Healthcare is one of the most heavily regulated industries, and effective advisors to healthcare companies are well-versed in how healthcare regulations impact financial decisions. Changes in healthcare laws and policies can significantly impact valuations, buying and selling of businesses, and strategy.

Below are a few unique factors by service line that apply to healthcare:

Mergers and Acquisitions (M&A) Representation and Advisory

M&A representation services assist buyers and sellers in the marketing, negotiation, financial due diligence, and representation to get a good deal done. The goal of M&A representation services is to help clients navigate the complexities of these transactions, maximize value, and achieve their strategic objectives. In healthcare, this helps organizations with the following:

Identifying strategic partnerships

M&A advisory services can help healthcare organizations identify potential merger or acquisition targets that align with their strategic objectives. This includes finding organizations that complement their services, expand their geographic reach, or enhance their clinical capabilities.

Market entry or expansion

Healthcare providers looking to enter new markets or expand their existing presence can benefit from Advisory services. Advisors can assist in market research, target identification, and due diligence to ensure a successful market entry or expansion.

Portfolio optimization

For healthcare conglomerates with diverse service lines, M&A advisory can help assess the performance of each business unit and recommend divestitures or acquisitions to optimize the portfolio.

Quality of Earnings (QoE)

The quality of earnings (QoE) analysis provides a comprehensive assessment of the sustainability and reasonableness of a target company’s reported earnings, shedding light on its financial health and overall performance. It helps the users of the report gain a deeper understanding of the company’s financial performance and the quality of its reported earnings, which in turn, assists the users in their investment decisions, valuation, and negotiation processes in the context of mergers and acquisitions (M&A) transactions. Unlike in other industries, organizations in healthcare must consider the following:

Regulatory compliance

Healthcare is one of the most heavily regulated industries, with laws such as HIPAA (Health Insurance Portability and Accountability Act) and the Affordable Care Act (ACA). Compliance with these regulations can impact revenue recognition, billing practices, and expenses. Ensuring that financial statements reasonably reflect underlying economics is crucial in healthcare QoE assessments.

Patient census, case mix, and payor mix

The volume and types of patients treated by healthcare providers can influence revenue and earnings. Changes in the patient census (number of patients), payor mix, and case mix (types and severity of medical conditions) can affect the utilization of services and, subsequently, earnings.

Revenue/collections waterfall analysis

An important part when performing quality of earnings for healthcare organizations is the quality of revenue analysis—different types of revenue reimbursements and payor mix result in complex revenue recognition. Revenue waterfall analysis involves carefully aligning billing and cash collection data with the date of service as well as by payors such as insurance companies, Medicare, Medicaid, and self-pay categories.

This analysis is used to assess the quality of the collection rate as well. 

Valuations

A valuation is exactly what it sounds like, i.e., it measures the value of a business. Generally, it is a process often impacted by industry trends, internal factors, and external market conditions. In addition to these, valuation services specific to healthcare require a deep understanding of the industry’s unique dynamics, including regulatory complexities, reimbursement models, payor mix, and market dynamics. Valuators must also consider the impact of emerging trends and technologies on healthcare organizations’ future value. We can see the five main unique factors to consider below:

Physician reimbursement models

Different healthcare providers use various reimbursement models, such as traditional fee-for-service, bundled payments, and capitation. Valuation experts must understand these models and their implications for financial performance.

Fixed assets

A lot of healthcare organizations, especially hospitals and surgery centers, are equipment-heavy. Valuators must be able to reasonably assess capex requirements and perform/recommend performing fixed asset appraisals when necessary.

Physician and provider relationships

Physician practices often play a significant role in healthcare organizations. Understanding the relationships between the organization and its physicians, including compensation arrangements and referral patterns, is crucial for QoE analysis.

Physician compensation

Fair Market Value (FMV) assessment of physician compensation is critical for factors like compliance with regulations such as the anti-kickback and stark laws, being aligned with the market, avoiding legal and financial risks, protecting themselves during audits from regulatory bodies, and more.

Management services organizations (MSO)

MSOs are entities that provide administrative and operational support to healthcare providers, allowing physicians to focus on care and preserve clinical autonomy. Valuators must pay attention to services provided, diversity of customers, market position, regulatory environment, growth potential, and the management fee structure while valuing these entities. 

Our Tailored Approach

Regardless of our clients’ stage, we can help guide them through mitigating risk, uncovering value, and scaling for growth and sustainability. We pride ourselves on serving a broad spectrum of clients, including those in healthcare. Calvetti Ferguson’s advisory team is a fully integrated team consisting of professionals who bring healthcare-related consulting experience in the area of mergers & acquisitions (M&A) representation, valuations, strategy consulting, quality of earnings (QoE), CFO advisory and turnaround consulting, and litigation support and expert witness services. Our team understands the nuances of the regulations discussed above, and our experts have had the industry roles of CFO, controller, VP of treasury, and lead auditor with credentials such as MBA, CPA, CVA, and CFE.

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Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals nationwide. Regardless of the complexity of the compliance, assurance, advisory, or accounting need, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.