Healthcare ABL: Lending Against Third-Party Payor Receivables, Double Lockboxes, and the Medicare/Medicaid Anti-Assignment Rules

Healthcare ABL is a separate discipline from mainstream asset-based lending. The borrowers are providers -- hospitals, skilled nursing facilities, ambulatory surgery centers, physician groups, home health, hospice, behavioral health, durable medical equipment. The receivables are billed to a fragmented mix of commercial insurers, Medicare, Medicaid, managed care plans, and patients. The collection cycle stretches 90 to 180 days. And -- the defining feature of the sector -- federal anti-assignment rules forbid the lender from directly controlling Medicare and Medicaid payments.

None of that makes the asset un-financeable. It does mean the structure is different. After four decades of structuring asset-based credit and training lenders at GE Capital, JP Morgan Chase, Lloyds, and Barclays, Donald Clarke's view is unambiguous: healthcare receivables are excellent collateral for a lender who understands the mechanics, and a minefield for a lender who does not. This is the playbook we run on every healthcare ABL transaction through ABLC and DCE.

Why Healthcare Receivables Are a Different Asset Class

Per the Skadden 2024 Health Care Accounts Receivable Financing guide, a healthcare provider's AR comes from three buckets:

• Government collections. Medicare, Medicaid, and other government health programs. The largest single payor for most providers and the most heavily regulated.
• Commercial collections. Private insurers, managed care plans, self-insured employers. Operationally closer to traditional ABL receivables but with their own billing-cycle complexity.
• Self-pay. Patient deductibles, copays, balances after insurance, uninsured. Lowest collection rates and typically excluded from the borrowing base entirely.

The challenge is structural. Per Baker Donelson and McGuireWoods, the Social Security Act and CMS regulations (42 U.S.C. Sections 1395g(c), 1395u(b)(6), 1396a(a)(32); 42 C.F.R. 424.73) prohibit Medicare and Medicaid from paying anyone other than the licensed provider. The lender cannot be assigned the receivable. The lender cannot direct payments from CMS. The lender cannot exercise traditional UCC self-help against the federal government.

What the lender can do is well-established: take a perfected UCC security interest in the receivables themselves (which is expressly permitted by UCC Sections 9-102(a)(46) and 9-408), structure cash management to capture the cash legally after CMS has paid the provider, and design borrowing base mechanics that price the slower, more variable collection cycle.

The Double Lockbox: The Structural Heart of Healthcare ABL

The double lockbox structure is how every credible healthcare ABL gets built. It threads the regulatory needle: CMS pays the provider into an account the provider exclusively controls, and the cash is then swept daily into an account the lender controls.

Lockbox A: the government collections account

• Account is in the name of the provider only.
• Provider has exclusive signing authority and exclusive right to direct the disposition of funds.
• CMS, state Medicaid agencies, and other governmental payors are directed to remit here.
• Crucially, no Deposit Account Control Agreement -- a traditional DACA would violate the anti-assignment rules.
• Instead, the lender, provider, and depository bank execute a Deposit Account Instructions and Service Agreement (DAISA), which contains a standing instruction to sweep the balance daily to Lockbox B. The provider technically retains the right to rescind the sweep, but any rescission outside agreed parameters is an immediate event of default.

Lockbox B: the lender-controlled collateral account

• Account is either in the provider's name subject to a DACA, or in the lender's name for the benefit of the provider.
• Receives the daily sweep from Lockbox A plus direct payments from commercial payors.
• Funds are applied against the revolver per the credit agreement.
• Lender has full UCC Article 9 control and a perfected security interest in the account.

The DAISA-governed standing instruction is the legal mechanic that makes the structure work. CMS deems payment "made to the provider" the instant it hits Lockbox A. The provider then -- as a separate, legally distinct act -- causes the funds to move to Lockbox B. The lender's interest attaches to those funds as proceeds of its perfected security interest in the underlying receivables. Per Skadden, the structure has been blessed by CMS guidance and is the market standard.

For background on conventional DACA mechanics and cash dominion outside the healthcare context, see our piece on full vs springing cash dominion.

Net Collectable Value: How Healthcare Borrowing Bases Are Built

A mainstream ABL advance rate is built off gross eligible AR. A healthcare ABL borrowing base is built off Net Collectable Value (NCV) -- the realistic dollar amount the provider expects to actually collect after contractual allowances, payor adjustments, denials, write-offs, and patient defaults.

NCV is calculated payor-by-payor and class-by-class, typically using a 12-month historical lookback:

• Gross billed charges -- the headline number on the invoice.
• Contractual allowances -- the negotiated discounts between provider and payor. A hospital may bill $100,000 for a procedure but the contracted Medicare rate is $30,000.
• Payor adjustments and denials -- claims denied for coding, documentation, or eligibility reasons.
• Bad debt and write-offs -- including the self-pay portion most lenders exclude entirely.

The output is NCV -- the receivables value that actually backs the borrowing base. Advance rates are then applied to NCV by payor class:

• Commercial and managed care: 75% to 85% of NCV, sometimes higher for investment-grade payors.
• Medicare: 65% to 80% of NCV, depending on provider type and historical collection consistency.
• Medicaid: 55% to 75% of NCV, with state-by-state variation driven by historical payment timing and program stability.
• Patient self-pay: typically ineligible.

The Eligibility Cut-Offs That Distinguish Healthcare ABL

Per SFNet's 2023 healthcare ABL primer, healthcare ABL lenders use materially longer eligibility windows than traditional ABL. A typical commercial ABL excludes AR over 90 days from invoice. A typical healthcare ABL extends eligibility to 150 days, and in some sub-sectors 180 days, reflecting the realistic payment cycle on Medicare and Medicaid claims.

Standard healthcare-specific ineligibility categories

• AR aged beyond the eligibility cut-off (150-180 days from date of service or billing).
• Patient self-pay balances.
• Receivables from payors in payment plans or under dispute.
• Stop-loss / reinsurance recoveries.
• AR from facilities or service lines pending CMS recertification.
• Receivables tied to providers whose Medicare or Medicaid enrollment is suspended.
• AR from a payor concentration exceeding the negotiated cap (often higher than mainstream ABL because Medicare alone can be 40-60% of a hospital's AR).
• Out-of-network receivables where collection timing is unpredictable.

Operational Reserves Specific to Healthcare

On top of the AR-level ineligibilities, healthcare ABL credit agreements typically carry operating reserves that reflect provider-specific risks:

• Cost report reserve. Medicare and many state Medicaid programs reconcile interim payments against annual cost reports. If the provider has been over-paid during the year, CMS recoups the difference. Lenders reserve against estimated cost-report exposure.
• Recoupment reserve. Government auditors -- RAC, ZPIC, UPIC, OIG -- recover overpayments through extrapolation. The mere existence of an open audit triggers a reserve.
• Stop-loss reserve. For long-stay claims (typically skilled nursing) where Medicare carries cost outliers.
• License and survey reserve. Open survey citations or licensure issues can suspend payment streams and trigger reserves until cleared.
• 340B reserve. For applicable providers, reserves against potential adjustments to 340B drug program calculations.

For the underlying framework on how ABL reserves work generally, see our piece on ABL borrowing base reserves.

Change of Ownership: The CMS Tie-In

Per Duane Morris, healthcare ABL becomes particularly tricky on change-of-ownership transactions. When a facility transfers from one operator to another, CMS provider numbers do not move automatically. Receivables generated under the old operator's provider number continue to be paid to the old operator's provider account even after closing. The transaction structure has to address this with an Operations Transfer Agreement (OTA) under which the old operator agrees to forward post-closing payments daily to the new operator, secured by a UCC filing the new operator can in turn assign to its lender. This indirect security interest is the only way to make the new operator's lender whole on legacy claims during the CMS recertification window, which typically runs 90-180 days post-closing.

This is one of the most common places we see deals slow down or fall apart. Structuring the OTA, the indirect security interest, and the new operator's bridge financing during the recertification window is a multi-week exercise that needs to start before LOI.

Field Exam and Diligence Differences

Healthcare ABL field exams look different from mainstream ABL exams. The exam team needs to validate:

• Payor mix by service line, facility, and CPT/DRG code.
• NCV calculation methodology and historical accuracy of NCV estimates vs actual cash collected.
• Denial rates by payor and the provider's appeals process.
• Cost report compliance and prior-year settlement history.
• Compliance program -- HIPAA, fraud and abuse, Stark, anti-kickback. Compliance failures can cripple receivable value through CMS suspension or exclusion.
• Provider enrollment and credentialing for every billing entity.
• Survey history, license status, accreditation.

For preparation framework, see our field exam playbook -- the healthcare exam follows the same disciplines, with additional regulatory layers.

Who Lends Healthcare ABL in 2026

The active lender universe falls into three tiers:

• Specialty healthcare ABL groups within commercial banks. CIT Group / First Citizens, Wells Fargo Healthcare Finance, Bank of America Healthcare Finance, Bank of New York Mellon, Capital One Healthcare. Strongest for sizable hospitals, large physician groups, and integrated delivery systems.
• Specialty healthcare finance platforms. Gemino Healthcare Finance, MidCap Financial, Eclipse Healthcare Capital, MedCap Healthcare, Lincoln Healthcare Leasing. Often the best fit for mid-size providers, skilled nursing, home health, behavioral health, and transitional credits.
• Healthcare-focused private credit. Owl Rock Healthcare, Ares Healthcare, Healthcare Royalty Partners, Oaktree Healthcare. Active in larger transactions, sponsor-backed deals, and special situations.

For sponsor-backed healthcare borrowers, the structuring overlap with sponsor-backed ABL generally applies, with the double-lockbox mechanic layered on top.

What Healthcare CFOs Should Do Before Going to Market

1. Build a clean 12-month NCV calculation by payor and service line. Lenders will redo this work in field exam. Having it ready, supportable, and documented earns advance-rate credibility.
2. Reconcile cost report exposure. Quantify open recoupment risk, RAC audits, ZPIC/UPIC reviews, and 340B adjustments before lenders find them.
3. Map every payor's remittance pattern. Average days to pay, denial rate, appeals success rate. Lenders price the variance, not just the average.
4. Pre-position the double-lockbox banking relationship. Not every depository bank knows healthcare DAISA structures. Identifying a bank with the operational competency early shaves weeks off closing.
5. Validate provider enrollment and credentialing. A lapsed Medicare enrollment can suspend the entire AR pool. Confirm everyone is current before lenders ask.

For the full diligence document framework, see our ABL due diligence checklist -- the healthcare layer is additive to that core list.

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