The Executive Suite: How to Increase the Value of Your Medical Group When Looking to Buy or Sell

Today’s complex regulatory healthcare environment makes it increasingly difficult for small specialty medical practices to manage administrative requirements efficiently. Many want to focus on the practice of medicine instead of the business of medicine.

At the same time, increasingly complex reporting and compliance requirements have made it difficult for smaller, independent healthcare practices to survive — and thrive. For the robust medical group with capital to spend, the time may be right to consider acquiring a smaller, well-run healthcare practice.

Positioning your medical group as a good risk to acquire another practice

When considering acquiring a medical group, remember that the seller may have a number of offers and will be looking for the right medical group to join. Among other factors, they’ll want to know that their acquiring entity’s risk management program will help reduce losses and deliver lower insurance premiums. They’ll want to ensure that post-acquisition, their physicians will not encounter additional insurance expenses, resulting in reduced profitability and decreased value for the acquired entity.

To help position a medical group as an attractive suitor, buyers need to structure their professional liability program to include the following features:

Claims management and loss control program.
Professional liability rating structure that provides a competitive advantage for the acquiring group, namely lower premiums, low loss ratios, rating structures designed to match revenue, and no tail required for the new physicians/entity being purchased.
Limited levels and adequate structures for the practice territories, and not too high to encourage large settlements.
A claim frequency and severity structure low enough to provide security for the new group’s physicians. Maintaining a low structure will let prospective suitors know the acquiring entity values/practices good medicine.

The acquiring practice’s insurance broker will be the intermediary between the medical practice and the insurance carriers, communicating and quantifying the group’s risk management initiatives and losses. To ensure that the acquiring practice achieves optimum value and is positioned to provide the most competitive coverage structure, the acquiring practice’s broker should:

Provide a root cause analysis history for claims and unanticipated outcomes.
Complete a quarterly loss analysis to identify trends.
Request target premiums that generate an acceptable loss ratio to the carriers.
Convert group loss picks to loss picks per physician, per IME and medical treatment or patient encounter.
Prepare target rating premiums to follow the number of historic treatments.
Design the coverage structure as “claims made” coverage with limits “per encounter”.

Positioning your firm as a good risk for acquisition

The goal of medical group consolidation is to create the highest value for both the buyer and seller.

The buyer is looking for assurance that the medical group under consideration understands and values good medicine and sound risk management practices. In order to become a “good risk,” medical groups need to consider implementing the following best practices:

Actively engage in risk management. Implement risk management activities, education and practice protocol enhancements to monitor and directly reduce the cost of loss and manage trends in losses.
Quantify risk. Quantify claims management and loss control programs to reduce losses and insurance premiums.
Champion patient satisfaction. A satisfied patient is less likely to make a claim and seek financial damages, resulting in reduced frequency and severity of loss.
Plan for the sale of the practice. Price an exit plan into your insurance coverage structure and pricing.

In order to help clients achieve optimal valuation, the insurance broker working with the medical practice should implement a risk management program that includes the following:

Provide root cause analysis of all claims and physicians to target areas of concern.
Negotiate insurance premium modifiers and appropriate premium credits.
Determine loss control needs.
Assure comprehensive claims management is in place.

When both a prospective buyer and seller engage in an effective risk management program that rewards good medicine, it earns the group the lowest responsible insurance premium. This ultimately increases profitability for both the buyer and seller - in the short term and years down the road.