Make sure you complete operational due diligence.

Market consolidation remains a hot topic within the eye-care industry. As a physician-owner in the COVID-19 era, you may be seriously considering selling your practice to join forces with a larger group. Alternatively, your group may wish to acquire other practices in your area to broaden your referrals or services. Whether buying or selling a business, your transaction team will often focus on financial and legal due diligence. Indeed, those areas of review are essential before completing a transaction — but another business aspect also demands close examination.

Operational due diligence, or the examination of internal processes, should also be performed to assist you in this important decision-making effort. It helps increase your opportunity to complete a successful transaction and avoid headaches post-transaction. We’ll explain how.

DISCOVERING IMPROVEMENT AREAS

Operational assessments provide a disciplined approach to evaluating the practice and how it runs. With a bit of focus from your team, this study allows you to identify internal weaknesses and opportunities. With that knowledge, improvements can be made to strengthen the business, particularly in the following areas:

Risk

Operational due diligence assists buyers in identifying and mitigating risks before a transaction closes. For instance, an operational assessment will review the business office, helping buyers identify potential billing issues. This is separate from a billing and coding audit, but an important due diligence “workstream” nonetheless. For example, an assessment can help recognize any credentialing problems, particularly if providers are not billing correctly under their NPI (National Provider Identifier) numbers.

Operational due diligence also reviews patient credit balances and ensures that patient refunds are appropriately processed. These items often need resolution before completing a transaction, and the buyer needs to discover any challenges before finalizing the deal.

Efficiencies

Operational due diligence can also assist groups in gaining efficiencies. Typically, an assessment includes a provider productivity analysis that outlines benchmarking metrics such as professional fees, patient visits, surgical conversion rates and premium IOL adoption rates. Buyers use this data to understand individual doctor capacity and growth opportunities.

For example, suppose physicians in the same group vary significantly in their offerings of premium cataract surgery. In that case, work can be done to streamline practice operations and patient offerings to advance long-term profitability.

Opportunities

Operational due diligence can further assist a practice or group in identifying growth areas or potential synergies post-transaction. For example, suppose a group selling to a private equity platform wants to demonstrate not only its current EBITDA, or earnings before interest, taxes, depreciation and amortization, but also its potential for future earnings. An operational analysis can help demonstrate that opportunity by streamlining current patient flow or identifying ways to grow services such as a dry eye clinic or optical.

Alternatively, suppose your group wants to acquire another practice. In that case, operational due diligence can aid you in determining synergies when incorporating their patients and referral sources into your provider schedules or ASC capacity.

PERFORMING AN ASSESSMENT

An operational assessment reviews all the work completed within a business’s four walls to determine areas of opportunity and risk. Typically, a buyer will deploy an internal team or hire an outside firm to complete this assessment. Often, the assessment involves time and flow studies, flowcharts and operational and financial benchmarking. The team also analyzes patient and staff surveys, speaks with physicians and reads online reviews. All these topics of study naturally appear when examining the organization’s larger functional areas, such as:

• The facility and its resources:
  • How does the office and its age dictate the delivery of care? Is the office aesthetically pleasing to patients? Is there adequate patient and staff parking, patient access and practice visibility from the road? Is the location desirable?
  • Is patient flow efficient? What’s the efficiency of other internal processes? Is there wasted staff, physician and patient movement within the office? Is there a lack of standardization and centralization of supplies and workflows?
  • Are staffing levels adequate? Do they align with industry benchmarks? Are staff members well trained and operating at their highest level (ie, maximizing resources and the patient experience)?
  • Are IT resources, people and software used to the practice’s utmost advantage?
  • Is monthly data (eg, provider productivity, expenses, etc) being compiled and reported to practice owners? Are potential economies of scale unrealized?
• Practice compliance:
  • How well is the practice following clinical compliance programs to ensure health and safety? These include OSHA (Occupational Safety and Health Administration), HIPAA (Health Insurance Portability and Accountability Act) and the HITECH Act (Health Information Technology for Economic and Clinical Health Act).
  • Is operational compliance a focus? This includes the Information Blocking Rule, No Surprises Rule, internet security and risk assessments, provider and facility credentialing and external chart audits.
  • Where does HR compliance stand? This includes employee handbooks, record keeping, wage and hour laws, disbarment checks, employee satisfaction, training, turnover and I-9 verification.
• The patient experience:
  • Is the patient journey through the practice one you’d like to take?
  • Is the patient experience consistent across the practice’s brand regardless of which office location they visit or which physician they see?

As you can guess, operational assessments are not done on the fly. On average, they take 4-6 weeks to conduct, so plan ahead. This period includes scheduling travel to do an on-site practice visit, collecting and analyzing data prior to arriving at the practice, being on-site and targeting more specific areas of study based on the earlier data analysis, then creating a report and action plan for the practice.

DEVELOPING AN INTEGRATION PLAN

Once the operational assessment is complete, the buyer typically works with the practice to correct any compliance issues and discuss areas of opportunity (eg, efficiencies, productivity and the patient experience).

The group also typically develops an integration plan to facilitate the merger process and address operational needs post-transaction. Timelines and accountability are paramount to drawing up an effective action plan for both the buyer and seller.

IT PAYS DIVIDENDS

Whether or not you are considering a practice sale or merger, an operational assessment can pay significant dividends. It can help you decide whether to move forward with a possible transaction. It can also help you improve practice health, as the study will reveal potential liabilities and areas for improvement.

In a day and age when practices are closely monitored for compliance and must do more with less, an operational assessment can provide ongoing value to an organization. OM

Elizabeth Monroe, COE, CPSS, PHR, is a principal and senior consultant for BSM Consulting in Phoenix. Prior to joining BSM, she served as the chief operations officer for a large multispecialty ophthalmic practice in Florida.

Laurie K. Brown, MBA, COMT, COE, CPC, CPMA, LSSYB, is a senior consultant with BSM Consulting in Tucson, Ariz. She has experience in the ophthalmic industry holding managerial, clinical and surgical roles for more than 37 years.