Chase offers hospital short-term loans.

Chase Manhattan Bank has begun offering innovative short-term funding to cash-strapped hospitals, a service made possible by closely tying its back-office systems to the customer's.

Columbia Presbyterian Medical Center in New York, the nation's largest private hospital, is the pilot customer.

Software from HealthCharge, based in Skokie, Ill., enables Columbia Presbyterian to track receivables and then feed the data to Chase for screening.

Chase believes the service will be profitable by the end of next year. And by working closely with hospitals like Columbia Presbyterian to improve its cash flows, Chase may be in line for more business from the booming health care field.

Cash Crunch

Columbia Presbyterian, like many hospitals, had been facing a cash crunch as more outstanding receivables went unpaid. With its weak balance sheet, it was ineligible for low-cost loans.

Hospital receivables are complex, because parts are paid by different parties - patients, insurance companies, and government programs such as Medicare. Part may never be paid if an insurance company or other party objects to some charges.

By getting short-term loans against unpaid receivables, the hospital can upgrade or reorganize its accounting department to improve efficiency.

Columbia Presbyterian has become being better equipped to monitor cash flows in the year that has been using the service, and has gotten better terms from its medical suppliers.

Cheaper than Factors

With the Chase service, the hospital retains control, monitoring receivables and collecting on them. In traditional factoring, a bank buys receivables in bulk and then collects on them.

Chase's lending rate a third to a half what a factor would charge in buying receivables outright, said John F.X. Lovett, vice president of revenue management at Columbia Presbyterian.

Mr. Lovett said he expects to reach an agreement with Chase by the end of the year to enter the second phase of the pilot, in which Chase would issue commercial paper for the hospital.

Columbia Presbyterian hospital has reduced its outstanding receivables from $235 million in 1991 to an estimated $163 million this year, Mr. Lovett said.

"In the latter 1980s, our accounts receivables mounted and we had no ability to borrow," he said. "We needed this to improve our processing."

Chase expects to sign another hospital to the program by year-end, according to Michael E. Aspinwall, a division executive.

To provide the service, Chase uses sophisticated software to evaluate the hospital's outstanding accounts receivables, predicting their value and the likely timing of payments. The bank then makes short-term loans, at just above the prime interest rate, against those receivables.

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