Client Case Study

SquareTwo Financial Healthcare Funding

The initial placement went so smoothly that we wanted to do it again.

By Laura Tuma

Angleton Danbury Medical Center Chief Financial Officer Bill Garwood was immediately interested when a friend suggested that the hospital consider selling its exhausted receivables to a debt purchasing agency. After all, the small public hospital had little hope of collecting the accounts and needed capital rather than a write-off.

After investigating several agencies, Angleton Danbury chose SquareTwo Financial Healthcare Funding (then known as Healthcare Funding Solutions). In May 2009, Angleton Danbury sold $19.5 million in bad debt to SquareTwo. The hospital received an immediate lump-sum payment, and Garwood sat back to see what would happen.

“After a few years in this business you learn to prepare for trouble,” he notes. But there was no trouble: no patient complaints about SquareTwo’s collection methods, no complications with the accounts that had been sold, no burden on the hospital’s staff.

“The initial placement went so smoothly that we wanted to do it again,” Garwood says. In February (2010) Angleton Danbury sold an additional $11.5 million in old debt. That placement went so smoothly that the hospital now sells SquareTwo Financial debt returned from its primary collection agency on a monthly basis, ensuring the hospital of a constant income stream and freeing up employees for other tasks.

The value of bad debt sold monthly has varied from $500,000 to $1 million, and Angleton Danbury usually receives less than a penny per dollar owed, depending on the age of the debt and other factors. In one recent month, Angleton Danbury sold exhausted accounts worth $800,000 and received about $7,000.

“That’s a lot of money to a small hospital like ours,” Garwood says. He acknowledges that he originally expected a higher payment for the hospital’s debt but now understands SquareTwo Financial approach to pricing. “I came to realize that every set of accounts is unique and different, and that their pricing guidelines protect everyone. We’ve had minimal buybacks and no complaints.”

SquareTwo Financial Healthcare Funding President Mikel Burroughs explains that the company manually reviews files line by line to detect any accounts that are uncollectable because of death or bankruptcy and then places a value on the remaining accounts. In general, the remaining accounts are at least 12 to 18 months past due and could not be collected by the hospital or a primary collection agency.

“There’s a huge cost on our end to collect that debt,” Burroughs says. “Agencies that overpay for hospital debt are forced to push harder on the consumer, and that’s what often leads to complaints. We have to collect 2.5 times what we pay to make a profit, so it’s important to us to price fairly. We open up our whole analysis with the hospital CFO and director of patient accounts so they understand our pricing strategy and know how we’re going to collect that asset.”

SquareTwo uses an unusual collection method based on licensed attorney firms rather than contingency collection firms, according to Michael Toth, Director of Portfolio Acquisitions for SquareTwo Financial Healthcare Funding. “Most debt purchasers turn accounts back to the contingency collection agencies that already had them, but we don’t consider that an effective way to collect two-year-old debt. We use all licensed attorney firms who approach the business like it’s the first call they’ve received. We find this to be a more effective tactic, as well as one that limits complaints hospitals receive.”

East Texas Medical Center (ETMC) in Tyler became SquareTwo Financial’s first Texas customer when the health system sold $39 million of accounts receivable in 2007. Byron Hale, Senior Vice President and CEO, reports that ETMC received no negative feedback and sold a $15 million book of bad debt in 2009. Hale says that experience was also positive.

“We have been pleased with the efficiency and responsiveness of (SquareTwo) personnel during all aspects of our relationship with them. They display a high level of knowledge and professionalism, both before and after the accounts have been sold,” Hale says.

SquareTwo Financial Healthcare Funding is a Texas Hospital Association (THA) Endorsed Company