Healthcare Debt Pricing Bubble Over but Valuing Remains Tricky

It may be difficult to predict the going price for a portfolio of health care account receivables. But healthcare industry veteran Adam Holzhauer feels comfortable making one prediction about pricing in the near term.

“It will be more affordable,” he told insideARM.

That’s partly because there will be fewer buyers in the market, said Holzhauer, who recently launched Master Ventures, a health care debt purchasing firm ("Holzhauer Forms Medical Debt Buyer," Jan. 30, 2008). Industry experts say some buyers will avoid the market because of the time and expense of handling healthcare debt. And some buyers may be deterred by the expense of financing a purchase.

“People are skittish about the risk with the subprime housing market collapsing,” said Holzhauer, who has more than 40 years experience in healthcare, including work as a hospital controller and administer. “The dollars available to purchase these accounts will be more expensive.”

While Holzhauer expects more hospitals will be open to selling receivables in a declining economy that is bound to increase the ranks of the uninsured, buyers shouldn’t assume that like factors, such as a hospital’s size and location, will be the greatest influence on a portfolio’s price.

For example, hospitals in the same community often serve very different markets, he said. The quality of receivables at a specialty hospital with a large outpatient business may be very different from the quality of receivables at a hospital with a large commitment to charity care.

“Buying debt is not like buying Kleenex,” Holzhauer said. “It’s based on client locale and service. … You have to analyze the service element. You have to build a model for each portfolio to ascertain what’s in there.”

Hospitals recognize this and typically get help valuing their paper, Holzhauer said. Expect them to employ a consultant to give them an idea of the receivables’ value, which may be inflated to cover the consultant’s fee. He urges buyers to be ready to show that they understand the hospital’s business and the importance of its reputation in the communities it serves.

“Hospitals will be sensitive of who they sell their paper to,” Holzhauer said. They’ll want to know, “do you understand the paper and its customers.”