the most affordable and sustainable for your infusion center.
- Repayment Terms: Different financing options come with varying repayment schedules and terms. Consider how these terms align with your center’s cash flow and revenue cycles. Flexible repayment terms can be advantageous, especially if your revenue is unpredictable or subject to delays.
- Risk and Collateral Requirements: Assess the level of risk and any collateral requirements associated with each financing option. Some options may require you to provide a personal guarantee, pledging your personal assets as collateral, which can be risky if you default on the loan. Understanding these risks will help you make a more informed decision.
Financial Solutions for Infusion Centers
Understanding the various financing options available can help infusion centers choose the best solutions for their needs.
Bank Line of Credit and Term Loans
A bank line of credit allows your infusion center to borrow up to a certain limit and pay interest only on the amount borrowed. This flexible option can help manage short-term working capital needs like purchasing medications or covering operational expenses.
Pros
- Flexibility in borrowing and repayment.
- Interest is only paid on the amount drawn, not on the entire credit limit, which can result in cost savings compared to other loans.
Cons
- Many lines of credit have variable interest rates, which can increase over time, leading to higher borrowing costs.
- Credit lines are subject to various fees, such as origination fees, application processing fees, transaction fees, or inactivity fees, which can increase the overall cost of borrowing. In some cases, these fees may be non-refundable, even if the credit line application is not approved.
- Many require all collateral to be pledged, putting business assets at risk in case of default.
- Extensive financial reporting requirements.
Merchant Cash Advance
A Merchant Cash Advance (MCA) is a type of financing in which an infusion center receives a lump sum payment upfront in exchange for agreeing to remit a portion of its future revenue to the MCA provider. This portion is usually a fixed percentage of daily revenue, and the remittance continues until a specified total amount is paid back, which includes the initial lump sum plus a hefty fee.
Pros
- Almost immediate access to cash.
- Variable repayment schedules since payments are tied to future credit card payments and bank deposits.
Cons
- MCAs can be very expensive, with APRs often exceeding 100%.
- Frequent repayment schedule (weekly or daily).
- The high cost and frequent repayments can lead to a cycle of debt where practices take additional advances to cover the repayments of previous ones.
Traditional Invoice Factoring
Factoring is a specialized form of invoice financing in which factoring companies advance funds based on expected receivables from submitted claims.
Pros
- Immediate cash flow to fill short-term gaps.
- The amount of funding grows with the receivables of the business, providing a scalable solution.
Cons
- Infusion center assumes credit risk against reimbursements if claims are not paid.
- Many traditional (recourse) factoring solutions do not support healthcare due to the complexities of the reimbursement process.
- Long-term contracts with termination fees.
- Dependent on the accuracy of claim processing.
Healthcare Claims Factoring
Healthcare-factoring companies specializing in medical claims understand the unique financial challenges providers face. With that expertise, some specialized companies offer innovative solutions, such as non-recourse options, to eliminate the risk of unpaid claims. By assuming responsibility for payer reimbursement, these companies provide healthcare providers with flexible, risk-mitigated financing options that optimize cash flow.
Pros
- Financing solutions are tailored for the unique cash flow challenges due to delayed insurance reimbursements.
- Provides immediate cash for claims, improving working capital and cash flow management.
- Since factoring is not a loan, it doesn’t create debt on the company’s balance sheet, preserving credit capacity for other needs.
Cons
- Not all claims may qualify for non-recourse options, especially those with errors resulting in a denial.
- The advance rate (the percentage of the claim value paid upfront) may be lower compared to traditional recourse factoring to offset the increased risk.
Conclusion
From managing high medication costs and coping with lengthy reimbursement cycles to dealing with competitive pressures and inventory management, navigating the financial landscape of an infusion center requires a nuanced understanding of both the challenges and the solutions available.
Ultimately, the choice of financing should consider not only immediate cash flow needs but also long-term strategic growth and sustainability. Your financing options should be evaluated based on how they impact your overall financial health and support your center’s mission to provide outstanding care.
By proactively making informed and strategic financing decisions, your infusion center can enhance its performance, offer better services to patients, and remain competitive in a demanding healthcare environment.
About the Author
Patrick LaVoie is the CEO and Founder of Thrivory, Inc., a leading financial platform purpose-built for healthcare providers to strengthen long-term profitable growth through risk-free financing solutions. Whether you’re navigating reimbursement uncertainties, investing in medical equipment, or expanding your facility. Thrivory offers flexible financing options (Healthcare Claims Factoring) tailored for the healthcare industry, adapting to your business’s changing cash flow needs without impacting your balance sheet or requiring personal guarantees. To learn more about Thrivory, visit www.thrivory.com.
About the National Infusion Center Association
NICA is dedicated to ensuring that the nation’s infusion centers remain a safe, more efficient, and more cost-effective alternative to hospital settings for consistent, high-quality care.
Infusion providers have a vested interest in the sustainability of the infusion delivery channel and its ability to serve vulnerable patient populations. NICA Provider Members have a voice and a seat at the table to inform NICA’s activities and the opportunity to remain highly engaged in the expansion and optimization of the infusion industry. Learn more about becoming a NICA member here: https://infusioncenter.org/member-partner-page
Is your organization interested in becoming a featured subject matter expert on The Infusion Blog? Email [email protected] to inquire about opportunities for participation.
