To fully understand the tailwinds and risks associated with the current environment for healthcare deals, a different, more comprehensive approach to due diligence is needed. In this paper, we describe an approach that can support investors in navigating diligence through a suite of healthcare-focused analyses to highlight the upside and illuminate the blind spots in a transaction.
At KPMG LLP, our specialists have extensive experience conducting diligence across the full continuum of healthcare assets, including financial, tax, HR, IT and, as the focus of this paper, value creation. We have observed that the traditional approaches to commercial and operational due diligence are adequate for answering basic questions about a target. However, they are often less helpful for an investor to fully understand the effectiveness of a target’s care platform and growth and scalability potential. This is because they don’t evaluate the performance of critical components that are often specialty specific and/or specific to the target’s peer group.
Years of experience evaluating complex healthcare assets have led us to identify reoccurring themes and risk areas and have enabled us to develop a different approach to due diligence. Our differentiated diligence process to healthcare assets supports investors by addressing these key questions:
- How effectively and efficiently is the target managing care?
- What market share differences are there in various procedures or diagnoses, and by case mix?
- Does the market being evaluated support the shift of procedures to an OP setting?
- Is the business model prepared to scale, or will significant investments be needed?
- Are there critical risks or gaps in technology that will be costly or disruptive to address?
- How effective and stable is the revenue cycle management process?
- How effective is the referral network?
- Are there any unforeseen operational, regulatory, or reimbursement risks?
In our paper, we examine answers to these questions, which enable us to assess the potential of a healthcare deal and uncover risks not seen using traditional diligence.
