Expanding your investment portfolio is something to consider. You may have some publicly owned stocks that do well regardless of the market’s movements. You may even be expanding your portfolio to include physical assets like precious metals.
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However, have you thought about investing in private equity? More specifically, investing in healthcare private equity. Investing in healthcare private equity isn’t new and the returns can provide a financial boost to your portfolio.
But before you start investing in privately owned healthcare facilities, you should have a list of questions. The answers to these questions can help ensure you’re making the right healthcare private equity investment for your financial future.
What Comes with the Purchase?
As a private equity investor, you should have some say in how the healthcare business is structured. However, it’s important to remember you’re not the only investor and this means your input is limited. In other words, you can’t expect to dictate how the company’s business model is structured but you should have some input.
The business model is also influenced by what comes with the purchase. For example, does your investment include the purchase of the building, or is it limited to the patient list? What about new business opportunities? Are these part of your investment?
Some healthcare facilities hold on to certain aspects of the business while others include everything. Knowing what comes with the purchase can make it easier to know if it’s the right investment for your financial goals.
Are There Any Red Flags?
Before investing in healthcare private equity, due diligence should always be performed—and this isn’t a suggestion. If you skip performing due diligence, your investment may end up costing you money, which is the exact opposite of what you want when investing in a healthcare business.
So, what are some red flags to look for? This can include irregularities in billing like insurance coding issues. Reimbursement problems, especially when dealing with Medicare and Medicaid can also be a reg flag.
Don’t forget to carefully review the healthcare business’s licensing. Are there any gaps in licensing and what about tax compliance issues? If the healthcare facility’s business records are a mess, this may be an indication it’s not the right investment.
If you invest in the business and assume partial ownership, you may find yourself on the hook for any other due expenses, including fines and other possible penalties like taxes.
Will Contracts Need to Be Renegotiated?
As a private equity investor, you and others are purchasing all or part of the healthcare business in question. Remember, what’s included in the purchase can vary.
However, even if the original business owner is still retaining some ownership rights, you still need some information on the original contracts. These contracts typically apply to payors. These are the individuals and entities the business bills for services.
The payor can also be the healthcare business if they’re settling financial obligations to others for their services. An example can be if the healthcare facility has a contract with an X-ray imaging specialist. When the business changes hands, will this contract need to be renegotiated?
Sometimes, renegotiating contracts can lead to savings but this can also be time-consuming. Renegotiating contracts can extend the acquisition timeline and this can affect your bottom line.
Who Will Serve On the Company’s Board of Directors?
Chances are, you don’t expect to have a seat in the boardroom. These seats are typically reserved for primary shareholders. However, if you’re investing in private healthcare equity you should have an expectation of having a voice in how the business moves forward.
Having a member of the private equity (PE) firm sitting on the board of directors is an advantage but it’s not a legal requirement. Simply investing in a business doesn’t guarantee you a seat at the table.
However, having at least one member of the private equity investment team on the board can help ensure your money is working for you. In a nutshell, you have more of a say in how the company’s business model is structured and the direction it moves forward.
What Happens to Existing Management?
The healthcare business has existing management and they probably have a good working relationship with the company’s staff and other partners. The current management understands the ins and outs of the business, and this is talent you may want to keep around.
On the reverse side, not all healthcare facilities have a great management team. The staff may lack crucial qualifications or simply not care about performing the job to the best of their abilities.
Before investing in healthcare private equity, it’s a good idea to learn more about the company’s current management staff. If management is more than capable of performing their tasks, it may make sense to extend or offer them new contracts.
Will Physician Benefits Change After the Acquisition?
Investing in private equity typically means changes to almost every aspect of the acquired business in question. However, this doesn’t necessarily mean you’re letting go of the staff and starting from scratch.
Ideally, you want to retain the experienced personnel. The cost of hiring and training new talent is usually more than the investment is initially worth. If you’re planning on keeping staff around, this means addressing their benefits structure. Do things like pay and time-off remain the same or is it part of the restricting process?
Even though staff pay and benefits typically make up the majority of the healthcare facility’s budget, it often makes sense to keep everything the same. This way, you can retain qualified personnel without having to spend the time and resources finding and training replacements.
Should You Invest in Healthcare Private Equity
Expanding your investment portfolio is often a smart move when aiming for financial security. However, it's crucial not to jump into an investment without having all the necessary information.
Don't hesitate to ask questions before making any decisions. The answers you get can help you determine if the investment is the right move for you financially, both now and in the future.
Taking the time to understand the risks and potential returns can safeguard your financial health and help you make more informed choices.
