Lending Accounts Receivable as Collateral for Healthcare ...

RMA ? Healthcare Lending Forum: Accounts Receivable

as Collateral for Healthcare Financing

Mark I. Rabinowitz, Esquire

Blank Rome LLP One Logan Square, 130th North 18th Street Philadelphia, PA 19103-6998 215-569-5629 mrabinowitz@

Heather Sonnenberg, Esq.

Blank Rome LLP One Logan Square, 130 North 18th Street Philadelphia, PA 19103-6998 215-569-5701 sonnenberg@

Outline

? Brief Recap of Due Diligence Concerns ? Working Capital Financing

? Dominion over cash

? Structuring Acquisition Financing

? Smooth transition of operations ? Continued operations of facility during

liquidation

? Intercreditor Issues ? Insolvency Issues

Healthcare Due Diligence

Healthcare Due Diligence Identify the Provider

? Who is the provider

? Relevant for licensing and reimbursement purposes

? Key to determining who the Borrower will be and who owns the collateral

Healthcare Due Diligence

Assessing Healthcare Compliance

? What Should Your Counsel Evaluate?

? Licenses ? Regulatory notices or actions ? Regulatory surveys or inspection reports ? Past internal audit/billing reviews ? Compliance policies ? Privacy policies ? HIPAA ? Governmental provider or principal commercial payor

agreements ? Stark Laws ? Anti-Kickback Statute ? False Claims Act

Working Capital Financing

Structure of Revolving Credit Facility

a. Borrowing Base Formula

b. Cash Control by Lender

Working Capital Financing

Structure of Revolving Credit Facility Cont'd

?Borrowing is limited to availability under a borrowing base (i.e. a formula based on 85% of eligible accounts receivable, minus any applicable reserves)

Example: Gross Accounts Receivable: $2,000,000 Minus Ineligible Receivables: $1,000,000 Eligible Accounts Receivable: $1,000,000 85% of Eligible Accounts Receivables: $850,000 Minus Reserves: $50,000 Recoupment Borrowing Availability: $800,000

Working Capital Financing

Structure of Revolving Credit Facility Cont'd

What is an Eligible Account?

An Account of Borrower which: -arises in the ordinary course of business -is the liability of identified commercial insurer/Medicare/Medicaid subject to certain concentration limits -the obligor is organized in the United States -the liability does not relate to cosmetic surgery or injuries arising out of a worker's compensation claim or motor vehicle accident -the obligor is not an individual -account is not outstanding more than 120 days past the date of service -is not the liability of an affiliate of the Borrower -the obligor is not in bankruptcy

.

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