Healthcare Numbers – From $129 Billion to 3

February 28th, 2008

Receivables management is all about numbers, particularly in the healthcare industry. Healthcare providers measure delinquency rates, “days sales outstanding,” allowances for doubtful accounts, bad debt expenses, recovery rates, contingency fees, net back, and a host of other figures. Collection agencies measure placements, contacts, recovery rates, contingency fees, net back, revenues, and of course profitability. Debt buyers quantify and follow the number of portfolios available for purchase, the prices of debt portfolio, liquidation rates, expense items, and returns on purchased portfolios.

Simply put, paying attention to and improving on the numbers leads to better growth and profitability.

Kaulkin Ginsberg’s research publication, Healthcare ARM Report, 2006 (October 2006), describes the numbers that are important to healthcare receivables management – from the perspective of healthcare providers and from the ARM companies that service their accounts. For example:

$129 Billion = Amount Set Aside by Healthcare Providers to Cover Bad Debt

Kaulkin Ginsberg research concludes that healthcare providers set aside $129 billion every year to cover bad debt. This figure was based on company revenues and average bad debt allowances within a representative sample of the population. This does not speak to the amount of money written off of balance sheets as bad debt expenses within the healthcare industry, which is smaller than the amount of money set aside to cover these expenses. Still, $129 billion amounts to roughly 7 percent of industry revenues, suggesting that receivables management is a fundamental challenge for many healthcare providers. This challenge not only weighs on short-term financial performance but provides incentive for these companies to collaborate with effective service partners.

$3 to $4 Billion = Face Value of Purchased Debt Portfolios

In relative terms, the size of the healthcare debt purchase market is quite small today. While an estimated $110 billion in face value of delinquent debt purchases took place in the United States during 2005, an estimated $3 billion to $4 billion in face value of healthcare debt was purchased during that year. Still, this figure is growing quickly. As healthcare providers – particularly larger hospital chains – increase their willingness to sell portfolios and debt buyers, as a whole, grow more interested in the purchase of these portfolios, the healthcare debt buying marketplace will continue to grow. In fact, mainstream debt buyers largely consider medical debt to be a significant growth market in the years to come.

$2.4 Billion = Amount of Revenues for Healthcare ARM Companies

Kaulkin Ginsberg models the healthcare sector of the ARM industry at $2.4 billion, amounting to 16 percent of the ARM industry’s $15 billion in annual revenues. This number is calculated based on assumptions about the average amount of bad debt written off by hospitals, the number of hospitals in the U.S., the percent of healthcare providers’ revenues written off as bad debt, healthcare industry revenues, the percentage of bad debt placed or sold by healthcare providers, average recovery rates, and average fees on healthcare collections.

3 = Number of Basic Threats to Healthcare Receivables Management

While the healthcare ARM market is attractive for many reasons, a number of threats pose some risk, potentially limiting the sector’s growth in years to come. Increasing regulation, including new regulatory initiatives in states across the country, have increased the complexity of operating in this highly legal industry. Improvements in the internal collection systems within healthcare providers have lowered recovery rates for ARM companies as poorer quality paper has been placed or sold. Increased competition has also led to lower fees and a variety of other challenges. These threats require executives to manage their companies strategically in order to improve short-term financial performance and long-term value.

For more information, contact us at hq@kaulkin.com.

 

 

Comments are closed.

LATEST BLOGS

Is Preparation Necessary Without Intent to Sell?

January 23, 2018

Are you prepared to sell your business, even if you have no intention of selling it any time soon? Circumstances can quickly arise that are completely out of your control, and being prepared will undoubtedly help you obtain the highest price and best possible deal terms.....

» see this post    » all posts


The ED Procurement Debacle: Decision Made?

January 18, 2018

The Department of Education has made a decision regarding the procurement process and has awarded two new contracts. What do the experts think? Mike Ginsberg sat down with Randy Kamm to discuss just that in this two part, highly informative podcast! ....

» see this post    » all posts


Can I Determine the Market Value of my Business Before Going to Market?

January 16, 2018

The decision to sell your business should not be taken lightly. Before you respond to the next inquiry from an unknown buyer and potentially turn your business upside down, make sure you have a thorough understanding of your company's value.....

» see this post    » all posts


RECENT ANNOUNCEMENTS

Mike Ginsberg to speak at RMA's 2018 Annual Conference

January 9, 2018

Mike Ginsberg, president and CEO of Kaulkin Ginsberg, will be joining a panel of industry experts at RMA's 2018 Annual conference to discuss M&A and financing in the ARM industry.....

» see more




Kaulkin Ginsberg Company announces the addition of the U.S. federal government market segment on KG Prime.

December 5, 2017

As part of Kaulkin Ginsberg expanding market intelligence series on KG Prime, their market research team recently retrieved and examined data regarding the US federal government market segment.....

» see more




Kaulkin Ginsberg Company Teams up with Topline Valuation Group to Offer a New Valuation Service

November 21, 2017

Kaulkin Ginsberg, in conjunction with its sister company Topline Valuation Group, announces the release of a product that provides ARM company owners with an in-depth assessment of their company's strategic opportunities.....

» see more