Three Ways Private Equity Firms Can Increase Value of Health Care Portfolios


Mel Gunawardena

Since 2012, the total number of private equity deals have increased within the healthcare sector year after year. As of mid-December 2018, a record breaking 464 private equity deals had closed with a combined value of $35 billion. Attracted by the high return on investment the healthcare sector can generate for portfolios, the current investment trend of private equity firms rolling up these entities is not expected to cool off any time soon.

For the U.S. market and investors, the high ROI of rolling up healthcare entities is further complicated by potential regulatory changes to healthcare coverage. While changes in regulation could provide additional investment opportunities yielding high returns, not knowing how to identify negative investment opportunities can weaken the total dollar value of investments.

The key to maximizing an investment with multiple healthcare entities is to ensure that investors and operating managers have full insight into key areas that can affect their profit margins. Revenue cycle visibility is essential to ensuring each entity is performing efficiently and maximizing its revenue potential. Here are three ways a healthcare entity’s revenue cycle can assist investors in maximizing their ROI:

  1. Understanding overall financial health

The goal is to add value to the investment by increasing the healthcare entity’s earnings and top-line revenue. The ability to access key data points, including patient volume and reimbursement, can assist private equity firms and managing partners in making timely decisions. It is essential to invest in a robust analytics platform that can integrate with multiple locations and multiple tax IDs. This would allow investors and managers to have the capability to look at trends that are affecting single and multiple entities in real-time.  

  1. Leveraging reimbursement trends

Changes to agreements, such as lower reimbursement rates from health insurance companies, can negatively impact the entity. By assessing and analyzing entities’ revenue cycles and viewing reimbursement trends–from both patients and insurance companies–an investor can avoid overpaying.

  1. Optimizing efficiency of multiple entitiesAs multiple entities are merged into a single organization, the differences in processes and systems from different entities can lead to increased inefficiencies across the organization. Driving efficiencies in key areas like billing systems, revenue cycle processes can increase profitability. If these areas are not as efficient as they should be, investing in an automated system to standardize current procedures can increase the profit margins. Automation, machine learning and pattern recognition can assist with identifying areas for improvement.

 When assessing operational challenges, key questions that investors and managing partners should address are:

  • Will the rolled-up entities use one common operating system or keep their individual systems?
  • If the goal is to have one common operating system, what new operating protocols need to be addressed? Can the system scale for growth?
  • Are revenue levels before the acquisition being maintained and increased?
  • Do personnel at the health care entity have the skill set to operate and scale the organization for profitable growth?

Not understanding the data that is related to the profit generated can detour entities’ profit margins. Addressing operational and analytical challenges by using revenue cycle insights that a dynamic analytics platform offers can assist in scaling a health care entity to maximize potential ROI.

Mel Gunawardena is a managing partner at SYNERGEN Health, a leader in technology and data-driven revenue cycle optimization solutions for health care organizations.