After completing a healthcare acquisition, private equity investors use a variety of strategies to jumpstart growth in their new investment, often described in a 100-day plan. But the legwork required to sketch out those first 100 days must begin well before the deal is done.
Investors are wise to take a methodical approach when building 100-day plans for healthcare portfolio companies. For starters, while COVID has accelerated the pace of innovation, they should keep in mind that the industry tends to move slowly. Emerging trends might take years to develop.
EHRs finally make the grade
Electronic health records (EHRs) are a perfect example of a slow-moving trend. Even with a variety of federal incentives, it took nearly a decade for the adoption rate of EHR technology among hospitals to finally top 95 percent.
The industry’s relationship with change is largely driven by financial propositions, of course. We saw this play out with the sudden, successful increase in telehealth use in 2020. CMS officially started reimbursing for telemedicine services in rural, underserved areas in 1999. However, it wasn’t until the pandemic that telemedicine really took off. Virtual visits became easier to deliver thanks to relaxed regulations, and policies that heightened reimbursement opportunities inspired more providers to offer telehealth.
For healthcare private equity investors crafting 100-day plans, deep market knowledge is essential. They should take nothing for granted in this highly complex industry.
Healthcare private equity 100-day plans
The 100-day plan defines the new asset’s strategic direction as well as the activities to support its execution. Everything from daily operations to talent to marketing must be aligned around the near-term goal.
Quick returns are challenging to produce in healthcare under any market conditions, but that’s especially true now as businesses start to rise out of the effects of the COVID-19 pandemic. Investors need to start early in the pre-transaction phase, validating their strategies thoroughly before crafting the journey they intend to take in their first 100 days.
4 items worth examining
Healthcare presents some potentially costly pitfalls that shouldn’t be overlooked in a 100-day plan. Below are just a few items to consider.
1. Branding and marketing
The basic tactics used in branding and marketing are somewhat universal, but each business has its own identity and its own way of interacting with potential customers. Some of the most ordinary asset targets might only be missing the power of a thoughtful marketing strategy before they can become extraordinary performers.
For example, a digital health company might need to explore a market-sizing initiative to identify the right target markets and build a stronger pipeline before it’s able to begin a growth-oriented phase. Healthcare business largely takes place within B2B lanes, so target markets are narrow and precise, making comprehensive go-to-market plans that much more important.
Your 100-day plan should include investment in market research to set expectations and lay the foundation for future sales growth. In terms of tactics, consider multiple approaches then test and track each one to discover what works.
2. Healthcare work force pipeline
Every investor wants transparency around existing and future work force issues. In the health-service delivery space and the health IT space, there’s long been a shortage of qualified employees. Professionals from pediatric psychiatrists, to home health nurses, to health-data analysts are just a few of the workers in high demand.
And those open positions result in one of two conditions: Your current staff is burned out while also chalking up costly overtime; or your business is missing out on revenue because you don’t have the manpower in place to capitalize on opportunities.
In early 2020, nearly 1.5 million healthcare jobs were lost while providers cut back on elective services, but recovery began by midyear as encounters returned to pre-pandemic levels. The delivery system still has about 500,000 jobs to recoup, and intense competition for talent in recent months has led to salary increases. For example, nurses are claiming 12 percent higher signing bonuses now as a result of work force competition and caregiver burnout.
Becoming an employer of choice is one way to positively impact your asset’s growth propositions. A strong brand with a good reputation among workers is more likely to attract a higher volume of top talent. Be sure to investigate the talent pipeline for all your investments and consider strategic talent sourcing services to ensure your growth isn’t hampered by mediocre management or ill-fitting employees.
3. Efficiency metrics
What the work force trend also foretells is the need for quantified data around human capital, from patient-care professionals, to tech developers, to back-office administrators. Your 100-day plan will likely include strategies that increase staff effectiveness and efficiency.
To begin, consider how productivity has been measured by the asset company and how any operational changes will affect those metrics. Can you improve quality while you streamline operations, and what will you do if quality begins to decline? Does the company have previous experiences with efficiency that led to costly mistakes? In the case of a health service provider, will you be able to maintain appropriate staff-to-patient ratios?
Consider the home health business as one example. It’s known for unique time-management challenges because of the variability of travel time between patients’ homes. In this case, tech tools might offer some efficiencies such as rerouting employees to avoid traffic delays or redeploying staff in real-time to meet emerging priority needs. These types of tools can achieve efficiencies without compromising care.
4. Bottlenecks in medical practice revenue cycle management
Administrative tasks can bog down any business, but healthcare is especially notorious for its archaic practices — including a lamentable reliance on fax machines, of all things. Any weak process that can slow the revenue cycle should be addressed in your 100-day plan.
Include a roadmap that outlines opportunities to improve revenue cycle management, including all the usual suspects such as:
- Denied claims and appeals
- Patient no-shows
- Bad debt
- Outdated coding processes
- Slow technologies
- Backlogs of outsourced services
- Frequent audits
- Lack of staff training
A 2019 survey conducted by the American Medical Group Association found that the average time from the date a health service was delivered until claims were submitted to the payer was 7.6 days, with about 5.5 percent of submitted claims denied or rejected. In addition, a surprising number of survey respondents said their denial rate was above 10 percent. Each denial, regardless of the reason, causes a chain reaction of costly administrative tasks, not to mention missed revenue.
For service providers, revenue cycle management is one of the most difficult challenges to master. As you create a 100-day plan for a new or potential portfolio company, take whatever time is required to truly understand where the opportunities for improvement lie and how you can realistically approach each one.
These days, healthcare private equity firms might find their 100-day plans quickly growing into longer time frames because there’s so much to address. With the right perspective, you can zero in on your top priorities and make the most of the first 100 days.
Looking for healthcare-specific operating partners who can deliver strategy and hands-on tactics at every stage of the investment lifecycle? The Canton & Company team offers a multidisciplinary approach at every pivot point, helping you achieve the value you know is possible. Start a conversation with our team today!