# NEMT Factoring in 2027: Why Medicaid Payments Cannot Be Factored and What to Use Instead

Canonical URL: https://nemtguide.com/guides/nemt-factoring/ · Updated 2026-09-29

NEMT factoring means selling your unpaid trip invoices to a company that advances cash for a fee. Federal rule 42 CFR 447.10 bars a state Medicaid program from paying for your rides to or through a factor, even by power of attorney. Broker payments follow your broker contract. Facility and private pay invoices can be factored, and a line of credit covers slow Medicaid pay without breaking the rule.

- State Medicaid payments cannot go to or through a factor, whether you sell the claims, assign them, or give the factor power of attorney.
- A billing service may receive Medicaid payments in your name only if its fee is not a percentage and does not depend on collecting.
- Broker payments follow your contract. MTM Health wants 30 days' written notice before you assign its payments, and WellTrans wants its written consent.
- Facility and private pay invoices can be factored, but a 3 percent fee on an invoice paid in 30 days works out to about 36.5 percent a year.
- A line of credit covers slow claims while Medicaid keeps paying you directly, into an account only you control.

Drivers get paid every week or two, and claims can take weeks to pay. Factoring companies promise to close that gap with cash in days. For Medicaid trips, that promise runs into a federal law Congress first wrote in 1972 to stop exactly this kind of deal. Here is what the rule bars, what it allows, and what to use instead.

## What NEMT factoring is and how a deal works

In factoring, you sell or assign an unpaid invoice to a finance company, the factor. It pays you part of the invoice now, collects from your customer, and keeps a fee. California's commercial financing law defines factoring as an agreement to buy or transfer a legally enforceable claim for payment for services you have provided but not yet been paid for.

Federal Medicaid rules define a factor the same way. Under [42 CFR 447.10](https://www.ecfr.gov/current/title-42/section-447.10), it is a person or organization, such as a collection agency or service bureau, that advances money to a provider for receivables the provider has assigned, sold, or transferred, for an added fee or a deduction of a portion of the receivables.

Every factoring contract answers the same questions. Get each answer in writing before you sign.

| Term | What it means | What to ask |
|---|---|---|
| Advance | The part of each invoice paid to you up front | What share of each invoice, and how fast? |
| Reserve | The part held back until your customer pays | When is it released, and what can be taken out of it? |
| Fee | The factor's charge for each period an invoice stays unpaid | What is the fee at 15, 30, 60, and 90 days? |
| Recourse | Whether you must buy back an invoice that is never paid | When does a buyback start, and at what price? |
| Notice of assignment | A letter telling your customer to pay the factor | Who is notified, and when? |
| Financing statement | A public filing of the factor's claim on your assets | Which assets does it cover? All receivables? Your vans? |
| Account control | Where payments land and who can move the money | Is the account in your company's name, and can only you give it instructions? |
| Term and exit | How long you are locked in and what it costs to leave | Are there minimum volumes or termination fees? |

Once your customer gets a notice of assignment, the rules change for it. Under California Commercial Code section 9406, a customer can pay you until it receives a signed notice that the amount was assigned and that payment goes to the assignee. After that, paying you no longer settles its bill. Tell your facility clients before a factor's letter arrives.

A factor or lender may also file a financing statement against your company. California's Secretary of State says the filing perfects a security interest in the named collateral and sets its priority if you default or go bankrupt. These filings are public, so search your company name in your state's records before you sign to see who already has a claim.

## Why Medicaid payments cannot be factored

The ban comes from the Social Security Act. Section 1902(a)(32), [42 U.S.C. 1396a(a)(32)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section1396a&num=0&edition=prelim), says no payment under a state Medicaid plan may be made to anyone other than the patient or the person or institution that provided the care, whether by assignment, power of attorney, or otherwise, apart from a short list of exceptions.

The federal rule spells it out for factors. [42 CFR 447.10(h)](https://www.ecfr.gov/current/title-42/section-447.10) says payment for any service a provider furnished to a Medicaid member "may not be made to or through a factor, either directly or by power of attorney." Each state plan must include that requirement.

CMS explained the history in its May 16, 2022 rule (87 FR 29675). When Congress wrote the provision in 1972, it was focused on factoring, a practice that often led to inflated or false claims. In 1977 Congress amended it to close a loophole factoring companies were using. CMS's Medicare manual names the loophole: providers gave factors a power of attorney, so the factor collected the payments in the provider's name.

States repeat the rule to their providers:

- **New York.** Its General Policy manual (version 2022-2, December 30, 2022) says factoring is prohibited and that payment will not be made to or through a factor, directly or by a power of attorney the provider gives the factor.
- **Utah.** Its provider manual, updated September 2026, has a section titled "Factoring Prohibited" that restates the federal rule.
- **Virginia.** Its state plan regulation, 12VAC30-10-600, says Medicaid pays providers only in line with 42 CFR 447.10.

In practice, these arrangements run into the rule when a state Medicaid agency pays you:

- Selling or assigning your Medicaid claims to a factor.
- Giving a factor a power of attorney to receive, endorse, or deposit your Medicaid payments.
- Changing the address or bank account on your Medicaid enrollment so payments reach the factor.
- Paying a billing company a percentage of your Medicaid payments while it receives them for you.

## The narrow exceptions, and why they rarely help

The rule lists who else may be paid. None of the exceptions lets a private factor or lender collect your Medicaid payments.

| Exception in 42 CFR 447.10 | What it allows | Does it help a NEMT company? |
|---|---|---|
| Government agency, paragraph (e) | Payment under a reassignment to a government agency | Only when the assignee is a government agency |
| Court order, paragraph (e) | Payment under a reassignment ordered by a court | Only when a court orders it |
| Business agent, paragraph (f) | A billing service or accounting firm that sends statements and receives payments in your name | Yes, for billing help. It is not financing. |
| Individual practitioners, paragraph (g) | Payment to an employer, facility, or organized health care delivery system that bills for a practitioner under contract | The statute writes this for physicians, dentists, and other individual practitioners, not transportation companies |
| Practitioner benefits, paragraph (i) | State payments to third parties for a practitioner's health insurance, skills training, and similar benefits, with consent | Only for classes of individual practitioners for whom Medicaid is the main source of revenue |

The business agent exception has three conditions. The agent's pay must be related to the cost of processing the billing, must not be tied by a percentage or any other basis to the amount billed or collected, and must not depend on collecting the payment. New York and Utah list the same three conditions. So a billing service that receives your Medicaid payments can charge a set fee for each claim or each month, but not a share of what it collects. See [NEMT billing services](https://nemtguide.com/guides/nemt-billing-service/) for the contract terms to check.

### If your company also bills Medicare

Medicare has its own version of the rule. Under 42 CFR 424.73 and 424.80, Medicare does not pay amounts due to a provider or supplier to anyone else under an assignment, power of attorney, or other direct payment arrangement, apart from listed exceptions. A billing agent can receive Medicare payments only if its pay is not tied to the amounts billed or collected, does not depend on collection, and follows payment instructions you can change or revoke at any time.

CMS's Medicare manual (Chapter 1, section 30.2.5) lets a bank lend to a provider and hold its Medicare deposits if the bank waives its right of offset in writing. The account must be in the provider's name only, and only the provider may give it instructions. That section is for Medicare. For Medicaid, ask your state before you sign any loan tied to the account where Medicaid deposits land.

## Who pays you decides which rule applies

If you have more than one kind of payer, sort your receivables by who pays, because each follows a different rule. The Medicaid rule sets conditions for payments under the state Medicaid plan. A broker or health plan pays you under a contract, and that contract sets its own terms. Brokers and plans pay you with Medicaid money, so ask your state Medicaid agency in writing whether it applies the rule to those payments before you factor them.

| Who pays for the trip | The rule that applies | What to do |
|---|---|---|
| State Medicaid agency, fee-for-service | 42 CFR 447.10 bars payment to or through a factor | Do not factor these claims. Use a line of credit. |
| NEMT broker | Your broker agreement | Read the assignment clause and get notice or consent in writing before you factor anything |
| Medicaid health plan | Your plan contract | Read the assignment clause and ask provider relations in writing |
| Hospital, nursing home, or dialysis center | Your facility contract and state commercial law | Check the assignment clause and tell the facility before a notice arrives |
| Private pay rider or family | Your payment terms and state commercial law | Keep rider health information protected if a factor sees your invoices |

Two broker agreements show the range:

- **MTM Health.** Its standard agreement, in the January 1, 2023 version Pennsylvania posts, says that if you assign your right to receive payments to a third party, you must give MTM written notice, with evidence of the assignment, at least 30 calendar days before any payment so assigned (section 12.C).
- **WellTrans, Indiana.** Its agreement, revised October 16, 2025, says you may not assign your rights under it without WellTrans's written consent, which it may withhold, and that any unauthorized assignment is void. Its business associate terms also require a business associate agreement with any factoring company that receives your trip logs, manifests, or billing documents.

Broker invoices can also come back short. Under a recourse deal, the shortfall is yours to cover. MTM's agreement lets it recover overpayments and liquidated damages by offsetting future payments. WellTrans can offset duplicate payments and overpayments, and it may delay payments to you if its client does not pay it. For the privacy side, see [HIPAA for NEMT](https://nemtguide.com/guides/hipaa-for-nemt/) and [business associate agreements](https://nemtguide.com/glossary/business-associate-agreement/).

## What factoring really costs

A factoring fee can look small when it is quoted per invoice instead of per year. To compare it with a loan, turn it into a simple yearly rate: the fee, times 365, divided by the days until your customer pays.

| Fee | Days until the customer pays | Simple yearly rate |
|---|---|---|
| 2 percent | 30 | About 24.3 percent |
| 3 percent | 30 | About 36.5 percent |
| 3 percent | 45 | About 24.3 percent |
| 5 percent | 60 | About 30.4 percent |

These are only examples of the math, before the reserve, any minimum volume charges, termination fees, and buybacks under recourse. Ask for the fee at every period an invoice might stay unpaid, because slow payers make the dollar cost climb.

California and New York make factors show you the yearly cost:

- **California.** Since December 9, 2022, a factor or other commercial finance company offering $500,000 or less must disclose the total amount of funds, the total dollar cost, the term, the payments, the prepayment policy, and the total cost as an annualized rate. It must get your signature on the disclosure before the deal closes. The rules also reach merchant cash advances. Banks are exempt.
- **New York.** Under its Commercial Finance Disclosure Law and 23 NYCRR 600, adopted February 1, 2023, certain providers of commercial financing up to $2,500,000, factoring included, must give standard disclosures with each offer. The regulation tells them how to figure the finance charge and the annual percentage rate.

If your state has no such law, ask for the same numbers anyway. A company that will not put its total cost in writing is telling you something.

## Better ways to cover slow Medicaid payments

Borrowing can keep you inside the rule, because the lender lends you money and Medicaid keeps paying you. SBA guarantees several kinds of working capital lines through banks and other lenders:

| Option | What it is | Key limits |
|---|---|---|
| SBA Express | A loan or revolving line decided by the lender under its own procedures | Up to $500,000, a 50 percent SBA guarantee, revolving lines up to 10 years |
| Working CAPLine | An asset-based revolving line for businesses that cannot meet long-term credit standards | Up to 10 years. The lender may charge extra fees to monitor the collateral. |
| 7(a) Working Capital Pilot | A monitored line of credit inside the 7(a) program | Up to $5,000,000 and 60 months. Needs 12 full months of operations and current financial statements and receivables reports. |

Whatever the lender, keep your Medicaid payments landing in an account in your company's name that only you control. Make sure no loan document assigns your Medicaid claims, gives the lender a power of attorney over them, or changes the payment address on your enrollment. For loan types, down payments, and fees, see [NEMT business loans](https://nemtguide.com/guides/nemt-business-loans/).

The cheapest money is the money you already earned, paid sooner:

- **Know each payer's schedule.** MTM Health's standard agreement pays properly submitted, uncontested invoices within 30 days after online submission. WellTrans pays twice a month, within 30 days after submission. See [how long Medicaid takes to pay](https://nemtguide.com/guides/how-long-medicaid-takes-to-pay/).
- **Bill every week and send clean claims.** A claim that needs a fix starts a new wait. See [corrected NEMT claims](https://nemtguide.com/guides/corrected-nemt-claims/).
- **Work your receivables weekly.** Age every unpaid trip by payer and chase anything near its deadline. See [NEMT accounts receivable](https://nemtguide.com/guides/nemt-accounts-receivable/).
- **Hold a cash reserve.** Plan for the weeks between the ride and the payment. See [NEMT cash flow](https://nemtguide.com/guides/nemt-cash-flow/).

## How to check a factoring or funding offer before you sign

1. **List who pays each invoice.** Sort your receivables into state Medicaid, broker, health plan, facility, and private pay.
2. **Take state Medicaid claims out of the deal.** Strike or carve out any clause that sells or assigns "all receivables" if it would sweep in claims the state pays, and ask your attorney about any pledge of them as collateral.
3. **Read each broker and plan contract.** Find the assignment clause. Give MTM its 30 days' written notice with proof, or get WellTrans's written consent, before any payment is assigned.
4. **Read the funding contract line by line.** Look for a power of attorney, a new payment address or bank account, an account control agreement, a percentage fee for billing, recourse, the reserve, the term, and exit fees.
5. **Get the cost in writing.** Ask for the disclosure California or New York requires, or the same numbers in your state, and figure the yearly rate yourself.
6. **Search the UCC records.** See which liens already exist and which assets the new filing would cover.
7. **Protect rider information.** Sign a business associate agreement before a factor sees trip logs or invoices with rider details.
8. **Have a health care attorney review it.** Ask your state Medicaid agency in writing if any part of the deal touches Medicaid payments.

## Frequently asked questions

### Can I factor my Medicaid NEMT claims?

Not the claims your state Medicaid agency pays. Federal rule 42 CFR 447.10(h) says payment for a service may not be made to or through a factor, either directly or by power of attorney. The rule defines a factor as a person or company, such as a collection agency or service bureau, that advances money on receivables you assign, sell, or transfer, for a fee or a cut of the receivables. New York and Utah repeat the ban in their provider manuals.

### Can I factor payments from a broker like MTM Health or WellTrans?

Read your agreement first. The federal rule sets conditions for payments under the state Medicaid plan, and a broker pays you under its contract. MTM Health's standard agreement, in the January 1, 2023 version Pennsylvania posts, requires written notice with proof of the assignment at least 30 calendar days before any assigned payment. WellTrans's Indiana agreement, revised October 16, 2025, bars assigning your rights without its written consent. Ask your state Medicaid agency in writing whether it applies the federal rule to broker payments too.

### Can my billing company take a percentage of what it collects?

Not if it receives your Medicaid payments. Under 42 CFR 447.10(f), a billing service or accounting firm may receive payments in your name only if its pay is related to the cost of processing the billing, is not tied by a percentage or any other basis to the amount billed or collected, and does not depend on collecting. A set fee for each claim or each month is not tied to the amount billed.

### Is it legal to factor facility and private pay NEMT invoices?

Generally yes, because the Medicaid rule covers Medicaid payments. Check each facility contract for an assignment clause first. In California, a factor offering $500,000 or less must give you a written disclosure with the total cost, the payment terms, and the cost as an annual rate, and get your signature before the deal closes. New York requires standard disclosures on commercial financing offers of up to $2,500,000.

### How much does NEMT factoring cost?

Turn the fee into a yearly rate before you sign. A 3 percent fee on an invoice your customer pays in 30 days works out to about 36.5 percent a year: 3 percent times 365, divided by 30. Ask for the fee for every period an invoice stays unpaid, the reserve the factor holds back, and every other charge. Then compare the total with the interest on a line of credit.

### What happens when a factor sends my customer a notice of assignment?

Your customer must then pay the factor. Under California Commercial Code section 9406, a customer can pay you until it receives a signed notice that the invoice was assigned and that payment goes to the assignee. After that, paying you no longer settles the bill. Tell your facility clients before a notice arrives, and ask an attorney how your state's version of the rule reads.

### What are safer ways to cover slow Medicaid payments?

Borrow instead of selling your claims. A bank line of credit, an SBA Express revolving line of up to $500,000, or an SBA 7(a) Working Capital Pilot line gives you cash while Medicaid keeps paying you. Speed up the payments too: sign up for direct deposit, bill every week, and fix denials fast. MTM Health pays uncontested invoices within 30 days of online submission, and WellTrans pays twice a month.

## Official resources

- [eCFR: 42 CFR 447.10, Prohibition against reassignment of provider claims](https://www.ecfr.gov/current/title-42/section-447.10)
- [eMedNY: General Policy, factoring and business agents](https://www.emedny.org/ProviderManuals/AllProviders/PDFS/Information_for_All_Providers-General_Policy.pdf)
- [SBA: Types of 7(a) loans](https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans)
- [SBA: 7(a) loans and the Working Capital Pilot](https://www.sba.gov/funding-programs/loans/7a-loans)
- [California DFPI: Commercial financing disclosures](https://dfpi.ca.gov/wp-content/uploads/sites/337/2022/06/Commercial-Financing-Disclosure-PR-June-2022.pdf)
- [New York DFS: Commercial finance disclosure regulation](https://www.dfs.ny.gov/system/files/documents/2023/01/rf_finservices_23nycrr600_text.pdf)