he intersection of private equity (PE) and healthcare presents unique opportunities and challenges. Aligning the goals of financial performance and patient care excellence is critical to the success of any post-acquisition strategy. However, these goals may initially present as opposing priorities. The key to creating an environment that supports both individualized patient care and financial success lies in a third component, one that serves to bridge the gap – operational consistency.
Incorporating a consistent care model into the operating strategy of a healthcare organization serves as a critical third pillar in the triad that comprises a successful platform: operational efficiency, clinical excellence, and enhanced financial performance.
Variability as an Opportunity
When pursuing a healthcare rollup strategy, variability within operations can present substantial opportunity. Variability can come in many forms, including:
• Variability in processes or workflows
• Variability in work performance due to training gaps or personnel issues
• Variability in technology
• Variability in staffing methodologies and ratios
While not always negative, these variabilities often lead to differences in performance, cost, quality, and consistency of care. It makes businesses more difficult to predict and manage. Private equity firms can unlock significant value by addressing this variability, improving EBITDA while simultaneously enhancing the quality and consistency of care. This dual benefit can elevate the healthcare organization, enrich patient outcomes, and bolster financial performance.
PE firms and clinical stakeholders often face challenges in achieving consistent margins and EBITDA across different locations.
A consistent care model presents a systematic approach designed to ensure that patients receive continuous, coordinated, and comprehensive care throughout their healthcare journey. Consistency in care often translates to better EBITDA while simultaneously yielding favorable patient outcomes. Studies have correlated consistent care models with reduced hospital readmission rates and improved management of chronic diseases such as diabetes. Patients who experience consistent care also report significantly higher satisfaction rates compared to those without consistent care pathways.
The Missing Piece
PE firms looking to expand existing healthcare platforms may face resistance from physician-owned businesses where standardization is not the norm. The high stakes involved in healthcare add layers of complexity and risk. While private equity firms bring financial expertise and clinical stakeholders bring clinical expertise, a critical component of operational expertise is often missing from this collaboration.
Operational transformations or operating models that focus on identifying and implementing best practices consistently, where appropriate, bridge the gap between financial and clinical expertise. Consistent operating models generally lead to improved predictability in financial performance by identifying and socializing the best methods of delivering various types of care using a cross-functional / cross-location approach.
Operational efficiency helps facilitate an environment where healthcare providers can deliver more personalized care.
PE firms and clinical stakeholders often face challenges in achieving consistent margins and EBITDA across different locations. To address these discrepancies, external operational experts are often called upon. By analyzing performance across networks, independent consultants can develop models to identify areas for improvement and inform strategic decisions, such as additional acquisitions.
Bridging the gap between financial goals and patient care is essential for long-term success. Effective collaboration between PE firms, healthcare providers, and operational experts is crucial for optimizing performance and driving sustainable growth. This synthesis enables a seamless integration of efficiency and empathy, ultimately fostering environments where financial health and human health thrive together.
Additional Strategies
Strategies for consistent care and operational efficiency also help healthcare organizations gain visibility into their asset capacity and utilization. This can improve performance and facilitate growth by increasing patient access to key services throughout the system.
A case study of a large healthcare network demonstrates the potential impact of these strategies. The network sought to expand through increased patient access to key services. An operational assessment revealed that essential assets were less than 50% utilized, scheduling practices led to exaggerated appointment wait times, and departments such as scheduling and care delivery were siloed, leading to significant rework. A transformation project successfully improved planning, scheduling, real-time reporting tools, and communication cadence, resulting in a 10% Improvement in average capacity, 18% Improvement in average utilization, 27% Improvement in productivity per labor hour, 8% Increase in volume, and a 24% reduction in average appointment lead days. These results reflect the potential for operational excellence to deliver improved asset utilization and increased access to care.
Incorporating Individualization
Improving operational efficiency through standardization of routine tasks enables healthcare providers to redirect their focus towards individualized patient care. Research shows that standardizing administrative and procedural tasks can improve operational efficiency, reduce errors, and create a more stable work environment. Operational efficiency helps facilitate an environment where healthcare providers can deliver more personalized care.
The value of a consistent care model increases exponentially when adopted across a healthcare portfolio or even more broadly across multi-industry portfolios.
Furthermore, the standardization framework itself is often not a one-size-fits-all approach. It typically involves creating operational archetypes or consistency within distinct groups tailored to specific clinic clusters. For PE firms, this combination of standardization and individualization enables performance comparisons across the portfolio and informs future acquisitions with clear performance expectations.
An example of this can be found in a project our firm implemented for Canada’s largest provider of community healthcare services. We established standardized procedures and reorganized management systems and teams to provide a new framework for better support. The project improved the Client Services operation, the part of the organization where community services are scheduled, customers are onboarded, and cases are managed. This department facilitates services at 20+ locations across five provinces and hundreds of communities. Prior to the transformation project, each location had different workflows, system setups, call tree designs, management structures, and leadership approaches. Standardization resulted in cost savings of approximately 20% without additional capital investment. These optimization opportunities closed performance gaps and demonstrated the potential of standardization strategies.
Expanding the Impact
The value of a consistent care model increases exponentially when adopted across a healthcare portfolio or even more broadly across multi-industry portfolios. It is important to note that this method is supplementary; it enhances value creation without replacing existing strategies. It allows for scalability across various sectors by focusing on operational excellence—an essential aspect of value creation in today’s environment. Additionally, consistency provides better portfolio reporting, aiding strategic decision-making.
Bridging the gap between private equity and healthcare through a consistent care model aligns financial objectives with patient care excellence, fostering a culture of continuous improvement and operational efficiency.
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About the Authors
Emma Bambrick is a Director, Partner, and head of the Healthcare division at Carpedia International, a global operational improvement consultancy. Emma works with leaders to align their organization’s culture and behaviors, improve and implement their operational plan, and drive performance improvement. This work has led to long-standing client relationships and tens of millions of dollars in realized benefits.
Joe Koehler is a leader within Carpedia’s Private Equity Practice, known for his exceptional ability to build and nurture relationships with Private Equity firms and their portfolio companies across North America. Joe has held senior-level management positions in several financial services firms and is experienced in equity markets, financial communications, and ESG initiatives. His internal contributions have included developing new product and service offerings and enhancing operational strategies.
Carpedia International is a global operational improvement consultancy that partners with organizations across various industries to help them achieve sustainable performance enhancements. By focusing on aligning corporate strategy with day-to-day operations, Carpedia delivers customized solutions that drive measurable improvements in productivity, profitability, and organizational culture. The firm utilizes a hands-on approach, working closely with clients to identify inefficiencies, implement best practices, and ensure long-term success through continuous improvement and accountability.
For more information, visit www.carpedia.com.
© 2024 Private Equity Professional | October 9, 2024
