Taking the Wheel with Value Drivers
Value is extremely important in the healthcare industry, especially when an owner of an urgent care chain or Ambulatory Surgery Center (ASC) is looking to sell to the market’s buyers. Although value is important, what drives said value is really the cog holding the whole machine together. The Ambulatory M&A Advisors takes a look at what some of the top value drivers are in the current market, how businesses can improve their drivers, and how often a check-up should be performed to ensure that the machine is running smoothly.
Curtis Bernstein, principal with Pinnacle Healthcare Consulting says that when regarding top value drivers in the healthcare industry, he believes that even based solely on urgent care and the ambulatory surgery center industries, the value drivers vary.
“Basically, the ability to grow and earn profit and cash flow is always a driver. The ways you get there will vary based on the different markets that you are in. Within urgent care, for example, the location of the urgent care center, the IT infrastructure, ability to manage patients, are all factors that drive value in that space,” Bernstein says.
In the ASC space, Bernstein says that physician affiliation is a key value driver and is becoming more of a hospital affiliation driver as well. This is as physician specialties get integrated in health systems. Bernstein adds that in both the ASC and urgent care spaces, payor contracts and payor strategies are the big value drivers in any healthcare business.
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.
Adam Neiberg, Senior Associate with Healthcare Appraisers Inc. says the top value drivers depend on what kind of healthcare entity a valuator is looking at.
“Two of the most important value drivers are reimbursement rates and the ability to reduce expenses. One way to lower expenses in an urgent care setting would be toutilizemid-level providers as mid-level providers typically do not command the same levels of compensation as physicians however can perform many of the same services,” Neiberg says.
Additionally, Neiberg says increases in volumes, whether it is cases, patients, or procedures, are important drivers in a healthcare entity.
As far as certain drivers being more important than others, Neiberg says value drivers can be very specific to each entity, and the importance of one value driver over another can vary between entities.
Increasing the Value of Drivers
Bernsteinsays that reviewing a healthcare business’ charges and their managed care contracts on regular basis is important.
“They need to make sure they are maximizing their revenues to market their services to their referral sources to look for opportunities to get other folks involved in their entity. I think other people are going to want to be involved in their entity if it is run efficiently,” Bernstein says.
“Obviously, improvements in operations and making sure that the business is meeting the needs of its customers and providers are important to increasing and promoting value as well.”
Neiberg says that while looking at urgent cares and ASCs, he believes that attempting to negotiate better commercial reimbursement rates can be a good way to increase value that does not require operational changes. This is one aspect of the business that owners can attempt to change over time.
“Additionally, increases in volume at ASCs and urgent cares are important. Typically, higher volumes will create higher revenues which can increase profitability,” Neiberg says.
“Also, a business’s ability to identify and eliminate unnecessary expenses is another important driver of value.”
Checking Up on Value Drivers
Neiberg says that when checking up on value driversthere are no specific setof rules.
“I think it is something that owners should frequently monitor. Whether it is every month, every quarter, every six months; itreally can be dependent upon the maturity of the business operations as well as any recent changes in the operations. A more mature business may require quarterly reviews of value drivers while newer operations may require monthly reviews of value drivers,” Neiberg says.
Bernstein says he thinks every year management should put together some kind of a business plan for the following year, which could include quarterly, and sometimes, even monthly meetings. Partners or boards should regularly review how things are operating to use those results to help in any kind of business or strategic plan, Bernstein says.
From a management perspective, Bernsteins says any time an issue or opportunity arises a review of the business’ value drivers should be considered. Bernstein says an owne never want to be reactive, but obviously, if an issue arises they want be reactive as quickly as possible to make sure that it doesn’t affect the overall operations of the business that might hurt the ability to improve on those value drivers in the future.
Neiberg adds that a monthly or quarterly review of operational reports and financial statements can be helpful and allow an owner to be more aware of any potential changes in the operations that could impact value.
Cindy Collier, CEO of Healthcare Valuation Solutions says that healthcare businesses should be monitoring their value drivers monthly, at the least.
“They are productivity and quality indicators in the facility. So it is something that should be reviewed on a regular basis, but at least monthly,” she says.
When reviewing these different drivers Collier says business owners should be speaking to a combination of people.
“Many of the ASCs around the country have peer groups with which they can benchmark. There is a central body that collects and looks at the data, so it would be an independent body that would organize the data for the group. The independent body would then share the overall findings with the group. That is one way that I have seen this taking place around the country,” Collier says.
“Also, there are different professional societies; particularly with ophthalmology, gastroenterology, pain management etc. There are a number of different benchmarks (financial, productivity, quality) that have been developed and are regularly used to compare your practice to other practices around the country. At the same time, an advisory board taking a look at these things, and having a board that represents the various specialties and includes some health law, accounting, and finance expertise is important as well as the regulatory requirements and making sure that the facility is in regulatory compliance.”
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.