The HealthcareTTU is not a lender, but rather operates as an independent and transparent clearing and settlement utility between banks, looking to lend or finance, and health systems/hospital in need of access to more and/or improved capital. By operating as a utility the HealthcareTTU drives efficiency by fairly valuing the daily AR asset of a provider and creating an asset with a representative notional value, what we call a right to settlement (R2S™). The R2S™ asset is a finite and accurate representation of future cash value. As such, banks may lend to providers that they otherwise wouldn't consider credit worthy as they are now lending against the credit worthiness of the R2S™ asset vs the credit worthiness of the institution as a whole.
Notional value or notionalization, is a standard financial engineering practice that represents, in this case, the value of the provider’s future expected payments over a period of time. Notional value is commonly expressed in the financial industry in the options, futures and currency markets. For example, a futures contract on orange juice may be bought and sold many times before the oranges are even picked and the juice squeezed.
Not at all. Just as the futures contract being traded isn’t on a group of specific oranges, but the overall quantity and quality of the juice from the coming harvest, the HealthcareTTU operates in a similar fashion. The HealthcareTTU reviews all of the A/R for a provider on an ongoing basis for valuation and production of a notional A/R pool. These pools represent the statistical probability of payment over a period of time, irrespective of when the individual claims will pay. Statistically speaking a provider, or anyone for that matter, is only about 6% accurate in predicting when an individual claim will pay. However, if we look at all of a provider’s A/R we can produce very accurate models of overall payment patterns by leveraging the statistical “law of large numbers.” This is how providers can predict average daily cash flows very accurately.
No, there are significant differences between factoring and the HealthcareTTU process as factoring requires transfer of claim ownership. The HealthcareTTU process enables providers to retain ownership and continue to work each claim through to full adjudication. Also, the cost to use a factoring service is several times higher than the HealthcareTTU process and usually only takes place after claims have aged beyond a certain point. The HealthcareTTU allows providers to exchange R2S™ for cash on day 1 or 2 of their A/R cycle at rates that are well below their best financing costs.
To participate in the HealthcareTTU both providers and banks have to become members of the utility and execute a tri-party master custodial agreement.
There is a low, one-time implementation fee which includes a bench-marking analysis of historical claims and payment data which the HealthcareTTU use to produce financial cost benefit models for consideration by the provider’s treasury and administrative teams. Ongoing the cost of participation is a simple processing fee based on the volume and frequency of R2S™ generation.
Yes. Provider bond covenants are senior to all other debt. By creating a notional representation of the A/R and allowing financial industry participants to purchase the R2S™ assets, the provider is exchanging blocks of undervalued A/R for finitely valued R2S™. In doing so, the provider now has cash on their balance sheet, an asset that is of much higher quality and more easily valued than A/R.
Any provider may participate in the HealthcareTTU. Nonprofits tend to see value in doing so because of expense reduction when measured against the cost of capital of their bonds. For profit health system participation is usually driven by a need to accelerate cash flows or reduce internal operational costs associated with complex securitizations. Regardless, why should any provider have to wait 40 to 60 days to be paid by a third party payer?
The steps required for implementation are as follows:
- Provider executes Business Associate Agreement with the HealthcareTTU
- Provider supplies two years of historical claim and remit information in standard ANSI format and current financial reports
- HealthcareTTU creates a Cost Benefit Analysis based on the provider data and financial reports
- Provider executes Master Custodial Agreement authorizing the HealthcareTTU to create and manage R2S assets and to redirect payments to the rightful owner on its behalf
- HealthcareTTU creates the provider’s profile in its system
- Provider (or its authorized agent) performs testing with the HealthcareTTU
- Upon successful completion of testing process, the provider commences production operation with the HealthcareTTU at a pace they desire.