Private money (e.g. private equity) is back chasing those selling medical practices and medical business acquisitions. This time around it is very different from similar activity in the 90s. Back then, the movement was public companies aggregating gross income dollars, which for a time drove stock prices. Today’s private money buyers are looking to maximize profitability through achieving efficiency and aggregating large groups for leverage and the development of new income streams. Though stock (in the form of warrants and options or stock itself) if often on the table, it doesn’t have to be. Buyers are doing all cash deals, albeit to some degree on an earnings basis. If you want the full price, you have to remain involved and do what you can to maintain revenues and perhaps even drive them up.
Physicians especially have to know what they’re dealing with and then have at least a basic understanding of the issues that will drive these deals. To begin with, “private equity” simply means private investors (typically a group that pools their capital) that buy a portion or all of a company. Their investments are usually much larger than venture capital firm deals. They are not publicly traded entities. What do they want? To invest money in mature businesses, grow a company’s profitability and then “flip” their ownership to another buyer, typically in three to five years form their launch date. In contrast, venture capital firms usually invest in start-ups, buy 100% of the company and require control.
The amount of regulation imposed upon those entering into the healthcare business arena can be staggering even for a highly experienced businessman. In the business world, buying and selling businesses is often accompanied by lawyers, documents and consultants. In the healthcare business world, buying into and selling healthcare businesses, or any portion of health care businesses, requires all of that support and much more.
Diving into a healthcare business requires many considerations that are unique to other areas of business. First, appropriate licensing bodies must be notified and/or approve any such purchase or sale. For instance, in the State of Florida:
the Department of Children and Families must be notified every time a new owner becomes a part of a licensed substance abuse treatment center and prior to taking ownership, must either submit to a level 2 background screen or provide proof of compliance with the level 2 background screening requirements.
the Agency for Health Care Administration must be notified sixty days prior to any change in ownership and will run a background check on new owners.
the Agency for Health Care Administration must be notified every time a new owner is added to an entity holding a Health Care Clinic License. Additionally, AHCA must approve any owner of more than 5% of the Health Care Clinic prior to such person becoming an owner.
The development of ambulatory surgery centers is still going strong. Physicians who want to form or invest in them should be wary, though.
Physicians, squeezed by shrinking reimbursement and rising costs, sometimes see ASCs as a sure thing, financially speaking. They aren’t. Developing and operating them is something of an art; and care must be taken in getting into the ASC business. Developing and operating a successful ASC depends on key factors, like ensuring:
The future owners are busy surgeons who will bring cases to the ASC;
The surgeons perform services which are well compensated; and
Profit distributions will be enough to stimulate interest in the center (especially an issue when a physician owned ASC sells too much to a venture or hospital partner).
Health law is the federal, state, and local law, rules, regulations and other jurisprudence among providers, payers and vendors to the healthcare industry and its patient and delivery of health care services; all with an emphasis on operations, regulatory and transactional legal issues.