Commercial Lending

A Specialty Medical Practice

By INSBANK | September 13th

Client Brief

A specialty medical practice was referred to TMA Medical Banking, a division of INSBANK, by their CPA. The practice had an accomplished physician team of varying experience and niche skill sets. The practice was considering expansion based on appointment demands exceeding existing provider and practice capacity and the potential benefits of scale outpacing the rising overhead costs from increasing government regulation and the shifting payment model away from fee for service.

Approach & Analysis

The bank, in tandem with the practice’s CPA, attorney, and practice consultant, discussed and modeled different growth strategies to compare the capital requirements, risk, and resulting cash flow projections of each option. The selected growth plan ultimately included a mix of organic practice investment and growth (investments for new equipment, technology, and service lines), the centralization of certain back-office functions, the elimination of less profitable business lines more subject to insurance reimbursement changes, and strategic acquisitions of competitors and complementary niche practices to achieve a unique market competitive advantage.

The goal was to diversify risk, revenue sources, and Medicare dependency while achieving certain investment-level criteria for gross and net margins plus equity and debt coverage hurdle rates, all while expanding the practice’s ability to improve care for their area’s population including the low and moderate income.

INSBANK provided loan and deposit solutions to facilitate the capital needed for the identified growth plan that included:

  • Consolidation of existing company debt for equipment and practice purchases into a single loan, reducing complexity and strengthening cash flow on a prudent amortization.
  • Refinanced practice-owned commercial real estate and utilized its equity to shore-up collateral shortfalls.
  • Provided draw-down line of credit to facilitate future practice purchases at certain conditions including equity and cash flow metrics in addition to a separate draw-down line of credit for equipment purchases to upgrade technology and customer experience at new and existing locations.
  • Provided a fresh line of credit for short-term working capital, especially as providers at new practice locations required credentialing with insurance and the subsequent build-up of large accounts receivable (especially with Medicare).
  • Transitioned commercial and private client deposits adding significant treasury technology, capabilities, and dashboards for better management of cash flow and savings in addition to repurposing back office employees to their highest and best use.
  • Advised regarding exposure to business interruption, especially via a partner’s disability or death, and facilitated introductions to secure insurance policies to protect against this risk.

Recommendations & Results

Three years later, the Practice has increased revenues 3x, cut expenses as a percentage of revenue by 20% (proving scale), and increased average physician distribution 2.2x, all while better serving the healthcare of the local population as evidenced by numerous public and industry awards.