How To Get A Security Interest In Health Insurance Receivables

Transcription

1 HEALTH CARE RECEIVABLE FINANCING AND GOVERNMENT RECEIVABLES The Real Story About Using Receivables as Collateral Epstein Becker & Green, P.C Robert D. Reif, Esq. Epstein Becker & Green, P.C th Street, N.W. Suite 700 Washington, D.C

2 2001 U.C.C AMENDMENTS HEALTH-CARE-INSURANCE RECEIVABLE A NEW TYPE OF ACCOUNT 9-102(46) - "Health-care-insurance receivable" means an interest in or claim under a policy of insurance which is a right to payment of a monetary obligation for health-care goods or services provided.

3 PERFECTION In the typical secured loan transaction where accounts receivable are part of the collateral used to secure a loan, the secured lender files a financing statement to perfect its security interest in the accounts.

4 PERFECTION OF HEALTH CARE INSURANCE RECEIVABLES Security interests in health-care-insurance receivables are perfected through the filing of a financing statement. The secured lender may also seek to perfect its security interest in the deposit account where the cash proceeds from the health-careinsurance receivables are deposited when the receivables are paid. Perfection is accomplished through control of the deposit account where the lender is the depositary bank, the customer of the depositary bank as to the deposit account, or through a control agreement.

5 PERFECTION OF HEALTH CARE INSURANCE RECEIVABLES Note the distinction between a security interest in the deposit account as original collateral and in the deposit account when proceeds are deposited (i.e., a security interest in proceeds).

6 PERFECTION OF HEALTH CARE INSURANCE RECEIVABLES Security interest attaches to the cash proceeds of the health-care-insurance receivables when the debtor receives the payment. Control of the debtor's deposit account is not a prerequisite to have a perfected security interest in the cash proceeds of the healthcare-insurance receivables.

7 PERFECTION OF HEALTH CARE INSURANCE RECEIVABLES However, to remain perfected, cash proceeds must remain identifiable and must not be commingled with other funds. Lender should require a debtor to deposit the proceeds from Medicare health-careinsurance receivables into an account separate from the proceeds of non-medicare health-care-insurance receivables.

8 PERFECTION OF HEALTH CARE INSURANCE RECEIVABLES U.C.C RESTRICTIONS ON ASSIGNMENT OF PROMISSORY NOTES, HEALTH-CARE-INSURANCE RECEIVABLES, AND CERTAIN GENERAL INTANGIBLES INEFFECTIVE. (c) A rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, person obligated on a promissory note, or account debtor to the assignment or transfer of, or creation of a security interest in, a promissory note, health-care-insurance receivable, or general intangible, including a contract, permit, license, or franchise between an account debtor and a debtor, is ineffective to the extent that the rule of law, statute, or regulation: (1) would impair the creation, attachment, or perfection of a security interest; or (2) provides that the creation, attachment, or perfection of the security interest may give rise to a default, breach, right of recoupment, claim, defense, termination, right of termination, or remedy.

9 HEALTH CARE INSURANCE RECEIVABLES THE GOVERNMENTAL CONUNDRUM BUT Comment 9 This section does not override federal law to the contrary. However, it does reflect an important policy judgment that should provide a template for future federal law reforms.

10 HEALTH CARE INSURANCE RECEIVABLES THE GOVERNMENTAL CONUNDRUM Perfection of security interests in Medicare health-care insurance receivables offers limited protection. Federal anti-assignment provisions prevent lenders from perfecting a security interest in the deposit accounts related to Medicare healthcare insurance receivables as original collateral and necessitate the use of a double lockbox arrangement to secure identifiable cash proceeds in debtor deposit accounts

11 HEALTH CARE INSURANCE RECEIVABLES THE GOVERNMENTAL CONUNDRUM As original collateral: A health care provider's deposit account into which Medicare payments are made must be in the name of that provider. Only that provider is allowed to give instructions with respect to the deposit account, unless a court order has been entered directing Medicare payments to be made to a lender.

12 HEALTH CARE INSURANCE RECEIVABLES THE GOVERNMENTAL CONUNDRUM As proceeds Proceeds collected in provider controlled account and swept into lender controlled account Lender perfects a security interest in deposit accounts into which the debtor deposits payments received from Medicare. Once the debtor receives payment from Medicare, those funds will be deposited with the debtor's depositary bank into a deposit account. Control is the only UCC mechanism for perfection of a security interest in deposit accounts as original collateral.

13 HEALTH CARE INSURANCE RECEIVABLES THE GOVERNMENTAL CONUNDRUM As proceeds (con t) Debtor deposits the payments into the deposit account, but the deposit account control agreement must specify that, in the case of Medicare health-care-insurance receivables, the debtor retains the ultimate right to direct the disposition of funds in the deposit account. Therefore, the secured lender does not have control.

14 HEALTH CARE INSURANCE RECEIVABLES THE GOVERNMENTAL CONUNDRUM If the lender has a perfected security interest in the Medicare health-care-insurance receivables themselves, then the secured lender is automatically perfected in the identifiable cash proceeds of the Medicare health-care-insurance receivables. Once Medicare makes a payment to a provider and that payment is deposited into the designated account of the provider/debtor, the secured lender's security interest is perfected in the cash proceeds, even though the secured lender lacks control of the deposit account.

15 HEALTH CARE INSURANCE RECEIVABLES THE GOVERNMENTAL CONUNDRUM The Double Lock Box To move the payments to the lender's account, funds are swept at regular intervals from the debtor's deposit account into an account belonging to the lender. The debtor must remain in control of its deposit account, and may rescind the sweep order at any time. Lenders should insist upon a daily sweep of the deposit account, but there risk of: (i) diversion; and (ii) bankruptcy.

16 HEALTH CARE INSURANCE RECEIVABLES THE GOVERNMENTAL CONUNDRUM Other Thoughts Underwrite, Underwrite, Underwrite. Carefully review the borrowing base Financial Covenants Monitor, Monitor, Monitor.