The Most Overlooked Borrowing Base Reserve Risks in Healthcare Lending

Borrowing base loans are common in healthcare, but the real constraint on liquidity is often reserves, not the advance rate. Reserves are risk-based deductions that quietly reduce how much a company can borrow, and in healthcare they tend to be larger and more frequent because reimbursement and reporting are complex.

One major driver is how healthcare receivables behave. Insurance claims are often reduced by denials, discounts, and patient responsibility. If these reductions aren’t clearly reflected in reports, lenders may view the receivables as riskier than they are and apply extra reserves—even when collections are solid.

Reporting timing also causes issues. Borrowing bases are calculated as of a specific date, but billing systems update continuously. If reports don’t match cutoff dates or reconcile cleanly to the general ledger, lenders may question data reliability and add reserves until reporting improves.

Payor concentration is another common trigger. Heavy reliance on a single insurer or government program can exceed concentration limits in a borrowing base formula and lead to reserves or ineligibles, even if that payor is financially stable. Because healthcare borrowing bases are typically driven almost entirely by accounts receivable, these concentration issues can have an outsized impact on availability and create unexpected borrowing base pressure.

Loan eligibility rules add further risk. Some receivables that look fine internally, such as disputed or recoupment-prone balances, may be ineligible under the credit agreement. When these are included in reporting, lenders typically correct through reserves, reducing availability.

Reserves can also be driven by performance trends, not just collateral quality. Rising days sales outstanding, slower collections, or covenant pressure may automatically tighten borrowing capacity, even if the business remains fundamentally sound.

Healthcare companies that avoid surprises tend to have strong reporting processes, clear documentation, and open communication with lenders. Staying ahead of dilution, concentration, and eligibility issues helps protect liquidity and prevents technical missteps from becoming real cash flow problems.

The Hidden Risks Lurking In Your Borrowing Base

A borrowing base can look strong on paper but still overstate how much cash a business can really access. The same trouble spots show up again and again: Medicaid pending, recoupments, refunds, and credit balances. If these aren’t well understood and properly reserved, the borrowing base may include dollars that will never turn into usable cash.

The main issue is simple: not all accounts receivable are equally collectible. In reimbursement-heavy industries, some balances are uncertain, and others may need to be paid back later. If those risks aren’t reflected in the borrowing base, the result is a number based more on optimism than reality.

Take Medicaid Pending. These claims can sit in Accounts Receivable (A/R) for a long time while eligibility is sorted out. Some will get paid, some will pay late, and some won’t pay at all. Without using historical data to estimate what will actually convert to cash, these balances can make receivables—and borrowing capacity—look higher than they should.

Recoupments are less obvious but just as important. When payers take back prior overpayments by reducing future payments, the original receivable may still sit on the books. But the cash tied to it is already spoken for. If recoupments aren’t tracked and reserved, the borrowing base can appear stronger than future cash flow will support.

Refunds and credit balances create a similar problem. Credit balances often come from overpayments or billing issues that will need to be corrected. Leaving them in A/R makes assets look larger while hiding the fact that money may have to go back out. In reality, these amounts act more like liabilities than receivables.

The borrowing base is supposed to be a conservative measure of available cash. When these categories are ignored, availability can drop quickly during an audit, field exam, or cash crunch. A more disciplined approach—reviewing Medicaid Pending, tracking recoupments, resolving credit balances, and reserving for refunds—may lower the number on paper, but it gives a far more accurate picture of liquidity.

It’s better for the borrowing base to reflect reality, not best-case assumptions. Clear visibility into these adjustments helps avoid surprises and ultimately supports smarter financial decisions.