Quality Outcome Surveys Can Help Increase Business Valuations

When one considers their business to be evaluated, the first questions that come to mind are: (1) When do we need a business valuation? (2) How does the valuation process work?, and (3) Is the process costly?

1. We need a business valuation when (a) we intend to sell the business, (b) we intend to modify the business ownership structure, (c) the business is at a development stage where management standards may have to be amended to bring the business to the next level of development, (d) we intend to seek investors pursuant to securities laws, (e) the business is seeking financing, or (f) the business is sold in the course of a liquidation or bankruptcy process.

2. Business valuation process starts with the due diligence process to determine the business performance (quantified in $$) where (a) financial and operating performances are evaluated, (b) the business structure, its policies, and its procedures are evaluated, (c) all components of the balance sheet are reconciled, (d) HR and management are paired with the business structure, (e) economic and regulatory environment actual and potential impact on the business are quantified, and (f) key contracts are reviewed and analyzed to determine the business potential. Currently, the most common business valuation process is based on net cash flow (net cash flow number may be positively or negatively adjusted to reflect some specifics of the business at hand). The shortcut used for this type of valuation is EBIDTA (or Earnings Before Interests (paid), Dividends (paid), Taxes (applicable taxes based on adjusted income) and Amortizations. The most commonly multiple rates heard of these last 24 months for SUD industry range from 3.5 to 4.5 x EBIDTA.

3. Business valuation can be an expensive process depending on the specifics of the business as well as the documentation quality provided to analysts.

In this context, where do quality outcome surveys help in boosting your business valuation?

1. Income increase: quality outcome surveys help in boosting utilization reviews, treatment extensions, and additional services. It is noteworthy that this impact boosts actual billing, not claims that are covered by co-pays and/or deductibles.

2. Since the income increase sourced in outcome surveys is the result of existing requirements, the boost is net of any additional expense.

3. Practically, for a business that grosses $ 1 MM per year, any increase in actual billing of 1% generates $ 10 K that becomes $ 35 K to $ 45 K in a valuation process based on net cash flow.

4. In the very near future, in addition to the boosts sourced in utilization reviews, treatment extensions, and additional services, outcome surveys’ impact on the business will help in boosting negotiated reimbursement rates. As of today, it is unclear how insurers will modify negotiated rates. It is however prudent to consider that they might use a system of discounts similar to the one used by MediCal. In such an occurrence, the need for quality outcome surveys will become even more apparent.