Healthcare professionals must manage complex processes, make sense of oceans of data, and adhere to rigorous accounting guidelines. LBMC’s experts can help equip your team with optimized processes so you can focus on quality improvement and cost reduction.
Eight hundred thirty-five remittance files provide claim payment information and document the EFT (electronic funds transfer). Unfortunately, payers often post payments in the wrong accounts, creating imbalanced books that take hundreds of hours a week to untangle.
Financial Due Diligence
Financial due diligence is a thorough investigation into the financial health of a company that you are considering for an acquisition or investment. This may include reviewing historical financial statements, cash flow projections and tax records.
The most important part of the due diligence process is reviewing historical and forecast performance. This includes comparing ratios to industry standards and reviewing revenue growth trends. You should also check whether the business is using a cash-basis or accrual method of accounting. The latter can significantly impact profitability levels as there are often significant lags between services performed and when insurance reimbursement is received.
You should also pay attention to ownership structure, particularly the percentage of shares held by founders and executives. Low ownership percentage can be a red flag. that may require further attention. High ownership percentage however, is generally a good sign as it implies that management has a strong vested interest in future stock performance.
Black Box Analysis
When healthcare acquisitions are made right with the aid of healthcare transaction advisory, they can benefit buyers and sellers tremendously. But when they don’t, the results can be disastrous. Across industries, many deals don’t meet expectations, and healthcare M&A is no different.
This is largely because of the unique challenges that healthcare offers. For example, understanding an acquired entity’s true profitability is often difficult, given restrictions on reimbursement rates due to contractual arrangements with insurers.
In addition, healthcare organizations are heavily dependent on back-office systems and custom applications. A well-versed team assessing these complexities can greatly lower transaction risk and improve the likelihood of success post-close. This is why black box testing, like boundary value analysis, is important to identify defects at the boundaries of equivalence classes and allow for a more accurate assessment of an application’s functionality. We also use decision table testing to test an application against multiple input combinations to find a more precise expectation of its behavior.
IT Due Diligence
Healthcare M&A is becoming a popular investment strategy for private equity firms, physician practices and hospital systems. Consolidation remains a key trend in the industry, fueled by an abundance of capital from buyers, changes to reimbursement systems and the cost of expensive new medical technologies.
M&A due diligence is a critical component of the process, but it can be difficult for both parties. The buyer and seller must ensure that they communicate clearly throughout the process, especially if there are significant delays in the completion of a deal.
The time frame for due diligence is typically 30-60 days, though each company and acquisition will differ according to its own unique structure. It is important to know what you’re getting into before you start the process to be prepared for the questions coming your way. It’s also a good idea to create a communication plan before due diligence begins so you are ready to keep everyone up-to-date on the progress of the process.
Valuation
Healthcare transaction advisory teams provide valuable insight throughout the process and inform strategic initiatives. They have deep M&A buy-side experience and deliver a comprehensive deliverable spanning capabilities across the firm, including regulatory and reimbursement, primary market research, strategy, data analytics and compliance.
For example, a valuation is critical to understanding how an acquisition could impact financial statements and cash flows. In addition, the valuation will identify potential tax implications for the seller. It will also highlight any accounting practices that may impact the financials. Having experts who understand the complexities of the reimbursement systems and healthcare environment is critical to ensure both sides can fully appreciate the impact of a transaction. This helps reduce IT integration risks and achieves M&A goals and objectives.
