Increase Value Without Decreasing Your Dollars
In past articles, The Ambulatory M&A Advisor has focused on increasing the value of one’s healthcare business prior to entering the market to sell. Although there are numerous ways to increase value before a sale, some physician owners may be expanding or selling a small one or two center business. The Ambulatory M&A Advisor explores some of the ways that these types of owners can increase value without decreasing the money in their pockets.
Keith Borglum, owner, management consultant, appraiser, broker with Professional Management and Marketing says the first and foremost way to increase value is always to perfect your coding and billing. Many practices under code out of fear; when actually, they could be increasing your reimbursements by hundreds of thousands of dollars a year through accurate and appropriate coding, Borglum says.
“It can vary, especially when you have multiple physician and non-physician providers. The coding skill often will vary person by person, and just one or two low coders can end up resulting in a loss on that person’s employment, rather than any profit to the employer,” he says.
“I always tell providers if they are not good enough to get up on stage to teach coding, they are probably under coding. Most of them are so well trained, especially in urgent care. They walk into a room and they can tell at a glance two or three symptoms. They notice a person’s skin tone, their breathing, their disposition, flushing etc. They notice these different kinds of things without thinking about it, because they have done it so many times. Those are all factors with how you get reimbursed.”
Borglum says increasing value within ASCs is different. He says providers still need to be efficient with their coding and billing processes.
“In both cases, you want to take a look at the reimbursement contracts that you have. Again, this is depending on your volume, your activity in the market. Oftentimes, plans will try to cheat you and pay you less than they are contracted to pay; or they will down code you or inappropriately deny a claim. Those kind of complexities, often are the last thing that your billing service wants to go after. They want to do the easy stuff first, so they are cranking out current claims and may not be checking on reimbursements, denials and down coding,” Borglum says.
John Hakanson, Senior Associate at HealthCare Appraisers Inc., says some of the more obvious ways to increase a business’ value involve some necessary spending. However, he echoes Borglum’s thoughts that being able to negotiate more favorable reimbursement contracts can increase value, without the need to spend.
“While it doesn’t cost an owner any money, the challenge becomes “are you in the position to be successful in this negotiation?” In the same vein as negotiating better reimbursement contracts, is lowering supply costs through effective price shopping or utilizing bulk purchases to take advantage of discounts,” Hakanson says.
Ken Conner, shareholder with the CPA firm Elliott, Davis, Decosimo says what drives value in this market is a steady patient base. At the top of the list would be patient retention, he says.
“So, whatever you do to have that patient continue to come back makes it a whole lot cheaper to hold on to one patient than to find one to replace them. That patient retention is a big plus because you can build on that. If you are having high retention and you have captured the next patient, then you have expanded your value,” Conner says.
“The second thing is the patient throughput. Whether you are getting better throughput through a UCC or ASC, anytime you are getting that you are increasing your capacity to take on that next patient and therefore make the next steps towards increasing your value.”
Look at the things that slow down the process of getting a new patient from start to finish. Conner says tightening this area of a business helps to increase value as well.
“Often times, physician practices and surgery centers are used to operating with a certain level of billing and other back-office employees. A lot of times, especially after implementing more comprehensive billing software, the level of staff required to run the business is lower than initially anticipated. Lower payroll costs will make your business more valuable,” Hakanson says.
Borglum agrees and says that over staffing can be a way that businesses increase their costs without knowing it; however, Borglum says that looking at the data, those medical businesses that are the most profitable are often paying the highest percentage to employed labor.
“Say at an urgent care; excluding your providers, you are probably looking at 20-24 percent of gross collections to staffing. A practice where the providers are delegating well, and delegating more to medical assistants and nurses, and are spending a little more on billing and follow up; they may be spending 26 percent of collections on staffing, but they may be increasing their profitability by 50 percent as a result of improved staffing,” Borglum says.
“The staffing ratio in and of itself is not as important as the quality of staff employed and what they are doing in their positions.”
Self Due Diligence
Borglum says for those eager to increase value by performing their own due diligence prior to a deal, there are very good checklists available to physician owners. By having a proper offering document and offering package, it gives a more professional image and creates more confidence in the eyes of the candidate. They then project that competence and confidence on to the rest of the transaction.
“It’s like if they(the buyer)come in and they find dirty accounting to start; immediately they are going to start wondering about everything else. Whereas if they come in and you have got a good business book to start with, then they have to find something to dislike rather than looking to find something that they like,” Borglum says.
“I recommend that you have a good, professional appraisal by somebody that specializes in healthcare because things have changed so much. You hear a lot about values, and oftentimes people are taking these reports that apply to the big chains and think that their solo center is going to have the same type of multiples, which it is not. The number one reason for a business not selling is being overpriced.”
Conner explains that performing one’s own due diligence will not improve value for a business unless they have got a real infrastructure.
“Without a deep M&A infrastructure, you are talking about fitting in due diligence around the rest of your existing business. You are pulling away from what you do as a core,” Conner says.
“In my experience, it is an immense help to have the buyer engaged in the due diligence process actively. Specifically, they know what drives their business and know what is important. They tell us what’s important rather than chasing a given number here or there.”
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.