After completing the purchase of a rural hospital, a buyer was looking to receive state funding. The buyer had to prove that, based on its initiatives and turnaround plan, it would be able to demonstrate a financially sustainable healthcare service model for the community in which the hospital was located.
VMG Health provided a financial due diligence analysis of the financial and operational feasibility of a turnaround plan put in place by a contemplated buyer. VMG Health assessed the reasonableness of the buyer’s assumptions and information used to develop the hospital’s pro formas, evaluated the likelihood of achieving those projections, and determined whether the plan demonstrated a financially sustainable healthcare service model.
VMG Health analyzed the hospital’s historical operations and financial performance, discussed the post-transaction operational and financial changes that the new buyer would enact, reviewed the buyer’s background and qualifications, reviewed the pro formas prepared by the buyer, performed industry analysis and research, and conducted interviews with key personnel.
Because of the many service lines offered at the hospital, VMG Health also analyzed the financial and operating statistics of each service line and performed a benchmarking analysis.
After a thorough analysis of the market and the buyer’s pro formas and turnaround plan, VMG Health concluded that the buyer’s pro formas represented a reasonably feasible set of projections and financial results, which—if achieved and sustained—demonstrated a financially stainable healthcare service model for the community in which it operated. The state awarded the hospital the significant loan it requested, and the buyer proceeded with its capital improvements at the hospital.
The Health System was nearing surgical capacity at several of their hospitals and evaluating options. The Health System decided that adding an ASC near one or several of their campuses could provide a solution and allow the Health System to capitalize on site of care shifts in the industry. The Health System asked VMG Health to evaluate the feasibility of and potential returns associated with several ASCs in the marketplace.
VMG Health analyzed the volume at the hospitals to identify cases that were eligible for movement to an ASC setting and discussed the likelihood that these cases would move to the potential ASC with management. Once the volume was identified, VMG Health used proprietary benchmarking, including data from VMG Health’s Intellimarker, to determine reasonable reimbursement and expense assumptions associated with the identified volume. Leaning on the expertise of VMG Health’s Real Estate and Capital Asset divisions, VMG Health estimated the capital required to execute the proposed strategies and evaluated the return on investment. In conjunction with the pro forma, VMG Health assessed the financial impact to the hospitals from the loss of the volume and the impact of potential backfill opportunities. This financial impact was considered in determination of the Health System’s return on the proposed ASC strategies.
VMG Health’s analysis provided the Health System with discernable analytics regarding the feasibility of an ASC strategy and insight into the ASC locations with the greatest potential. As a result, leadership at the Health System moved forward with an ASC strategy. The Health System is currently working with Progressive Surgical Solutions, a division of VMG Health, to develop their first ASC in the marketplace.
Approximately 15 years ago, the Hospital acquired all physician ownership out of a free-standing ASC and converted it to an HOPD to capitalize on the higher reimbursement rates. In recent years, the Hospital identified the need to strategically align with independent, non-employed physicians and allow their employed physicians the opportunity to invest in an ASC. Recent market changes, including payer pressure to lower outpatient procedure rates, patient and physician convenience, and the need for more efficient surgical programs, led the hospital to decide to convert the HOPD to an ASC. It was the Hospital’s goal that, post-conversion, the ASC would be owned 51% by the Hospital, physician investors would own 49%, and the ASC would be managed by the Hospital.
The Hospital retained VMG Health to value the contributed HOPD into a newly formed joint venture between the hospital and local, qualified physicians.
The Hospital successfully converted its HOPD to an ASC and financially and clinically aligned with approximately 20 physicians through joint venture investment in the ASC. The ASC has created strong profitability for the Hospital and physician investors while providing high-quality and convenient care for patients. The ASC has also created surgical capacity for the Hospital and the capture of additional case volume as more cases shift from inpatient to surgery center settings of care. The ASC also aligns with the Hospital’s payer strategy by performing surgical services in the optimal site of care for managing total medical cost of care for patients.
The practice realized there were several areas of opportunity within their billing department. To improve patient experience and mitigate their own risk, the organization needed to understand and enforce proper policies and procedures. The lack of focus on the billing team’s ongoing training and development resulted in compliance issues, variances in reconciliation (between P&L, bank deposits, and their PM system), and potential penalties on all Medicare income from their MIPS performance. Moreover, the team no longer felt supported, as there was no regular cadence for team meetings.
BSM Consulting, a division of VMG Health, and the client collaborated on an initiative to enhance billing processes and the patient experience. A BSM senior consultant visited the practice to perform an onsite assessment. Prior to the onsite visit, the BSM Consulting team conducted a benchmarking analysis; the consultant provided a draft version of the report when onsite.
To evaluate the performance and efficiency of the practice and billing team, the BSM consultant observed RCM processes and resources, assessed staffing levels, and interviewed staff. Based on the data collected, they compiled a comprehensive report with recommendations for improvement that the practice could implement, which included developing a monthly reconciliation process, standardizing billing and collections processes, and addressing compliance and training issues. The BSM consultant then collaborated with the practice owner to discuss the proposed initiatives.
RCM accuracy, efficiency, and compliance were the primary focuses of the BSM team's analysis of the practice’s billing department. They examined how different aspects of the operations—such as scheduling, check-in and checkout, workflows for testing, visit charting, and lack of standardized billing procedures—influenced the effectiveness of collections, communication, and the practice culture. They proposed observations, recommendations, and considerations for each aspect in relation to RCM and assessed their potential outcomes. They prioritized their recommendations according to their impact on revenue; patient, staff, and provider experience; compliance; and ease of execution. The practice owner received a presentation of the selected improvements based on these criteria.
BSM Connection members can take advantage of many tools and resources, including sample forms and reference sheets. Visit the page to find an RCM Checklist to help you maximize efficiency. Not a BSM Connection member? Learn more today.
With a history rooted in medical and cosmetic dermatology services, the group practice was eyeing an expansion into surgical procedures. They considered establishing a state-licensed and accredited OBS center specializing in plastic surgery. To ensure a sound decision, the group engaged BSM Consulting (BSM) and Progressive Surgical Solutions (PSS), two professional services firms under the VMG Health umbrella with a wealth of expertise in the healthcare industry, to conduct comprehensive due diligence. This process was designed to assess the feasibility of the new venture and identify any potential risks involved in the transaction, providing the group with high-quality advice.
BSM and PSS’ Senior Consultant team guided the practice through the complexities of regulatory compliance in an OBS environment. Before the on-site assessment, the team conducted a remote documentation review to familiarize themselves with the facility’s unique operations and regulatory compliance status. To maximize the impact and efficiency of the on-site assessment, the PSS consultant thoroughly reviewed previous state and accrediting organization survey results and critical governance documents. The on-site mock survey for state licensure and accreditation standards, alongside a billing and coding compliance audit by the BSM consultant, was conducted to determine areas of deviation from regulatory and accreditation standards and best practices. The client received preliminary feedback concerning the findings of the on-site assessment within 24 hours of the consultants’ departure, demonstrating the efficiency of the service and respecting the client's timeline, followed by a comprehensive written report.
The BSM/PSS team’s due diligence report was a comprehensive document that included a short narrative of the overall impression of the center and an extensive list of known deficiencies that would result in regulatory body citation, potential solutions or plans of correction, and an associated cost to rectify the issue. The client also discussed the report with the consultants to expand on the findings and considerations regarding the buyer’s perspective. Further, PSS created a comprehensive facility program that is fully customized to the center and aligned with the most recent regulations to ensure the buyer’s future success in this highly regulated environment. This policy and procedure set provides a critical framework for administration, provider credentialing and privileging, human resources, quality assurance, infection prevention, and control.
Meanwhile, BSM’s Billing, Coding, and Compliance team’s audit revealed missed revenue opportunities and deviations from best practices that, when corrected, will improve the center’s bottom line. With this information, the dermatology practice made an informed decision about its first OBS purchase. This transaction sets the stage for the group practice's successful expansion into the plastic surgery space.
The group asserted that a subsidy was warranted due to their inability to cover service costs associated with the arrangement solely through collected revenues, despite past feasibility. This shift was attributed to trending, declining reimbursement rates and rising costs for physician salaries. A trending decline in reimbursement rates has been observed across the industry for radiology, in part due to CMS’ reductions in radiology reimbursement and the introduction of the No Surprises Act. The group sought to assess the need for a subsidy based on an FMV assessment of the services rendered, considering both the market compensation norms for the required coverage services and the reimbursement rates received for those services.
VMG Health conducted an FMV analysis of the radiology coverage services, which consisted of an estimation of provider cost based on market compensation data for radiology physicians, and an analysis of the level of physician full-time equivalents (FTEs) that would be required to service the coverage schedule and productivity generated under the arrangement. This required an analysis of the coverage schedule being requested under the arrangement and a benchmarking analysis of expected productivity against market survey data to determine total physician cost of services. VMG Health also considered overhead expenses that the group would be expected to incur in servicing the arrangement (e.g., billing/collection, practice management, etc.). As a final step, the analysis deducted anticipated annual professional collections from the projected group costs to determine what level of subsidy might be supportable under the arrangement.
VMG Health held discussions with the client to help their understanding of the FMV document and the critical inputs to the analysis. Additionally, VMG Health illustrated the analysis results using various reasonability tests for better understanding of the FMV conclusion and its appropriateness for the requested services being provided. This educational process helped the client understand and interpret the findings for more effective discussions with the hospital.
VMG Health determined whether a subsidy could be paid for the services and, if so, what level of a subsidy was supportable by considering the specific details of the subject arrangement, market conditions, and trends in radiology compensation.
The Provider contracts directly with a physician to provide hospice medical director services to the Provider. The Provider was seeking a fair market value analysis of the services to ensure compliance and negotiate contract terms. Additionally, the Provider wanted to engage an independent, third-party valuation firm with extensive experience surrounding hospice arrangements and who understood the uniqueness of these arrangements as well as local market compensation trends.
VMG Health conducted a fair market value analysis of the hospice medical director services consisting of cost and market approaches, including an analysis of local market dynamics affecting physician compensation, review of the proposed agreement, analysis of both hospice clinical compensation and medical director services compensation market survey data, review of VMG Health’s internal database of similar arrangements and of the unique experience, and qualifications and expertise of the physician providing the services. In addition, VMG Health’s analysis applied a locality premium, as the locality where the subject services take place is associated with a higher cost of living and has higher physician compensation requirements than the national average. VMG Health also conducted an in-depth review of the job duties and responsibilities associated with the medical directorship, which were used to derive the final fair market value indications.
VMG Health determined the fair market value compensation for the physician’s provision of hospice medical director services considering the specific details, facts, and circumstances of the arrangement. The Provider used VMG Health’s determination to aid in the contract negotiation process and for regulatory and compliance purposes.
BSM Consulting (BSM) and Progressive Surgical Solutions (PSS), divisions of VMG Health, assessed the clinical and ASC operations, identifying potential risks and opportunities before finalizing the transaction.
BSM conducted a comprehensive operational assessment, meticulously analyzing provider production, revenue, and operational compliance. BSM and PSS performed a thorough utilization analysis and chart audit in the clinic and ASC to identify provider CPT code utilization variances and pinpoint billing and coding risks, mainly focusing on potential over- or under-coding. PSS completed an ASC operational assessment, mock survey, and Life Safety audit, outlining physical areas needing improvement and estimating costs for necessary updates to the ASC building.
This ophthalmology buy-side due diligence assessment revealed several areas of risk and opportunity. Billing and coding compliance issues for ophthalmic diagnostic testing were identified, highlighting several codes utilized at levels exceeding CMS norms and others well below. There were also instances of potential under-coding, misapplication, or misunderstanding of coding principles. Additionally, opportunities to expand specialty services, including oculoplastic and cosmetic surgery, were uncovered, opening new avenues for growth and development. The need for better integration of MD and OD services to enhance surgeon yield rates and expand optometric services was also identified, alongside structural deficiencies in the ASC requiring attention pre-transaction, providing the buyer with critical insights.
Based on BSM Consulting’s findings, the buyer was able to make well-informed decisions and adjust their purchase agreements. They also received tangible recommendations to deploy during integration to make future improvements, providing reassurance and confidence in the decision-making process.
A Portfolio Company (PortCo), backed by a private equity group, acquired a high-profile private practice in the field of plastic surgery and medical aesthetics, including a certified surgery center. New to the sector, PortCo sought to enhance the practice's growth strategy and operational efficiency. Despite a strong team, the practice's EBITDA growth was stagnant, necessitating an operational assessment. The practice's growth had plateaued, primarily due to an outdated management style that diminished accountability and staff motivation. A stark performance discrepancy among providers was also evident, with one provider performing at the 90th percentile while others lagged at the 25th percentile, creating an obstacle in expanding med spa services.
BSM Consulting, a division of VMG Health, was engaged to conduct a comprehensive operational assessment, focusing on the patient experience from initial contact to post-care follow-up. The evaluation led to several key initiatives:
Implementing a culture of accountability has significantly reduced the need for micromanagement. The practice has undergone a remarkable transformation, with a unified clinical support team driving productivity, patient engagement, and retention. This cultural shift and development of standard operating procedures have resulted in a doubling of top-line revenue within two years, marking a significant success in the practice's transformation.
Urgent care centers are a convenient access point into the health system. Demand for urgent care services has increased significantly over the past several years as patients demand accessible, convenient health services at a lower cost of care compared to emergency rooms. However, many markets are saturated with urgent care centers, and the ability to develop a successful urgent care platform takes time, capital, and a focused management team.
The health system had conversations with multiple potential partners for urgent care services. VMG Health assisted in the initial evaluation of potential partners, including a review of post-transaction, contractual terms; potential purchase price; and geography. The health system selected a strategic partner that had an established platform of existing locations in a region where the health system also has a reputable presence within the market. The two entities jointly retained VMG Health to perform a fair market value analysis of the strategic partner’s existing urgent care platform to support the health system’s investment.
Additionally, VMG Health assisted with the valuation of several post-transaction, contractual arrangements, including a management services agreement where the strategic partner will continue to manage the locations and a royalty agreement related to the post-transaction branding of the locations.
The parties signed a definitive agreement in which the health system invested in the existing urgent care platform to establish a new joint venture for urgent care services. In addition to the purchase agreement, the parties signed a royalty rate agreement and a management services agreement. The strategic partner benefits from the brand and scale of the health system. The health system has achieved additional, convenient access points of care through a large platform of established urgent care locations within their market.
Contact
Financial Due Diligence in Healthcare Transactions
Written by Colin Haslett and Grayson Terrell, CPA Healthcare transactions are known for their complex nature, given their rigorous regulatory...
Learn More