The Value Pie

The Value Pie - Executive Decisions for the Healthcare Business Owner

By Jonathan Sadock

It is estimated that over $16B will be invested in the healthcare industry over the balance of 2003.

Like many healthcare business owners, you have been busy mixing and baking your own business "pie"... even when the temperature of the oven decreases with threatened reimbursement cuts or other hurdles ... you keep the heat on... Is your business ready yet? Does your current mix of business and payors offer an complete and savory meal? Does the current market environment beckon you with its ferocious appetite and strong valuations.

There are many factors that a buyer of a healthcare business will consider when evaluating your company.

Some of the slices that a buyer will value include:

· Business mix: Respiratory, infusion, nursing, DME, repairs - Each buyer will place their own value on the mix based upon their existing business model and where they see the profitability and growth opportunities.

· Payor mix: Medicare, Medicaid, Commercial, MCO, Workmen's Comp - Sophisticated buyers know each of the payor's rates and how they will integrate with their existing mix. A buyer may also see a tremendous value in a contact you have that they do not.

· Specialty areas: COPD, ventilators, mail order, pharmacy, asthma, pediatrics. Areas of expertise that can be expanded within the buyer's existing business can add to your overall valuation. A respiratory company that currently outsources it's respiratory meds may highly value your pharmacy business.

· Accounts Receivable: Are you collecting your cash? A history of strong cash collections is highly valued by the buyer. Your AR history can show that your business efficiently (and correctly) invoices and manages cash flow.

· Capital Spending: Can you show a history of wise spending? Do you take advantage of trade discounts? Do you track your own ROI (return on investment)? Tracking and managing your capital assets will show more than just added profitability but also that you run your business efficiently.

· Employees: Do you have a hard, working dedicated staff? What are your employee turnover rates? How is employee morale and productivity? Employees are one of the major expenses of running your business. Managing them well can boost more than just sales and profitability but also your business' value. (See Richard Davis' article in this newsletter)

· Geography: In real estate it is said that the three most important aspects are location, location and location. Location is an important consideration when valuing a healthcare business as well. Do you have the right number of locations for the size and scope of your existing business? Does your existing location provide ample space or opportunity for expansion? Are the terms of your leases flexible to allow a buyer a choice?

Each slice of the pie will carry its own weight but all of them together represent the business opportunity.

The crust in your pie is what holds all the delicious ingredients together. In your healthcare business this includes all of the marketing and goodwill along with the blood, sweat and tears you have put into building your business.

Remember, as important as it is to focus on all the ingredients that go into your business pie, it is critical to know when to remove your pie from the oven. This is a very personal decision and one not to be taken lightly. As we have said before... Every business, sooner or later, will be sold, merged, closed or bequeathed. Make certainly that you plan for your feast... and enjoy every bite!

Find out what the current market valuations could mean to your business. Call Paragon Ventures today at 800-719-1555.

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Protecting Value

Consultant's Corner: Ideas from Healthcare's Leading Experts

Managing Your ABCs: IR and CB in HME By Miriam Lieber

The buzz in the Home Medical Equipment (HME) industry is centered around which method of Medicare cuts will happen first, inherent reasonableness (IR) or national competitive bidding (NCB). Further, will Medicaid programs continue to cut and/or will the states also impose competitive bidding for their services? Yes, this latest round of threats will result in reduced reimbursement. Exactly how is unclear.

Regardless of the means by which the federal government cuts prices, nobody should be surprised.

Further, HME companies should already be prepared. After all, we constantly face change in legislation and when it happens, we scramble to find answers. Attrition results and it becomes a game of survival of the fittest. Today is no different. Since the days of the Six Point Plan, providers have had to learn to do more for less. And they have. Now it is time to take one step further by answering a few questions. Do you truly know your cost of doing business? Do you perform activity based costing? Do you constantly measure and monitor and create change based upon your findings? If not, once you do it, you will wonder how you ever survived without it. You will know on what you are spending and how you can reduce spending.

Regardless of the current climate, HME companies must work hard to reduce costs and spending, just like the federal government. After all, your home healthcare business will only be as successful as you make it.

Miriam Lieber is an independent consultant and trainer specializing in homecare operations management. Email Miriam at mlieber@lieberconsulting.com or call 818-789-0670

The Value of Employees

Managing the People Who Manage Your Business

by Richard G. Davis, Jr.

Of all the assets that a business owner must manage, your human assets are one of the most important. I don't mean that you are not in charge; rather your employees manage the functions that make the business run each day.

The effectiveness of this process can either make your business run like a finely tuned machine, or clunk along stalling periodically. But truth be told, this asset, people or employees, is the most neglected area of a business. Why?

Perhaps because there are a few misconceptions:

· It is difficult

· It is not understood

· It is perceived as less important

· It takes care of itself

True the employees are "assets", but they are much more. Let's look at the human side of the equation. Every employee you have in the business managing multiple functions has varying degrees of experiences, personalities, mannerisms, etc. Sometimes these can change daily, making it even more difficult to manage. This month's topic is performing a "skills inventory". Performing such a process can benefit the company in several ways.

First, it can provide an understanding of whether you have employees in the proper positions. You certainly would not want someone who has poor communication skills in the customer service area, or someone with poor analytical skills in the billing department. The assessment of your employee's core competencies is a step in the right direction to creating efficiencies in the business by having people in positions that more closely match their skills.

Second, performing a skills inventory combined with annual performance reviews will help you determine whether the employees are performing tasks in a way that benefits the company. Are people performing in a way that meets or exceeds minimum standards?

Third, the process can aid you in succession planning. You will not run your business forever and developing an exit strategy is crucial. You may decide to sell the business to a local, regional, or national competitor in order to take advantage of the value you have built. If selling is not the option you pursue, then you must know how the business will survive when you are not at the helm. Do you have someone in place who could take over? Do family members in the business have the skills to run the business? Taking a skills inventory will help you answer these questions.

Next month I will discuss in more detail daily management of employees and systems you can establish to aid in this process. After all, the employees are your most valuable asset.

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Valued Customer Service

By Jonathan Sadock

Does customer service (good or bad) affect the value of a business? How?

As a merger and acquisition advisor, we see inside the guts of many healthcare businesses. Since we most often represent the business owner, we are considered part of their team and are provided access to the inner workings of the company... the true grit. Because of the breadth of our contacts within the industry, we also have contacts and relationships with many of the payors, referral sources and competitors of there businesses. It can be amazing to hear the diversity of opinions that are offered between a business owner's viewpoint of their business' service and that of their competitors, and referral sources. It is from the objective perspective of a professional consultant to the healthcare industry that I can share with you some thoughts on Customer Service and its impact on the businesses value.

Customer service can affect the value of a business in many ways. From the perspective of customer retention and profitability, the value of customer service should not be ignored. What does it cost you to obtain each new patient or referral source? The old adage that it costs far less to keep a customer than to find a new one is very true.

If you look closely at a cross section of successful healthcare businesses you usually find a common thread... customer service. It is the foundation upon which the business is based and the mechanism upon which it grows. Provide superior customer service and the patient is happy, and their family is happy... if you doing everything else right, you will be paid and reap profits. Provide poor customer service and your patient will be angry, you are at great risk that the referral source will hear about it... and even if you do everything else right, your business and its profitability could be in jeopardy.

Why does it make sense financially to provide good CS?

When you analyze it, you would be surprised at how little it costs to provide superior customer service. On the other hand, it is even more shocking to see how costly poor customer service can be to your bottom line.

First you need to define and truly understand what Customer Service is all about. In its simplest form, customer service is comprised of three key elements.

1. Listening, understanding and advising the customer with regard to their needs,

2. Communications and

3. Fulfilling those needs in a professional and expeditious manner.

Remember that to your customer, you are the key conduit to fulfill their need... which, as a healthcare provider, is extremely personal and exceptionally important. Make your customer feel like their need is as personal and important to you as it is to them. Communicating well with your patients can be one of the least expensive and highly effective means to give a customer the perception of superior customer service... and like many things with customer service, the perception of the customer is reality.

How does a potential buyer evaluate a company's ability to provide good CS?

If you are referring to a buyer of your goods and services, i.e. a patient or referral source... absolutely yes! If you are referring to a buyer or acquirer of the business... the answer is still yes, but from a different viewpoint. Where a patient will see an individual event as litmus of customer service... a buyer/acquirer will evaluate customer service in terms of profitability, employee turnover, reputation and diversity of referral sources, contracts and payors. Company's that provide superior customer service also have the systems to support their level of service.

I recall one company that was so focused on customer service and the operating efficiencies derived that they installed a global tracking system and a cell phone in every vehicle. With these systems in place, they were able to not only track the progress of their deliveries in real time but also to communicate directly with the drivers and subsequently, directly to the patients. Again, communication can be the greatest source of positive perception of customer service.

Is CS still alive and well in the HME industry?

I hate to say it this way but... yes and no. There are absolutely wonderful and talented providers throughout the home care industry. We see them all the time. Professional organizations dedicated to providing superior care and products to patients at home. It is interesting because you can see the superior customer service oozing from every pore of the business. You see it in the way the warehouse is organized, the attention to detail both in terms the order and the associated paperwork. You see superior customer service in the attitude and in the smiles on the faces of the employees... throughout the organization... from the guy sweeping the floor to the person answering the phone. It is quickly evident when a company provides superior customer service and we always relish when we have one as a client. Why? Because we have found that companies that pay attention to providing superior customer service, also pay attention to the other facets of their business... record keeping, employee retention, quality, etc. We have found these companies easier to sell at a premium valuation.

On the other hand, we do still see examples in the industry of businesses founded on a skewed principle of profitability only. In these cases, customer service is sacrificed over a misconception of increased profitability. These businesses are usually wrought with problems such as high AR (accounts receivable), low employee moral, stagnant growth and poor record keeping.

Where do most companies fall short in this area?

Probably the most common problems (and easiest to correct) in a business' customer service is in communications. The perception of poor customer service often occurs by not listening to the customer's needs, creating an unfulfilled expectation or not communicating with the customer.

Why it is important to have a strong CS philosophy? What does that means in this industry?

As a provider of such a personal and vitally important service as healthcare, it is the responsibility of everyone within the organization to do what they can to provide high quality products and superior customer service. There is not anything more important to our ultimate customer, the patient, than their health care. Therefore, it demands and deserves our very best. Sure we have plenty of challenges each day in the performance of our jobs but none should stand in the way of customer service.

What specific steps providers can take to make sure they are known in their area for having the highest CS rating in the mind of the health care and patient community?

Keep the goal of superior customer service in the forefront of your business' mission and daily operations. Begin with delivering quality products and services on a consistent basis and Communicate, communicate, communicate...

- Develop and maintain a mission dedicated to providing superior customer service

- Teach and mentor customer service to all new and existing employees

- Reward employees that provide superior, above and beyond the call, service

- Develop and implement systems to deliver superior customer service such as keeping to appointment times, routinely calling the patient to inform them of any delays and calling again within 24 hours after the delivery to gauge customer satisfaction.

- Develop and implement systems to monitor customer service such as attaching a postage paid, customer reply card that is returned to President or owner of the business. When a customer takes the time to complete the card, provide them a personal reply.

- Tout your successes. Let the community know how you are doing. Tell them in your advertising literature, message on hold, community sponsorship.

- ASK the patients to refer their friends.

If someone receives superior customer service, in many instances, they will be pleased but will not tout the service to others. However, if a patient receives poor customer service, the chances are very high that they will tell at least one or more people about it. The power of negative word-of-mouth claims can be very damaging to your business.

Whose responsibility is it to initiate and sustain a CS program?

Customer service should be ingrained into the organization from the very beginning... starting at the top and ingrained within each and every employee. A customer service manager may be employed, especially within a larger firm, whose responsibility it is to maintain a high level of customer service. Ultimately, it is the responsibility of their entire team to communicate with the customer and provide those extra little touches that give them the perception of superior customer service.

You may be surprised to find out that good customer service will cost you very little and add tremendous value to your business.

and that is certainly something to think about. 

Free Offer: Market Valuations

Ever wonder just what your business would be worth should you sell it today? Paragon Ventures is now offering a professional market valuation of your home healthcare business.

Paragon Ventures provides valuations that are completely objective, independent and professional. Our valuation of a closely-held business combines financial and economic analyses into a relevant and quantifiable representation of value. The valuation process translates complex business valuation theory and terminology into a clear and understandable appraisal of fair market value.

The basis of our valuation will depend upon the precise nature of the homecare business' activities ie: mix of respiratory, DME and IV business and will include a basis as a multiple of the future maintainable earnings.

As experienced professionals in mergers and acquisitions of home healthcare companies, we have the specific knowledge, resources and talent to provide an accurate valuation of a home healthcare company such as yours and to subsequently represent the company (when the time is right) in its sale or merger.

SPECIAL OFFER

For a limited time, Paragon Ventures will provide a full credit on the cost of a market valuation toward our fee charged when you decide to sell the business. An accurate market valuation is critical information that can help you plan, prepare and execute a successful sale of your business. Our credit offer is like having a professional valuation provided for free.

Simply register for your valuation and a Paragon Ventures valuation expert will call you to begin the evaluation process.

Paragon Ventures Valuation Registration »

Valuing Your Referrals

By Denise McClinton

National Nurses Week, scheduled for May 6-12, presents HME providers with an excellent opportunity to market to their referral sources.

Referral sources, many of whom are nurses, face enormous challenges as they seek to remain current with new technology and treatment protocols. Unfortunately, they are often too overworked to access this new information on their own. National Nurses Week is a prime occasion to show appreciation for the work nurses do while educating them on the latest advances in the HME industry.

There are many ways to show your support for nurses and other referral sources. Some ideas of how to celebrate National Nurses Week include:

· Hold a special reception in your store to recognize nurses in your community

· Sponsor a health fair in recognition of your referral sources

· Offer a lunchtime educational seminar on an innovative or frequently denied product

· Fund a screening event for seniors in an under-privileged area

· Offer a discount on uniforms, scrubs or nursing shoes

· Hire a registered massage therapist and promote free chair massages for nurses

· Send a "Letter to the Editor" to your local newspaper detailing the importance of nurses in your community

· Request a proclamation from your mayor declaring May 6-12 as National Nurses Week

· Host a press conference that focuses on an important health care issue in your community and invite the media, local medical groups, and local and state politicians

When you do plan an event, remember to promote it. Inform local newspapers, television and radio stations, and your Chamber of Commerce of your plans to celebrate the work of nurses in your community. Once you determine the appropriate contact, be sure to designate a media spokesperson in your company who can provide complete information on the event. In addition to supplying the purpose, time, date and place of the event, also provide reporters and other media personnel with facts about the HME industry that underscore its important role in health care delivery.

Too often, the press this industry receives is negative. Nurses are a critical part of our health care delivery system. Whether they work independently, in a physician's office, in a hospital or rehabilitation center, in the home health care industry or in a payer environment, they are important decision makers who you need to have on your side. Show them your appreciation for the work they do - they deserve it!

Denise McClinton is an experienced freelance writer for various healthcare publications. She can be reached at McClinton Communications 254.772.2941 or email dmcclinton@hot.rr.com.

Trivia Contest

TRIVIA TRIVIA TRIVIA

The first correct answer to reach us at Paragon Ventures will receive two movie passes to their local theater! Submit your answers via email to info@paragonventures.com.

QUESTION 1

Remember the Marx brothers? What are the real names of Groucho, Chico, Harpo and Zeppo?

QUESTION 2

On what date was Medicare signed into law and by whom?

Rules: Only one winner permitted per month per contest. The first correct answer will be determined by the date and time shown on the email.