In Flux: How Private Equity (PE) is Changing Our Work Activities
Wednesday, August 8, 2018 9:00 AM
BSM Products and Services, Hot Topics, Financial Management
As PE investment in health care evolves, so does the nature of BSM's engagements
While private equity (PE) investment in specialty health care remains strong, a lot of questions still surround this trend. Over the past several years, we have received numerous inquiries from our provider clients (and private equity firms) seeking our knowledge, advice, or assistance. It’s been keeping us busy — to say the least. To share what we’ve been doing in the space, we recently asked a few of our consultants the following question: How is private equity investment in the specialties we serve impacting your work? Here are their insights.
Andrew Maller, Senior Consultant:
The influence of private equity has greatly impacted my consulting work in 2018. The work can really be broken down into three buckets:
1. Sell-side. For practices that are either considering selling or in the process of a sale to private equity, most of my work revolves around helping with valuing their business and presenting the opportunity to potential buyers. In addition, I am regularly involved in helping practices negotiate the best potential offer and determining which buyer will be the best partner.
2. Buy-side. I have also had the opportunity to work with practices that have been acquired and are looking to expand their footprint. Much of this work involves valuing potential target practices similar to what I do on the sell-side. In addition, I assist with performing market research to determine the best potential opportunities.
3. Retaining ownership. The third group represents practices that are not interested in selling to private equity but want to become educated on what is going on in the marketplace and determine a strategy for remaining competitive.
E. Ann Rose and Patricia Kennedy, Senior Consultants:
We have been approached by several private equity firms asking for assistance in conducting due diligence audits on practices being considered for purchase. The nature of these audits requires rapid turnaround for investors to make their final decision. As part of the due diligence process, we conduct chart audits to determine if there is any risk in the billing, coding, and documentation of a practice’s medical records.
The chart audits are somewhat limited in scope but provide PE firms a quick snapshot of the practice’s coding and compliance standing. This requires coordination with several key people such as the practice administrator, IT staff, and senior physicians. In some cases, the staff is unaware of the possible sale of the practice, so confidentiality and discretion are paramount. This can be challenging when staff members see a flurry of activity, including consultants in their midst asking lots of questions.
When representing a PE firm, our goal is to determine the level of risk in purchasing the practice. This is different for the Rose & Associates team, as we are usually on the side of the practice that hired us. The stakes are high for some of these practices, and the results of the audit can lead to spirited conversation.
Regina Boore, Senior Vice President and Executive Consultant:
We have experienced a profound change in our business. Historically, our client profile has been small- to medium-sized surgeon groups developing or operating ambulatory surgery centers (ASCs). In that context, we deal with surgeon providers and the operations team of administrators and nurses. We continue to have a steady stream of that business.
However, in the last two-three years, we have a new client profile — practice and surgery center consolidators backed by private equity. Our new client profile typically has a business or financial background. These clients are not providers or end-users of the facility. They rarely have clinical or surgery center experience. This is a game changer for us, and we find ourselves spending many consulting hours educating this new client on the business, operations, and regulations of surgery centers. Additionally, much of our time is spent evaluating acquisition options to guide their business development strategy. Post-acquisition, we continue to support their efforts with consulting services focused on improving their business and clinical operations, compliance, quality, safety, efficiency, and profitability.
Dixon Davis, Senior Consultant:
To say private equity is impacting everything is an overstatement, but it sure is coming up a lot. The time I spend in this space has increased this past year, including providing coaching to those physicians who are considering PE, analyzing financials in preparation for partnership discussions, and negotiating with PE firms or PE-backed platforms on behalf of our clients.
While I still do quite a bit of strategic planning, in most engagements, the client is interested in learning about PE and whether it is a viable option. I enjoy helping physicians across the country navigate their approach to PE, and there are a couple of things I’ve learned in the process.
1. It's not for everyone. It is a good fit for some and not others. Just because we hear about it so much, doesn’t mean it’s the right decision — financially and professionally — for many groups.
2. PE deals are time-consuming. Getting into a PE deal can take a lot of time, effort, and money. Clients end up engaging consultant(s), attorneys, and physicians to assist with the process.
This is just some of the private equity-related work our consultants have been involved in recently. To learn more about BSM’s private equity consulting services, click here.