As the healthcare industry evolves, many organizations are pursuing strategic opportunities to position themselves for the future. These opportunities often involve a merger or acquisition. A thorough valuation and transaction advisory process is essential for a successful outcome. But this can be challenging, especially in the case of physician medical group transactions where compensation arrangements must balance physician incentivization with compensation stability and care quality.
Identifying Potential Transactions
As healthcare evolves, many companies seek strategic opportunities to grow. These opportunities may involve acquiring or merging with other healthcare organizations. Using healthcare transaction advisory services helps identify potential risks and ensure the deal is a good fit for both parties. Performing thorough financial due diligence is vital for any healthcare business. However, information can be challenging to obtain.
For example, smaller practice groups often use cash-basis accounting, which can mask underlying trends in financial statements. A black-box analysis can help take the guesswork out of assessing these transactions by comparing managed care revenue levels under the cash and accrual basis of accounting.
As the healthcare industry consolidates, your organization needs to plan strategically for long-term success. Whether you’re seeking to acquire, divest, or partner, you need expert advice to ensure that your strategic transactions and partnerships deliver their intended value.
Identifying Potential Buyers
How healthcare is delivered, paid for, and administered continues to evolve rapidly. As a result, many physician groups and hospitals seek economies of scale and consolidation opportunities. For example, a dentist may sell their practice to an entity that can better manage the financial side of operations while still allowing the doctor to focus on patient relationships and procedures.
Whether it’s a private equity firm, hospital system, or other healthcare organization, performing thorough due diligence before completing any transaction is essential. This includes examining insurance contract reimbursement rates, billing practices, and coding standards.
It is important to note that both parties must adhere to HIPAA rules for sharing protected health information (PHI) when obtaining this information. A black-box analysis can take some guesswork from the process by comparing managed care revenue under the seller and buyer payor contractual rates.
Conducting Due Diligence
The healthcare industry is highly regulated, making it incredibly challenging for investors to assess companies’ compliance. Failure to adequately review regulatory compliance could result in financial accountability and legal liabilities, such as the Federal Anti-Kickback Statute, Stark Law, Civil Monetary Penalty Law, Corporate Practice of Medicine Law, and False Claims Act liability. Due diligence in healthcare is even more complicated than in other industries because of a need for more information.
For example, many healthcare organizations have contracts with payors that are proprietary. Additionally, smaller practice groups may use cash-basis accounting for their financial statements, which can mask their true profitability and value. Finally, healthcare transactions are complex and require a deep understanding of the unique technology components. The right healthcare transaction advisory team can help to uncover and address potential IT risks that can significantly impact the success of a deal.
Negotiating the Deal
Healthcare organizations need a trusted advisor to help navigate the complexity of these transactions. Valuation and transaction advisory professionals provide valuable insight throughout the process to inform strategic initiatives and mitigate risk.
The healthcare landscape is changing fast, and the complexities of modern delivery models, revenue cycles, and reimbursement issues create opportunities for consolidation among physician practices, hospital systems, and private equity funds.
Integrating acquired entities requires detailed planning, thorough analysis, and due diligence. For example, contractual agreements that contain competitively sensitive information like physician compensation or rate information require careful review by a buyer.
An experienced healthcare transaction advisory professional can develop a solution to reduce the risk of confidential information leaks during a sale or acquisition. They also assist in negotiating definitive agreements with the buyer that contain representations and warranties related to existing operations.