Continuing effects from COVID-19 brought challenges throughout 2020 related to operations, expenses and bottom lines. Acquisition activities slowed during the year for many industries, and previously robust activity to consolidate physician-owned health care entities by private equity slowed as well. One report from Irving Levin Associates and SOLIC Capital found that health care M&A declined 20% after the first quarter of 2020 to the second quarter, and the third quarter of 2020 was down 25% from the third quarter of 2019.
While the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) brought relief in many forms—including the Provider Relief Fund and Medicare Accelerated and Advanced Payment Programs for health care entities, and the Paycheck Protection Program for small businesses—these programs brought complexities with regulatory bodies and internally for management teams.
Entities were faced with offering new services, such as telehealth visits, to fill some of the gaps from lost revenues, and many organizations faced productivity and revenue losses throughout the year. After a difficult year, management teams faced financial reporting requirements for asset impairments, going concern and debt covenant compliance. Private equity-backed physician-owned health care companies with multiple entities, consolidated through acquisition, typically carry significant goodwill and intangible assets on their balance sheets. Companies may have disparate general ledger systems that make information difficult to come by with no consistency of data, making management’s analyses manual and inefficient. As these assessments for financial reporting will continue through 2021, management teams will need to be proactive in their evaluations of assets and liquidity.
Management teams use cash flow projections, forecasts and other cash management tools for their financial reporting assessments at year-end. In an environment with multiple entities, decision-makers need fast, reliable data to make operating and financial decisions. Best practices in financial reporting include the ability to report and monitor key performance indicators over time and benchmark multiple subsidiaries, business units and product/service lines in a common, consistent format. A business intelligence tool can help organize data from various sources and systems into common formats, reduce time in monthly reporting requirements, and enhance the information you require for making informed, real-time business decisions.
BKD recommends our corporate performance management tool called Financial Performance Insights (FPI) that allows users to visualize financial and operational data using customized dashboards and reports to summarize key information on a real-time basis. FPI can streamline the company’s financial reporting needs, enabling key management and investors to focus on operating and improving the business.
A tool such as FPI provides a convenient, cost-efficient method of aggregating and analyzing data from multiple subsidiaries and disparate systems in real time. In a year of global, personal, public and business disruptions, firms need to monitor their assets in great detail and in an easy-to-use manner to prepare for important operational and financial decisions.
Connie Benten Cagle is a partner at BKD CPAs & Advisors and leads the health care private equity practice.