Archive for the ‘Finance’ Category

Trends in Healthcare Facility Transaction Valuations

In a period of consolidation within any market or sector, there will inevitably be a dramatic evolution of trends related to transaction rationale, deal structures and valuation trends.  With the rise in consolidation and transaction activity amongst healthcare provider organizations, such as hospitals, health systems, medical groups and ancillary provider entities, we have undoubtedly witnessed a time of significant evolution within this space.  And with the added factor of a major recession within the broader markets, the fluctuation of valuations in healthcare deals have indeed been interesting, to say the least.

For the past three to five years, “clinical integration” has become top of mind for executives in both hospital administration and medical group leadership, and this refers to the growing trend of alignment between medical groups and health systems.  Now that we have observed a few years of clinical integration, we have been able to compile enough data that allows …

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A Foundational Component to Reducing Healthcare Costs – Bundled Payments

The challenge of reducing healthcare costs in the U.S. is analogous to our country trying to be energy independent. Both are complex, achievable, will take time to solve and require a combination of solutions. Until we discover technological breakthroughs that cost effectively meets the market demand, challenges can be overcome with existing resources.

A foundational component to reducing the cost of healthcare is a reimbursement model for hospitals and physicians called “Bundled Payments”. This form of reimbursement addresses one of the underlying reasons for the escalating expense of healthcare. This is the misalignment of how hospitals and physicians are compensated. For example, hospitals are paid a set fee by Medicare for patients with a specific diagnosis. So regardless of how long a patient is in a hospital or the number of medical tests performed, the hospital is not compensated any more than the specified amount. Therefore, hospitals are incentivized to deliver high …

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Is Consolidation a Good Thing for Healthcare?

Two weeks ago, I noted the heightened M&A activity across the nation and here in Georgia for hospitals.  Other bloggers on HealthFlock like Mark Reiboldt have also noted the expected wave of consolidation in a recent post.  With so much talk about the topic, I think it worthwhile to pause and ask ourselves what value consolidation brings to our industry.   From my vantage point, I have heard some argue that this is desperately needed for entity survival; others loudly state that it’s a fade and will inevitably lead to poor returns and future divestitures, as seen by failed mergers in other industries. 

To give an opinion, I’ll first note a few reasons why we’re seeing increased M&A activity in the industry.  According to in-depth analysis, The Advisory Board Company has claimed that five forces are responsible for this trend (to which I would generally agree):

  • Favorable Market Environment (e.g. low interest rates ease access to capital)
  • Increased Revenue Pressures (as a …

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The “Cost of Capital” and Total “Cost to Own”

“Free Cash” isn’t actually free at all. Your capital has a cost whether it’s the cost of your long term bond financing, your shorter term capital equipment financing, receivables based cash flow line or any other money. All your cash has a cost.

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Your physician’s business relationships may be hazardous to your health

Consumers today need to take ownership understanding their physician’s motivation when they recommend surgery especially when it entails implantable products for surgical procedures such as a spinal fusion, knee or hip replacement. This motivation may be more than to help address a patient’s medical issue. It may also be a means for the physician to increase their personal income.

There is a growing trend in the healthcare industry that some physicians would not like consumers to know about. This trend is the development of physician owned distributors (PODs).  A physician owned distributor is a medical products supplier to hospitals that is partially owned by a physician or group of physicians. The primary role of the physician owned distributor is to provide products to its physician investors at the hospitals they practice medicine.

An example would be an orthopedic surgeon that performs hip and knee replacement surgery. This surgeon is an investor in the physician owned …

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M&A Activity on the Rise, Georgia No Exception

According to the consulting firm Irving Levin Associates, hospital merger and acquisition deals have experienced a significant boast in the past year and half.  As seen below, the number of deals increased by 40% from 2009 to 2010, where total deal value rose from $1.7 billion to $12.6 billion for that same period.  This year is set to continue the pace, having 23 deals in the first quarter alone.  M&A Activity

This comes as no surprise to hospital leaders.  From a recent survey by HealthLeaders Media (“Hospital Mergers and Acquisitions:  Opportunities and Challenges,” November 2011), 86 percent of hospital leaders are expecting increased acute care M&A activity across the next 12 months.  In addition, 87 percent expected the Patient Protection and Affordable Care Act, if enacted, will drive volume.  That same survey showed that the top three physician specialties for M&A activity are hospitalists (70%), primary care (69%), and cardiology (66%).     

How do we here in Georgia stack up to …

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Clinical Integration and the Healthcare System of the Future

When one speaks on topics like healthcare reform and the future model of healthcare delivery in the United States, we will often hear about innovative technologies that are going to revolutionize the healthcare system and solve all of its inequities.  Technologies that tell your elderly family members when to take their medication; or, tools that allow people to track their medical history via the Internet – these types of things are often presented as the future of the US healthcare system.  The multitude of innovative solutions flooding into the industry on a daily basis promise to enhance the quality of healthcare services and decrease costs associated with these services for patients.

Technological innovation will be a critical component of any US healthcare model that is adopted in the future.  Our medical services are too vital not to embrace advanced tools, resources and technologies that can absolutely make the system better.  But aside from technology’s role in the …

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Tackling the capital aspect of your EHR Implementation

Hospitals across America are faced with the daunting task of choosing an EHR solution, planning the implementation and funding the cost of the project. Compared to typical capital expenditures, these projects are very large. There are a few key points to keep in mind related to the total cost, “creep” and structuring your financing properly.

“Creep” is the growing cost of your project as you add new devices, software and additional functionality to your EHR during your implementation phase.

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What Consolidation Means for the Future of Healthcare in America

In thinking about the most relevant topics for today’s healthcare industry, the two issues that practically every healthcare executive and industry stakeholder that I speak with want to hear about are:  (A) healthcare reform; and, (B) consolidation.  While the focus of my work relates to consolidation, specifically meaning mergers and acquisitions between healthcare businesses, these two important topics are certainly not mutually exclusive of each other, because the former indeed plays a significant role in fully understanding the latter.

Being an investment banker that works exclusively with healthcare organizations, consolidation (i.e., mergers and acquisitions, financings, transactions, etc) is what I focus on every day.  My job is to advise various types of healthcare entities through a transaction process, whether it is assist with an acquisition (”buyside advisory”), facilitate a sale (”sellside advisory”), work with lenders to facilitate capital or restructure an …

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Passing the Bill so that You Can Find Out What Is In It

Historically, the Internal Revenue Code has provided no specific standards for hospitals to satisfy in order to obtain tax exempt status.  Instead, hospitals have obtained tax-exemption as a derivative of the general charitable purpose of serving those in need. Since 1969 the IRS has recognized the promotion of health as a specific charitable purpose. However, now as a result of the enactment of healthcare reform legislation, hospitals must satisfy certain statutory requirements to obtain and maintain tax exempt status.

The Patient Protection and Affordable Care Act contains four specific requirements that hospitals seeking tax exemption are or will be required to meet.  One of these requirements, related to conducting and implementing a community health needs assessment, is phased in to law over a three year period. The other three requirements take effect for taxable years beginning after March 23, 2010 (the date of enactment).  Essentially, all tax exempt hospitals should …

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