Commercial Factor Q&A: Ben Rutkevitz of Alleon Healthcare Capital Provides Update on Healthcare Sector

In a Q&A with Commercial Factor, Ben Rutkevitz, vice president of business development at Alleon Healthcare Capital, outlines some of the new challenges in the healthcare sector while outlining opportunities for factors who are active in the space.

The healthcare sector has faced extreme difficulty in the last couple years, but as it returns toward some semblance of normalcy while continuing to overcome new challenges, factoring remains an attractive form of cash flow assistance. In a Q&A with Commercial Factor, Ben Rutkevitz, vice president of business development of Alleon Healthcare Capital, gives the lay of the land both for healthcare organizations and factors work are active in the space.

How has the healthcare sector fared overall in 2022?

Ben Rutkevitz: The healthcare sector is still being impacted by COVID-19 in 2022, but its impact on the sector has been varied.

Have some types of facilities experienced better results than others? Why or why not?

Rutkevitz: Yes. Some sectors of healthcare are doing better than others. The facilities that were deemed essential or were able to successfully transition to telehealth services have fared much better than ones which had to close down their brick-and-mortar operations during the first year or two of the pandemic. Certain sectors such as laboratories have seen a significant increase in income due to testing demand from patients and requirements from work, education and government entities.

What has this performance meant for factors who work with clients in this space?

Rutkevitz: For factors in the space, the stimulus funding from the first year or two of the pandemic has had a double edge sword effect. On one hand, companies that were weak financially pre-COVID were able to shore up their balance sheets. On the other hand, some companies that were in a better financial situation no longer needed factoring once they were flush with cash due to the stimulus programs. Keep in mind that in addition to the Paycheck Protection Program, the Employee Retention Credit and the Economic Injury Disaster Loan program, the healthcare space had another stimulus program called the Medicare Advance Payment, which was meant to assist providers during COVID.

Furthermore, in a typical pre-COVID year, traditional banks and asset-based lenders would routinely encounter clients who would break covenants and need to be offloaded. This was a strong source of new transactions for factors in the space, but that has not been the same since COVID. Whether it’s the added cash on the balance sheet for providers or regulators taking a more lax approach to enforce covenant requirements on traditional banks, the factoring space has seen fewer transactions coming from traditional banks than usual.

What has the demand for factoring from the healthcare sector been like in 2022?

Rutkevitz: As the stimulus programs have dwindled down, providers are returning to factoring companies for cash flow assistance. We are seeing an uptick in requests in 2022.

How do you think getting the next booster of the COVID-19 vaccine more widely available will impact the industry?

Rutkevitz: It’s hard to tell at this point. It depends on the efficacy and will be different for different sectors within healthcare. I can see the pharmaceutical space as well as those who deliver the vaccine benefit from added revenue. If the vaccine efficacy of the next booster is high, then one could see sectors like skilled nursing facilities benefit as patients get comfortable returning to those facilities.

What impact is the monkeypox situation having on the industry from your perspective, even if it is fading to some degree?

Rutkevitz: I have not seen a big impact from the monkeypox situation yet. Some labs I have seen are gearing up to provide testing for the disease, but outside of that, the impact has been minimal.

How have supply chain disruptions affected the industry and what has that meant for factors in this space?

Rutkevitz: The supply chain disruptions were a huge issue, especially at the beginning of the pandemic when it came to the personal protective equipment space. The increased demand and low supply drove prices very high and caused issues for companies attempting to facilitate transactions for buyers domestically. Fraud and a lot of wasted time were big problems during that period. In 2022, the supply chain issues have had less of an impact on the medical space, especially the sections that are primarily service focused.

Similarly, how have rising inflation and interest rate hikes affected the industry and what has that meant for factors in this space?

Rutkevitz: So, this is an interesting dynamic. Factors who have a relatively fixed cost of capital are more competitive with traditional financing sources, as the delta between the two have declined. Factors whose cost of capital is tied to prime or other benchmarks have had to increase rates and that has led to lower closing ratios.

During the early stages of the COVID-19 pandemic, there was a drastic decline in elective surgeries. Have we seen that normalize a bit more in 2022?

Rutkevitz: Yes, from what we are seeing, elective surgeries are more or less back to pre-pandemic levels.

How would you advise factors who either already work with healthcare clients or those that may be looking to when it comes to traversing the current environment? 

Rutkevitz: The challenges that factors face in this space have increased since the pandemic. The typical challenges pre-COVID were fraud, valuation, audit and assignment risks. Today, those risks persist, plus there are new ones to consider, such as labor shortages and regulatory changes. For instance, any healthcare sector that requires the high use of skilled labor, such as nurses, have had to deal with higher labor costs or contend with a reduction of revenue if they are not able to hire and maintain its nursing teams. On the regulatory front, sudden changes from Congress can cause uncertainty, such as this spring, when the government threatened to stop paying for COVID testing for patients without health insurance. 

Which types of healthcare facilities are best suited for factoring services, both right now and in general?

Rutkevitz: The healthcare facilities best suited for factoring right now and in general continue to be the ones with decent margins and significant growth opportunities. Healthcare companies who use factoring to take advantage of growth opportunities can do significantly better than if they try to continue to grow at a slow organic pace. We are seeing the highest demand from home healthcare agencies, pharmacies, behavioral health companies, skilled nursing facilities, small to mid-size hospitals and laboratories.