The Union Hospital District is seeking a line of credit of up to $7 million as its works to establish and operate billing and collection services for its health care providers and deals with the impact of the implementation of a new information system.
Chief Financial Officer Richard Hogan said Friday that the district is working with MidCap Financial, LLC, a health care specialty lender that focuses primarily on providing financing for community hospitals, to secure a line of credit of anywhere from $3.5 million to $7 million. Hogan said the district is seeking the line of credit to ensure that it has the funding it needs to establish an in-house billing and collections program for the district’s 19 health care providers. The line of credit will also be used to help the district cope with the financial impact of the installation of a fully integrated information system at Wallace Thomson Hospital.
Hogan said the district is setting up its own billing and collecting system because of dissatisfaction with the company that is currently providing those services.
“We’ve been through a year of dramatic growth in terms of physician recruitment with the result of increasing patient volume,” Hogan said. “One of the things that we did was contracted out the billing service for our physician offices. The company that we contracted out to has done a very poor job of providing billing and collecting services. As a result, we made the decision to bring that function in-house.”
To do that, however, the district will have to make an upfront capital investment of $250,000 and then annual operating costs of $300,000.
“We have to acquire systems for billing including hardware and software,” Hogan said. “We have to hire staff for that which will amount to approximately 6-8 full-time equivalents. It’s going to take 6-8 full-time equivalents to handle the billing functions for 19 providers. We have to rent office space, buy furnishings, and train new staff in the use of billing systems.”
Hogan said the line of credit will help cover the cost of setting up the new billing system which he said the district could not finance on its own.
“That requires capital and we don’t have deep pockets,” Hogan said. “We don’t have adequate cash reserves to fund the investment in the new billing service.”
Once the new billing office is in place, Hogan said it is expected that it will boost collections and in turn boost the cash flow into the district’s health care providers.
Hospital Information System
The line of credit will also help the district with the operating expenses it incurs as part of the implementation of a fully integrated information system at Wallace Thomson. The district is implementing the new system in advance of an expected federal mandate that will require hospitals to switch to a largely paperless electronic medical record system. Hogan said the implementation of the new system is projected to cost the district $3.5 million. While Union County has issued a $2 million bond to help pay for the implementation of the new system — which Hogan said the district will pay back with federal incentive funds — the district must still deal with the financial impact of the process. He said the line of credit will help deal with those costs.
“Anytime a hospital does that it delays the process for billing and collecting for services provided patients,” Hogan said. “Therefore, the line of credit is needed to help fund operations until the hospital billing and collection returns to pre-conversion levels.”
While the exact of amount of the line of credit has yet to be determined, Hogan said it will be between $3.5 million and $7 million depending on the district’s accounts receivable. He added, however, that just because the district secures the line of credit does not mean it will use all of it.
“It will be there if we need it,” Hogan said. “We will need some but we won’t know how much until after we complete development of the clinic billing service and until we know how much the computer conversion will impact the cash flow.”
Hogan described the line of credit as a “revolver,” which means the district will not be required to repay the principal for 24 months, but will make monthly interest payment during that time. The interest payment will be 6 percent per annum of the amount borrowed. The payments will be made out of operating revenue.