What do you get when you combine the assets of a bankrupt receivables financing company and a financially troubled billing management firm?
The partners of Qualis Care think they've got the makings of a one-stop receivables management company. Joel Ciniero, the company's chief executive officer; Cyrus J. Keefer Jr., senior vice president; and three other principals are trying to build a "seamless operation" serving providers' healthcare billing, collection and financing needs.
Prime customers will be smaller, less financially stable healthcare institutions that need help with cash management but generally are underserved.
The company has cobbled together a national network by acquiring the assets of bankrupt Towers Financial Corp. and investing in financially distressed AdvaCare.
Skeptics aren't convinced that melding two weaklings will produce one robust company. And some observers wonder if the company can succeed at both billing management and receivables financing on a national basis.
There also are questions about the track record of Philadelphia-based Lightship Financial Group, a Qualis Care affiliate headed by Mr. Ciniero.
According to Lance Poulsen, chairman of National Premier Financial Services, a Columbus, Ohio-based healthcare receivables finance company, Lightship was forced out of the medical receivables financing business after its lender pulled its line of credit last year. National Premier, which was contacted by Lightship clients, assumed $25 million of the medical receivables, he said.
Mr. Ciniero said the company made a decision to liquidate some loans and that no client was dropped before other financing was arranged. He said the termination of Lightship's relationship with lender Societe Generale was "a mutual decision" based on the company's plan to merge into Qualis Care.
Coalescing services.According to Messrs. Ciniero and Keefer, no other company provides the breadth of services that Qualis Care aims to deliver. They said the billing and receivables financing industry is fragmented, with many players providing some, but not all, of the same services.
Formed this year under the name Healthcare Partners, the company recently adopted the Qualis Care moniker. Qualis Care is one of many new companies seeking to profit on healthcare providers' cost-containment efforts.
With both the receivables financing and billing management businesses growing, the potential market is in the billions, said Randall Huyser, a healthcare analyst at Furman Selz's San Francisco office.
In March, Qualis Care won bankruptcy court approval to purchase the majority of assets owned by Towers Financial in a joint venture with Towers' creditors. The purchase included $30 million in healthcare receivables, $129 million in various loans Towers had acquired, and $20 million in cash. Qualis Care contributed $5 million in cash plus $450,000 in assets, including its proprietary software system for underwriting, funding, tracking and collecting receivables.
Towers is the New York-based factoring company that filed for Chapter 11 federal bankruptcy protection last year. The filing came after the Securities and Exchange Commission brought suit against the company and its chairman, Steven Hoffenberg, for allegedly selling unregistered securities and overstating the company's assets.
Despite Towers' reputation, Messrs. Ciniero and Keefer think they got a great deal. "You probably couldn't have asked for a better deal," Mr. Ciniero said. "We got (the assets) without any trailing baggage." The assets are free and clear of any claims or liens.
With Towers' deal under its belt, Qualis Care executives needed to expand their billing and claims management base. They approached Dallas-based AdvaCare, an unprofitable physician billing company in the market for capital, after a deal to sell certain AdvaCare assets to Medaphis, an Atlanta-based billing company, fell apart (Nov. 22, 1993, p. 76).
For its second quarter ended March 31, AdvaCare reported a net loss of $268,100, on which investors lost 2 cents per share. That's an improvement from the year-ago net loss of $33.3 million, or a per-share loss of $2.86. Revenues rose 3% to $16.7 million.
Despite its troubles, "AdvaCare has a lot of good things to it," Mr. Ciniero said. With more than 700 physicians using the company's billing services, the investment gives Qualis Care a base from which to expand its accounts receivable billing and management services.
Under a letter of intent signed in April, Qualis Care will provide a $14 million secured loan and purchase $20 million of AdvaCare's newly issued preferred stock-which will give Qualis Care majority control over AdvaCare's board. In addition, AdvaCare will issue warrants to Qualis Care for the purchase of 6.5 million shares of AdvaCare common stock, exercisable at $3.01 per share.
Mr. Keefer said Qualis Care will advance as much as 80% of a provider's eligible accounts receivable with funds raised through the sale of commercial paper. The receivables will be packaged and sold as securities to pay off the commercial paper loans, he said. Depending on the type of facility, receivables and other factors, a healthcare facility will pay at least the prime rate plus 5% to participate in Qualis Care's receivables financing program. The prime rate is now 7.25%.
Pursuing other partners.Currently, Qualis Care is seeking an investment-banking partner to provide credit facilities and other financial services. Although the partners wouldn't disclose details of the negotiations, Mr. Keefer said, "We are being courted on a regular basis by all of (the major investment banking firms)." The partners also refused to disclose details of their current capitalization.
The Qualis Care team is confident about future opportunities. "With the changes going on (in healthcare today), it's really going to enhance our business," Mr. Keefer said.