Healthcare Investment & Due Diligence Consulting
Healthcare investment insight grounded in physician practice operations
Investing in healthcare requires more than analyzing a financial model. A healthcare practice may look attractive on paper while presenting operational, physician, market, reimbursement, or integration challenges that materially affect the investment thesis. ABISA provides healthcare investment advisory and due diligence consulting to private equity firms, investment firms, strategic buyers, healthcare organizations, and other investors evaluating physician practices and healthcare businesses. Our perspective combines healthcare operations, physician practice management, financial analysis, strategic planning, and transaction experience.
The objective is to help investors better understand the business they are considering and the assumptions underlying the investment opportunity.
Discuss a Healthcare Investment Opportunity
The Operating Reality Behind the Financial Model
Healthcare businesses are different from many other investment opportunities. The underlying economics can depend heavily on:
- Physicians
- Patient relationships
- Referral patterns
- Payer contracts
- Reimbursement
- Provider productivity
- Staffing
- Practice operations
- Regulatory requirements
- Revenue cycle performance
- Local market dynamics
A financial model can incorporate assumptions about these factors without necessarily revealing how realistic those assumptions are. ABISA helps investors evaluate the operating reality behind the numbers.
Healthcare Investment Advisory
ABISA can support investors at different stages of the investment process.
Investment Screening
Helping evaluate whether an opportunity warrants deeper consideration.
Commercial & Operational Assessment
Evaluating the business model, market position, operations, physician organization, and growth assumptions.
Due Diligence
Assessing financial, operational, physician, market, and strategic considerations.
Transaction Support
Helping investors understand issues that may affect valuation, transaction structure, or post-close strategy.
Post-Acquisition Planning
Helping investors evaluate operational priorities following an acquisition.
Healthcare Due Diligence
Healthcare due diligence should extend beyond reviewing financial statements. Depending on the opportunity, ABISA may evaluate:
Financial Performance
- Revenue
- EBITDA
- Revenue growth
- Expense structure
- Physician compensation
- Normalized earnings
- Accounts receivable
- Capital requirements
- Working capital
Physician Organization
- Number of physicians
- Productivity
- Compensation
- Tenure
- Ownership
- Retirement exposure
- Recruitment requirements
- Physician concentration
- Leadership structure
Operations
- Staffing
- Scheduling
- Revenue cycle
- Technology
- Facilities
- Administrative infrastructure
- Management systems
- Reporting
Market
- Competitive environment
- Geographic footprint
- Referral relationships
- Payer mix
- Market growth
- Physician supply
- Expansion opportunities
Strategic
- Growth opportunities
- Acquisition opportunities
- New locations
- New services
- Ancillary opportunities
- Integration requirements
- Management needs
Physician Practice Acquisition Due Diligence
Acquiring a physician practice presents unique diligence considerations. The investor is not simply acquiring revenue and assets. The transaction may depend heavily on the physicians remaining with the organization and continuing to produce at expected levels. Important questions can include:
- How dependent is the business on individual physicians?
- Are physicians approaching retirement?
- Is recruitment feasible?
- Are compensation arrangements sustainable?
- How productive are the providers?
- How aligned are physician incentives?
- How strong is physician leadership?
- What happens if a key physician leaves?
These issues can materially affect the sustainability of an investment thesis.
Evaluating the Physician Model
A physician practice is fundamentally a provider-driven business. ABISA can help investors evaluate:
Provider Productivity
How much clinical activity is being generated?
Provider Economics
How does physician compensation compare with production and collections?
Provider Concentration
How much of the business depends on a small number of physicians?
Physician Retention
What factors could affect physician retention following a transaction?
Recruitment
Can the practice attract the physicians required to support the growth plan?
Succession
Are key physicians approaching retirement or otherwise nearing a transition?
Leadership
Does the practice have the leadership structure required to support its next stage of growth?
Evaluating Growth Assumptions
Growth assumptions are often central to a healthcare investment thesis. But projected growth should be tested against the underlying operating capacity of the business. Potential questions include:
Where will the growth come from?
- Same-store growth
- New physicians
- New locations
- Acquisitions
- New services
- Ancillary revenue
- Improved productivity
What resources are required?
- Physicians
- Staff
- Facilities
- Capital
- Technology
- Management
What could constrain growth?
- Physician supply
- Recruiting
- Payer contracts
- Capacity
- Competition
- Capital requirements
- Market size
A growth projection is more meaningful when the operational requirements behind it are understood.
Evaluating a Physician Practice Roll-Up Strategy
Investors pursuing a platform-and-add-on strategy may need to evaluate more than individual practice quality. The broader questions can include:
- Is the market fragmented?
- Are attractive acquisition targets available?
- Can acquired practices be integrated?
- Is there sufficient management infrastructure?
- Can the organization recruit physicians?
- Can administrative functions be consolidated?
- Are there meaningful operating synergies?
- Can the organization maintain physician alignment as it grows?
The viability of a roll-up strategy depends not only on the attractiveness of individual acquisitions but also on the organization’s ability to integrate and manage them.
Healthcare MSO Investment Opportunities
MSOs can provide investors with a platform for consolidating administrative infrastructure across physician practices. Depending on the model, an MSO may provide:
- Practice management
- Revenue cycle
- Human resources
- Finance
- Technology
- Marketing
- Recruiting
- Procurement
- Strategic planning
However, MSO structures vary substantially. Investors should understand:
- What the MSO actually controls
- How physicians are compensated
- How management fees are structured
- How physician alignment is maintained
- How acquisitions are integrated
- What services can realistically be centralized
- Where operational synergies may exist
ABISA can help investors evaluate the operating implications of an MSO strategy.
Commercial Due Diligence
Commercial diligence can help investors understand the market and competitive environment surrounding an opportunity. Depending on the engagement, analysis may include:
Market Size
Is the addressable market large enough to support the investment thesis?
Competitive Position
How does the organization compare with competing providers?
Geographic Position
Does the practice have a meaningful position within its market?
Referral Relationships
How dependent is the organization on specific referral sources or relationships?
Payer Environment
How concentrated is the payer mix?
Growth Potential
Are there identifiable opportunities for organic or acquisitive growth?
Operational Due Diligence
Operational diligence examines whether the business can actually deliver the performance reflected in the investment thesis. Areas may include:
- Staffing
- Physician productivity
- Revenue cycle
- Scheduling
- Practice management
- Technology
- Facilities
- Reporting
- Compliance infrastructure
- Administrative processes
The objective is to identify operational strengths, weaknesses, dependencies, and opportunities.
Financial & EBITDA Analysis
Reported EBITDA may not always tell the complete story. An investor may need to understand:
- Physician compensation normalization
- Owner compensation
- One-time expenses
- Related-party expenses
- Staffing costs
- Facility expenses
- Management costs
- Capital requirements
- Revenue-cycle performance
ABISA can help investors evaluate the operational assumptions underlying reported financial performance. This can be particularly important when evaluating physician-owned businesses where personal and business expenses may not always be presented in the same manner as a professionally managed corporate organization.
Physician Compensation Analysis
Physician compensation is one of the most important economic considerations in many healthcare investments. Analysis may include:
- Compensation per physician
- Compensation as a percentage of collections
- Productivity
- Provider mix
- Compensation methodology
- Market competitiveness
- Future compensation requirements
The objective is to understand whether current physician economics are sustainable and how compensation may need to evolve following a transaction.
Revenue Cycle & Collections
Reported revenue does not necessarily equal collectible revenue. Investors may need to understand:
- Gross charges
- Net collections
- Collection rates
- Accounts receivable
- Aging
- Denials
- Payer mix
- Coding
- Billing processes
- Revenue-cycle staffing
A strong revenue-cycle operation can be an important component of practice performance. Conversely, weaknesses in revenue cycle can create both risk and opportunity.
What Investors Should Understand Before Acquiring a Practice
Before proceeding with an acquisition, investors should have a clear understanding of:
The Business
How does the practice actually operate?
The Physicians
Who drives the economics of the organization?
The Market
What supports the practice’s current and future demand?
The Financials
Are historical earnings representative?
The Operations
Can the organization support projected growth?
The Risks
What could cause the investment thesis to underperform?
The Opportunities
What can realistically be improved or expanded?
The Integration
What will need to change after closing?
Post-Acquisition Operational Planning
Due diligence should not end at closing. The findings from diligence can help establish the initial post-acquisition operating priorities. Potential priorities may include:
- Physician alignment
- Leadership
- Reporting
- Revenue cycle
- Staffing
- Technology
- Financial controls
- Practice integration
- Recruiting
- Growth initiatives
ABISA can help investors translate diligence findings into practical operating priorities.
Working Alongside Your Investment Team
ABISA can complement the work of:
- Investment professionals
- Investment bankers
- Accountants
- Attorneys
- Valuation professionals
- Quality-of-earnings providers
- Healthcare specialists
ABISA’s role is focused on the healthcare business, operating model, physician organization, and strategic implications of the opportunity. The goal is to help the investment team see the opportunity from the perspective of the people who actually operate the healthcare business.
Why ABISA?
Healthcare Operating Experience
ABISA’s perspective is grounded in actual physician practice and healthcare operations.
Physician Practice Expertise
Understanding physician economics, productivity, compensation, governance, and alignment is central to evaluating many healthcare businesses.
Financial Perspective
Healthcare operations and financial performance are closely connected. ABISA brings experience in financial management as well as operations.
Transaction Experience
ABISA understands the issues that arise before, during, and after healthcare transactions.
Independent Perspective
ABISA provides an operating perspective independent of the investment thesis.
Evaluating a Healthcare Investment Opportunity?
If you are evaluating a physician practice, healthcare platform, MSO, or other healthcare investment opportunity, understanding the operating reality behind the financial model can be critical. ABISA can provide an independent healthcare operating perspective to help evaluate the business, physicians, financial performance, growth assumptions, and strategic opportunities.