This article, written by Michael Ramey, Managing Principal of Strategic & Transaction Solutions, Lee Ann Odom, Principal, and George T. “Deuce” Lukemeyer II, Principal, was originally published in The M&A Journal and reprinted with permission.
In an article in The M&A Journal, PYA leaders Michael Ramey, Lee Ann Odom, George Lukemeyer, and Heidi Morgan explain that just as with complex patient cases, in healthcare acquisitions, due diligence of a potential target should be just as thorough, holistic, and multi-disciplinary. They write:
“The ‘patient’ is the target organization. The ‘clinicians’ are advisors spanning financial, operational, compliance, technology, real estate, and valuation disciplines to holistically assess the risks of the organization. Such a collaborative approach produces a more comprehensive diagnosis of enterprise risk and informs the buyer of how to effectively ‘treat’ risk and opportunities post close. On the contrary, a limited or fragmented diligence process jeopardizes missing key assessments of overall ‘health’—financial, operational, and compliance—of a target enterprise.”
The authors explain that consolidation of healthcare organizations involves investors who might not be familiar with complex industry issues, such as reimbursement, regulatory requirements, licensure complexities, and clinical operations. A coordinated diligence model must evaluate more than financial results and should go beyond quality of earnings.
They write:
“The most consequential diligence findings are often not confined to one discipline. Those findings are informed by evaluations across disciplines, which, when intersecting, emphasize potential risk.”
To illustrate, three operational intersections are presented:
- Coding, Compliance, and Potential Financial Impact
- Electronic Health Records (EHR), Revenue Cycle, and Capital Planning
- Provider Arrangements, Fair Market Value, and Referral Risk
Additionally, the authors describe areas of a deal that carry disproportionate risk and should be individually examined:
- Financial Sustainability
- Deferred Investments and Capital Needs
- Revenue Integrity and Reimbursement
- Enterprise Compliance
- Clinical Operations
- Information Technology and Cybersecurity
Using a holistic and multi-disciplinary approach to transaction due diligence informs “purchase price adjustments, escrow or indemnification provisions, closing conditions, post-closing financial projections, and integration plans for the buyer,” the authors conclude.
For more than 25 years, the M&A Journal has been an independent national news source covering the people, law, and business of dealmaking. Subscribers can read the article online.
PYA’s Transactions Support team helps healthcare organizations manage thorough due diligence and develop strategies to minimize the risks of business transactions. With expertise in due diligence, valuation, forensic accounting, performance transformation, and integration management, our team can help your organization.
