The Hidden Challenge: Factoring Medical Insurance Receivables

Howard Abrahams
6 days ago
2 min read

Stethoscope on health insurance forms with a stack of cash. Background includes graphs and a "HEALTH INSURANCE CLAIM."

For healthcare providers, managing cash flow isn’t just another task on the to-do list, it’s often the biggest obstacle to growth. From physical therapy clinics to medical transport companies, many providers face the same frustrating problem: insurance payments that take 30 to 180 days (or longer) to arrive. A major challenge with using these receivables as collateral is that they are hard to value, voluminous and complex. Therefore, the universe of health care lenders is narrow and specialized.

What Is Factoring?

Factoring is a financial tool where a business sells its unpaid invoices to a third party (called a factor) at a discount in exchange for immediate cash. It’s not a loan, it’s the sale of an asset. In industries where payment delays are common, factoring provides much-needed capital to cover payroll, rent, supplies, and operational expenses.

In most sectors, this process is straightforward. Healthcare is the exception.

Why Healthcare Providers Consider Factoring

Providers often deliver services up front and wait months for reimbursement. That cash flow, especially when combined with rising labor, supply, and compliance costs, can push even stable practices into financial strain.

Businesses commonly affected include:

Home health agencies
Physical therapy and rehab clinics
Durable medical equipment (DME) suppliers
Behavioral health centers
Non-emergency medical transportation (NEMT) providers
Long-term care and skilled nursing facilities

These providers typically bill:

Private insurance (Aetna, UnitedHealthcare, Cigna, etc.)
Government payers (Medicare, Medicaid, Tricare)
Managed care organizations (MCOs)
Workers' compensation programs

Why Insurance-Backed Receivables Are Hard to Factor

Factoring companies prefer invoices that are clear, assignable, and easy to collect. Insurance receivables usually fall short on all three counts.

1. Assignment Restrictions

Government payers (especially Medicare and Medicaid) generally prohibit assignment of claims to third parties. That means the factor can’t legally collect the payment.

2. Delays, Denials, and Disputes

Insurance claims are often subject to reviews, audits, partial payments, or outright denials. This uncertainty makes it hard to predict repayment, something factors depend on.

3. Complex Billing and Documentation

Each insurer has its own set of codes, billing rules, and pre-authorization requirements. Missing or incorrect documentation can delay payment for weeks or result in rejection altogether.

4. Coordination of Benefits

Some claims involve multiple payers, which requires extra processing time and introduces more complexity.

5. Compliance Risks

HIPAA, anti-assignment rules, and potential false claims violations make insurance-based factoring a legal and regulatory minefield.

Use Medical A/R-Based Lending

Some lenders specialize in healthcare receivables and offer alternative structures:

Revolving lines of credit secured by historical collections
Loans based on aging reports, reimbursement trends, and payer mix
Bundled revenue cycle management (RCM) + funding services

Instead of focusing on individual invoices, these lenders underwrite based on your business’s overall collections performance.

It's a Complicated Landscape but Not a Dead End

Factoring medical receivables linked to insurance is rarely straightforward, but that doesn’t mean you're stuck. There are creative, compliant ways to unlock capital without waiting 90+ days to get paid.

Whether you need help navigating A/R-based lending or want to explore non-traditional financing options, Morewood Funding can help you assess your situation and map out a path forward.

Need Help Navigating Healthcare Financing? We specialize in structuring funding for providers that banks won’t or can’t serve.