AdvancedMD's Amanda Hansen outlines what providers should consider as they pursue partnerships with private equity firms.
The turbulent nature of the current financial climate for private practice owners makes the concept of partnering with a private equity (PE) firm appealing.
Practicing independently can be liberating, but it can also come with burden that is currently being exacerbated by challenges like staffing shortage.
It's no surprise then that there's plenty of activity happening in the PE space as practices explore the possibility of selling and joining a larger group.
"Private equity activity, it can be exciting," says Amanda Hansen, president of cloud medical software company AdvancedMD. "There can be a draw, you can feel like there's going to be good financial payout and reducing that administrative person. But I think doing an honest assessment and making sure that if it is something you're considering that, similar to choosing a new vendor, you would do even more diligence on the PE firm that you're looking at."
For those wanting to take the leap into private equity M&A, Hansen detailed to HealthLeaders the five steps practices should take:
Clean up your KPIs
"The most important thing to help a process go smoothly and help PE firm make an educated informed decision is data," Hansen says. "If you don't measure it, you can't impact it. So make sure as a business you're measuring the right things to help a PE firm or anyone else understands how valuable the business actually is."
Those key performance indicators (KPIs) can be broken up into three different areas:
- Clinical outcomes: Measure over time and show improvement in areas like no-show rate, preventative care measures, and patient satisfaction.
- Financial health outcomes: On the billing and coding side, look at areas like revenue growth rate, net revenue per visit, operating margin, and collection rate.
- Productivity data: Show that the physicians and staff are maximizing their time by measuring aspects like patient visits, average patient wait time, and billing and coding accuracy.
Improve your practice's financial health
Once practices measure their KPIs, it will become easier to see where the gaps and opportunities are to improve financially.
One of those areas of opportunity is often revenue cycle management (RCM). "Practices, providers, and physicians are leaving hundreds of thousands of dollars on the table by having poor revenue cycle management processes," Hansen says.
To improve RCM, practices can make sure they've negotiated favorable rates with payers, as well as making sure they're following up, working denials, and cleaning up denials on the front end.
"A really important one is enhancing your patient experience, which will drive better retention and it will drive more visits and more opportunity in the future," Hansen says.
Audit your workflow processes
Practices can drive efficiency by ensuring they don't have time or resources going unused.
"That can be looking at your operational effectiveness from the registration, from a check-in perspective, documentation," Hansen says. "It's automating administrative tasks that will help improve efficiency for your staff."
This could involve allowing patients to schedule appointments online themselves and making sure your schedule is updated so patients can be called if there are openings. Or it could mean allowing patients to upload their insurance card as part of the registration process so that they don't have to scan every time they go for an appointment.
Innovation became even more important during the COVID-19 pandemic, when healthcare still had to happen while everyone was sheltering in place.
That gave rise to telehealth, which went from a secondary option to the primary form of delivery of healthcare.
Being able to maximize value by coming up with and implementing similarly innovative solutions will allow practices to generate the most operating income possible.
"As a practice, it's making sure that you're evaluating what you do have and trying to find the best available out there in order to better position. It just makes the whole business look more attractive when you can do things efficiently and you're doing it with the least expense possible."
Implement the right technology
Finally, practices need to put in place technology that makes the most sense, which can be tricky with the wide range of options available.
Finding the right fit for your practice requires vetting, both of your own processes and of the vendor you're considering. After implementing the technology, practices also need to help staff understand why and how to use the system.
"There's some sort of balance that comes from making smart adjustments to your workflow to meet the system, but also making sure the system is customizable enough that it can also meet the needs of your workflow without having to disrupt your entire business," Hansen says. "So it takes a lot of diligence on the front end and the people that we've seen do that have had a lot of success down the road."
Following these five steps will benefit practices in both the short term and the long run, M&A activity or not.
"It's going to better position you to have a more successful business regardless of whether there's some sort of divestiture involved in that," Hansen says.
Jay Asser is the contributing editor for strategy at HealthLeaders.
From auditing workflow process to implementing new technology, AdvancedMD president Amanda Hansen offers insight on the five steps private practices should take before jumping into M&A.
Whether practices ultimately sell or join a larger group, these steps can be beneficial to financial health in both the immediate and the long term.