Investing in behavioral health organizations can be a lot like entering into a relationship. Just like in dating, there are certain signs to look out for – green flags that indicate alignment and potential success, as well as red flags that signal challenges ahead. How these organizations assess and respond to these signs can determine the outcome of the investment deal – whether it leads to a fruitful partnership or a difficult breakup.
According to Ryan Kaczka, managing director at Strategique Partners and partner at Stone Street Partners, red flags in behavioral health organizations often appear in areas such as charting, billing, revenue cycle management, and compliance with payer partners. These issues can be particularly risky in a due diligence process, as they can have significant legal and financial implications. Therefore, it is crucial for investors to thoroughly assess these aspects before moving forward with an investment.
Jessie Laurash, principal of the lower-middle-market private equity fund Health Enterprise Partners, emphasized the importance of legal diligence in identifying potential red flags in investment opportunities. Ensuring legal compliance across all aspects of a company is essential for its survival, as even a single “bad actor” within the organization can have severe consequences.
On the other hand, green flags in behavioral health organizations can include indicators such as marketing spending and clinician retention. Organizations that demonstrate solid bookings, waitlists, and minimal marketing efforts can impress investors. Additionally, clinician turnover and retention rates can provide insights into the overall quality of care and the organization’s culture.
Justin Outslay, founder of the search fund Cinnamon Hill Partners, highlighted the significance of clinician productivity rates as a stand-in for clinical quality. By tracking metrics such as provider retention and productivity, investors can gain a better understanding of the organization’s performance and outcomes.
In conclusion, successful investments in behavioral health organizations require a careful assessment of both red flags and green flags. By paying attention to key indicators and conducting thorough due diligence, investors can make informed decisions that lead to profitable and sustainable partnerships in the long run. When it comes to selling a medical practice, there are many factors to consider beyond just the clinical quality. One of the key elements to look into is the team members who make up the practice. Without getting to know the team members, it could be difficult to truly assess the clinical quality of the practice.
However, beyond just the team members, it is also important to ask key questions about alignment with the reason the practice owner wants to sell. According to experts like Outslay, deal processes that lack alignment on this issue are likely to fail. Understanding why the owner wants to sell is crucial for the future success of the practice and the investment.
For companies like Cinnamon Hill Partners, part of the pitch to practice owners is to continue the legacy of the founder at a larger scale. This is why understanding the motivations behind the sale is so important. As Outslay puts it, selling a practice is a big decision as it is essentially the owner’s “baby.” Therefore, it is essential to spend time discussing this with the seller to ensure a smooth transition.
In conclusion, when looking into purchasing a medical practice, it is important to not only assess the clinical quality but also to understand the motivations behind the sale and ensure alignment with the future vision of the practice. By taking the time to get to know the team members and the seller’s reasons for selling, buyers can make a more informed decision that will benefit both parties in the long run.
