Money lending needs a lot precise calculation of the returns and proper evaluation of the risks as the same time. This can be done only by considering all the unique aspects especially when it comes to lending money in the healthcare industry.
The most significant one amongst all is the relation of this specific industry with the Medicare program. All potential money lenders must be well aware of it right from its rules to the repayments. Some of the important things about Medicare program to know are as follows:
- This is a specific federal program that is administered by the Centers for Medicare and Medicaid Services or CMS. This is a part of the US Department of Health and Human Services.
- It works with the private companies that primarily review the claims made and make the payments after a thorough audit of the accounts. However, these companies are not the actual party in interest. It is the US government always.
- A party is eligible for payment as per the Medicare program only after entering into an agreement with them. This agreement is commonly called the ‘provider agreement’ or the ‘supplier agreement’ with CMS.
As per he Medicare rules payments can only be made through different approaches for lenders that use ‘control agreements’ which is seen in most of the non-healthcare accounts receivables transactions.
The lockbox systems and depository agreement
All health care lenders usually have a ‘three-tiered-lockbox’ system. The different layers in it have different purposes such as:
- The first lockbox which is in the name of the provider is used to receive the Medicare payments.
- The second lockbox is in the name of the lender and control of them and it usually customary for any non-government receipts.
- The third lockbox is also in the name of the lenders and their control. In this lockbox the first two lockboxes are flounced on a daily basis sometimes. This lockbox is frequently denoted as the central concentration account.
In addition to these lockboxes, there is a specific type of depositary agreement. This agreement is more often referred to as the ‘tri-party’ agreement in specific situations such as:
- When the depositary institution and the lender are not the same entities in the agreement
- When the lender and the provider instruct the depositary bank not to transmit payments without the lender giving consent to it and
- When the complexities of the arrangements emphasize the need to work with an expert financial partner.
In addition to the above, a look at the Federal Anti-Assignment Act is also required. According to this act it is prohibited to take security interest for the receivables owed by Medicare to any provider of services and products. This act limits the capacity of a fortified lender to benefit itself of the normal remedies against any defaulted money lender.
Responsibilities of a secured lender
Any potential money lender, banks or sources such as https://libertylending.com must be well aware of the responsibilities to be a secured lender.
- For example, a secured creditor can typically induce a third party owing its account debtor money to pay directly to the secured creditor instead.
- The Anti-Assignment Act impedes that remedy because the courts believe that it actually does not restrict any party to the agreement from providing a security interest for the Medicare receivables.
- According to the act, the secured lender can also attach the Medicare receivables if it cannot force Medicare to pay directly. Later on the creditor can foreclose on it ultimately once the borrower has the funds deposited into the bank account.
Moreover, a secured lender must also be aware of the fact that Medicare has the right to proclaim and adjust any ongoing payments to the borrower provided that it has overpaid previously to the supplier or the provider. It can also assert such a right to adjust the payment if the third party is assumed to have committed a fraud or any other act that can result in a liability.
Setoff and recoupment
The right to proclaim by the creditor is a specific right given to Medicare and it known as the Right of Recoupment or Setoff.
- Setoff is an equitable right that enables the creditor to withhold or reduce a claim amount that it has from a debt that it is indebted to the debtor that may have resulted due to two isolated transactions.
- However, recoupment is much different as in it the shared obligations arise out of the same occurrence or transaction.
Both setoff and recoupment however requires that these mutual obligations are essentially between the same parties.
However, the courts have something else to say. According to the courts, the government is one party for mutuality. Therefore, it can recoup or set off claims that are held by different companies. This means that Medicare on behalf of the US government can set off or recoup money that is owed to the healthcare business or that due commitment to any other federal agency such as the IRS.
Ideally, both setoff and recoupment are considered to be counterclaims or affirmative defenses by the courts though such distinctions made are not very significant. Nonetheless, recoupment is starkly different from setoff as it is an obligatory counterclaim to the original claim. That means a recoupment is ideally less subject to occurrence by any unsatisfied creditor.
That means, recoupment is a much effective and stronger in comparison to the setoff right in many ways, However, apart from the common laws that governs the recoupment and setoff rights, there are lots of statutes that govern the setoff and recoupment rights of Medicare.
Addressing the issues
The issues that may arise due to the recoupment and setoff right of Medicare can be addressed by the money lenders using the Uniform Commercial Code. This code does no however change the recoupment and setoff rights of CMS but it makes sure that the money lender or the secured creditor is subject to all the terms and condition of the contract when it comes to priority for Medicare repayment.
To read more on topics like this, check out the health category.