Why You Should Sell Your Business In 2019
Consolidation in healthcare picked up steam in 2018 and shows no signs of slowing down in 2019. This trend, along with other factors, is placing great pressure on providers of healthcare services to address a critical question: Is this the year to sell?
For many providers, the answer should be simple: yes.
In this first in a two-part series, two of our Managing Directors speak to why pharmacies and intellectual or developmental disabilities (IDD) service providers should sell in 2019.
It’s never been more difficult to run a successful pharmacy, especially for the roughly 23,000 independent pharmacies still in operation. The bad news is that it’s not going to get any easier. Reimbursement is tightening, with audits further cutting payments. Direct and indirect remuneration (DIR) fees are on the rise, costing some pharmacies hundreds of thousands of dollars. Accreditation is becoming more cumbersome and expensive. Consolidation of chain pharmacies is giving the big players an expanded footprint and greater ability to leverage their market power (e.g., advertising, contracting, purchasing, shipping/delivery). These larger entities are rolling out new engagement resources (e.g., apps, messaging services, portals) that make it easier for consumers to manage their medications.
Then there’s the threat presented by Amazon’s expanding pharmacy business and the steering of large groups of consumers toward specific pharmacies, as is the case with CVS/Aetna merger. Finally, there’s the changing consumer landscape that is seeing people value personalized service and loyalty less and convenience and ease more.
Pharmacy owners need to ask themselves, “Am I willing and prepared to do what is necessary to create and support an infrastructure that will allow me to compete and remain solvent?” If there is any hesitation to answer this question in the affirmative, this is the time to get moving on an exit strategy.
The time is ripe for providers of IDD services to seek out buyers, mergers or investors. Shifting regulatory standards, such as the new setting’s rules mandated by the Centers for Medicare & Medicaid Services, will require changes to the IDD service model. This may prove difficult for some providers, particularly smaller agencies typically lacking the resources necessary to adjust their service delivery.
Another development likely to make it more challenging for providers to remain independent is the shift toward managed care coverage for IDD services. Managed care represents a more “sophisticated” payer, with complex requirements unseen before, such as outcomes data. Managed care organizations require contract negotiations and establish their own billing requirements. IDD agencies can benefit from a more sophisticated back office and use of technology to meet the expansive, complex demands of these organizations.
Despite the growing challenges facing IDD, the good news is that investors are still looking to buy. With an abundance of uninvested private equity money, there are more investors pursuing acquisitions in small-to-mid markets. Buyers are interested in pursuing creative designs that combine platforms which can help one another.
Furthermore, the bringing together of small agencies can yield economy-of-scale benefits. It is easier to negotiate matters such as reimbursement rates and purchasing of supplies and services when you control a larger portion of the pot. You have more influence over policy change when you are a larger, successful provider. Finally, you are in a better position to take more calculated risks since a smaller investment — and potential for loss — will be less impactful to a large organization.
Contributing Advisors
