Merchant cash advance (MCA) solutions have been making finance payments easy for retailers and restaurants since 2005. So how does someone who was in the pioneering days of MCAs shift into the in healthcare system?
Scott Griest decided to find out.
Scott is the founder and chief operating officer of PrimaHealth Credit, which is a fintech startup concentrating on patient health care finance.
He joined me on the Payments Innovation podcast to talk about his pioneering days of MCAs current venture in healthcare.
How an MCA works
MCAs make loans and payments simple — if a little risky.
Let’s use pizza as an example.
Say a pizza parlor borrows $20,000 to run a marketing campaign. Instead of putting up collateral and then repaying that loan with monthly payments on a specified time frame, the pizza parlor shares a slice of every sale. On a $40 charge, the credit card swipe might send $36 to the pizza parlor’s account and $4 to the MCA.
When the loan gets paid in full plus the margin for the MCA, the MCA turns off its tap, and 100 percent of the profits go back to the pizza shop. There’s no time limit. It might take six months, eight months, or a year. The pizza parlour pays no penalties for taking longer than expected.
How does this approach meet U.S. regulatory standards?
It doesn’t have to because it’s a sales transaction, not a loan. Technically, it’s a business-to-business factoring contract.
In fact, MCAs may be the oldest form of business-to-business lending, but for a long time, only big business manufacturers could use them. The explosion of online payment options in the early 2000s, however, helped change that. And once the genie was out of the box, not even the 2008 recession could entirely cram him back in again.
Could a merchant cash advance work in healthcare billing?
Healthcare is a well-established market. If you can figure it out, you can scale your business quickly.
Just like mortgages, healthcare loans have a secondary market. Once the patients and procedures have been identified as prime or sub-prime, the lenders will sell the loan, re-package them, and sell the package to the secondary market. This marketing process made homes affordable for millions over the last few decades and this revolution in healthcare financing might prove to do the same for certain medical procedures.
Who signs up
Scott signs up the medical providers themselves
Example: A dentist signed up for PrimaHealth Credit. Now, there’s a patient sitting in their chair who needs a $2,000 root canal, and dental insurance doesn’t cover that. In this scenario, the patient would pay $250 up front and the remainder through check, cash, or a monthly payment plan handled through PrimaHealth Credit.
Where the money comes from
“We raised money,” Scott told me, “and we’ve funded roughly $1.5 million so far.”
PrimaHealth uses its own balance sheet and funds the prime loans. Doctors can fund the subprime ones themselves if they want to. Traditionally, though, doctors hate administering payment plans. They often don’t know how to run credit checks, do billing, or set up automated payment plans.
Scott has a solution for that, too.
The benefits to medical providers
PrimaHealth Credit offers the full stack for doctors and dentists. Now their staff only have to be trained on one system.
“We take care of all the billing and collection on their in-house payment plans,” Scott said. “So it’s really a win win for the medical providers.”
How could MCAs work in high-risk healthcare settings?
“A lot of people in addiction treatment want to use our system,” Scott said. “We’re not comfortable yet in addiction treatment, in lending on the prime side yet because we don’t understand the space.”
That hasn’t stopped the addiction treatment centers from saying, “Hey, will you just manage it as a payment plan across everything for us? And we’ll take the risk. We just want you to handle the onboarding of the client, the managing, the billing and things of that nature.”
Getting sober is a big undertaking so treatment centers offer help. However, their costs can be burdensome for some families, so patients desperately need financing options to get the help they need and return to having a happy, sober life.
Scott’s entrepreneurship and investing tips:
“You can have a decent idea and just execute the hell out of it and make it a winner,” he said to entrepreneurs. But to investors, “Always invest in who the player is, not the game.”
Until next time!