Healthcare Provider Valuation: A Modern Approach
In this post, we argue that in an era of big data and machine learning (ML), the industry standard methodologies around valuation, practice optimization and network effect quantification among these “assets” remain quite rudimentary.
We then offer a path forward to capture these nuances and give buyers a distinct market advantage.
Health System M&A and Private Equity deal activity in healthcare are at their highest levels in history – each chasing margin and market opportunity in an increasingly bloated industry.
🏥 Health System M&A to expand market share, increase efficiency and improve the quality of care.
🏢 Private Equity Tactical Investment to pursue outsized investment profits in some of the most expensive corners of healthcare.
First, we must acknowledge routine challenges faced in healthcare M&A:
Complexity: Complicated financial and operational structures in healthcare can make it difficult to accurately assess the value of an organization.
Market Context: The value of purchased components (equipment, facilities and staff) are deeply affected by the throughput, efficacy and the care continuity thereabout.
Limited Data: Traditional data resources are riddled with gaps, requiring massive assumptions to be made in the cost/benefit analyses and ROI quantification of deals.
Regulatory Uncertainty: Changes in reimbursement policies, system rules and regulations around pricing and other regulatory hurdles are commonplace.
Intangible Benefits: Deals may improve reputation, bolster the payor mix, or widen geographic influence – such value can be challenging to financially quantify.
Goal Misalignment: If strategic priorities are not aligned within the organization, anticipated deal benefits will be muted.
Next, in offering a basic definition of the healthcare economy, we highlight the shortcomings of traditional valuation:
US Healthcare is a complex network of interconnected providers, practices and payors —valuation based on balance sheets and local health records do not reflect this.
Now, let’s walk through how we can up your valuation game:
Better Data: Comprehensive patient journeys and provider practice pattern data with affiliation and line-item pricing can objectively allow deal-makers to see more than what is offered by balance sheets and local EMRs.
Buyer-Specific Valuation: Market-wide visibility provides network context in the valuation of net new providers, with buyer-personalized value that is based on network effects of their existing providers in the market.
Potential Value and Optimization Tactics: Armed with market-wide practice data, a buyer can determine the optimal value of referral flow, the potential value given realignment, and the steps toward care optimization.
Precision Growth Strategy: Personalized value and asset potential, when scaled across an entire market, helps to auto-prioritize opportunities and quantify the individualized, real market value for a purchase, revealing surplus.
Risk Mitigation: Broad insight into practices, providers and their lookalikes can de-obfuscate regulatory risk, offer a path to compliance and validate market position and strategic alignments.
In closing, valuation and ROI of healthcare M&A is not always straightforward – but market-wide, line-item data with a simple set of pricing algorithms can make a heck of a difference.
Should you be interested in learning more. Monocle Insights, provides the data foundation to reliably portray the US healthcare economy and bring nuance to valuation and exploration. We’d love to learn about your own use case and market opportunities.
If you enjoyed this blog or if you have questions/comments, please email rdeiotte@monocleinsights.com, or somalley@monocleinsights.com, or visit our contact page to schedule a demo!
