Credentialing Gap After Buying a Practice: Funding the Wait
The credentialing gap after buying a practice is the period when a new owner is seeing patients but cannot yet bill some payers, or is billing but waiting longer than usual to be paid. Payroll, rent and loan payments start on day one of ownership. Collections may not catch up for a while, especially when payer contracts and enrollments have to be updated for the new owner.
Many buyers focus on the purchase price and the acquisition loan and treat the payer changeover as an administrative detail. In practice, it can be one of the largest cash flow risks of the first year. This article explains why the gap happens and how buyers can plan and fund it. Payer enrollment rules vary by payer, state and deal structure, and nothing here is legal, billing or compliance advice. Healthcare counsel and qualified billing or compliance professionals should guide the process.
Why the Credentialing Gap Happens
Payer contracts, Medicare and Medicaid enrollments and individual provider credentialing should not be assumed to transfer automatically to a new owner. What happens depends largely on how the deal is structured and on each payer’s own process.
Factors that can create or lengthen the gap include:
- Deal structure: an asset purchase often means the buyer’s entity needs its own enrollments and contracts, while an equity purchase may preserve some of them
- New tax identification: a new entity may need to be enrolled before claims can be paid under it
- New providers: a buyer physician who is not already credentialed with the practice’s payers must complete that process
- Payer backlogs: processing times vary by payer and can be unpredictable
- Incomplete applications: missing signatures, documents or ownership details can send an application back to the start
Our article on asset vs. stock purchases explains how structure can affect payer contracts and liabilities.
How the Gap Shows Up in Cash Flow
The credentialing gap after buying a practice can affect cash flow in several ways:
- Claims are held until enrollment is complete, then submitted in a batch
- Claims are submitted but denied or delayed while records are updated
- Some patients are temporarily asked to reschedule or see a different provider
- The seller’s receivables are collected by the seller, while the buyer’s receivables have not yet built up
That last point surprises many buyers. In an asset purchase, accounts receivable generated before closing usually belong to the seller unless the agreement says otherwise. The buyer starts with zero receivables and must wait for its own claims to be paid.
Plan Before You Close
The best way to shorten the gap is to start early. Buyers can:
- Identify every payer the practice bills and list what each will require from the new owner
- Begin applications as early as each payer allows, which in some cases may be before closing
- Gather licenses, malpractice certificates, entity documents and bank information in advance
- Ask the seller to cooperate with payer notifications and transition steps in the purchase agreement
- Consider whether the buyer can work under the seller’s arrangements during a transition, as reviewed by counsel
- Track each application and follow up regularly
Our guide on how to prepare for an internal medicine practice acquisition covers other pre-closing steps.
How to Fund the Credentialing Gap After Buying a Practice
Even with good planning, some gap is likely. The question is how the practice will cover expenses until collections normalize.
Working Capital in the Acquisition Loan
Many buyers include working capital in the acquisition financing. SBA 7(a) loans, for example, may include working capital alongside the purchase price, subject to program rules and lender review. Eligibility and terms depend on the business, the buyer, use of proceeds and lender approval, and nothing here is a commitment to lend.
A Separate Working Capital Loan or Line
Some buyers arrange a separate working capital term loan or a line of credit. A line can be drawn when needed and repaid as claims are paid. Our article on when an internal medicine practice line of credit makes sense explains how lines are typically structured. New owners may find it harder to obtain a line immediately after closing, so it helps to raise the question with lenders during the acquisition process.
Personal Reserves
Lenders generally like to see that buyers have personal liquidity after closing. Those reserves can provide a backstop if the gap runs longer than planned, although most buyers prefer not to rely on them alone.
Sizing the Reserve
There is no universal amount. A reasonable estimate considers the practice’s monthly operating expenses, debt payments, the share of revenue from payers that will need new enrollments and how long those payers have historically taken to process changes. A conservative estimate, reviewed with your accountant and billing advisors, is safer than an optimistic one.
Some buyers also add a cushion for other first-year surprises, such as staff turnover or equipment repairs. Revisiting the estimate as each payer application is approved can help the practice decide when to pay down a line or redirect funds.
Final Thoughts
The credentialing gap after buying a practice is one of the most predictable surprises in a medical practice acquisition. Starting payer applications early, understanding how the deal structure affects enrollment and building working capital into the financing can help a new owner get through the first months without straining the practice or personal finances.
US Medical Funding helps physicians plan acquisition financing that includes working capital for the transition. Learn more about our internal medicine practice working capital financing and our working capital solutions.
