Healthcare Finance Insights with CFO Mitt Mehta
Healthcare CFO Mitt Mehta shared his tips for leaders of small and mid market clinical operations.
I recently had the pleasure of speaking with Mitt Mehta, an experienced healthcare CFO, on Healthcare Leadership Live. Our conversation dove into the crucial aspects of healthcare finance, offering actionable insights for both independent practices striving for sustainability and private equity groups engaged in scaling healthcare businesses.
Mitt, whom I've had the opportunity to work with and regard as a genuine good guy in the business, shared his perspective shaped by scaling practices in various specialties like allergy, ENT, urgent care, and dermatology. We aimed to provide practical advice for navigating the complex financial landscape of healthcare today.
Understanding Your Financial Position and Goals
A foundational takeaway from my chat with Mitt is the absolute necessity for independent doctors to deeply understand their financial position and clearly define their business goals. Mitt emphasized that whether a doctor is running a solo clinic, managing multiple practices, or considering scaling or eventual sale, knowing their current financial state isn't just a good idea—it's critical. Without this clear picture, they risk making arbitrary decisions that could hurt their long-term value and sustainability. This understanding should align with their personal financial goals, such as retirement plans or potential investments in other sectors. Connecting with a financial advisor is a key step Mitt recommended to gain clarity on their potential and future phases.
Action Step for Independent Small Clinics: Engage a financial advisor to conduct a comprehensive review of your practice's financial health and align it with your personal long-term financial and retirement goals. This proactive step ensures decisions about the practice's future, whether staying independent or considering outside investment, are based on solid data and personal aspirations, maximizing your potential value.
Action Step for Healthcare Rollups: Prioritize robust financial assessment processes during due diligence that not only capture current value but also clearly articulate the long-term financial potential under a partnership. Ensure this assessment process is transparent and helps the acquired group understand their current financial position and the value they bring to the table, mitigating the risk of appearing to "take that value away" arbitrarily.
Focusing on Margin Management
Mitt highlighted that in healthcare, unlike some other industries focused purely on revenue growth, there's often a maximum capacity a provider can reach in terms of patient visits. Providers aren't robots and can only see a certain number of patients while providing effective care. Therefore, once revenue potential is maximized, the focus shifts critically to margin management. This involves optimizing costs to increase the bottom-line profit. Mitt suggested exploring modern solutions, noting that many services are available fractionally at lower costs, providing equivalent or even higher value support. Embracing a "lean mindset" by leveraging fractional support and outsourcing opportunities is something I also strongly believe in and have seen work effectively in the best practices.
Action Step for Independent Small Clinics: Identify operational areas where fractional or outsourced services can replace or supplement in-house functions to reduce costs and improve efficiency, thereby enhancing your practice's financial margin. This could include areas like billing, HR, or IT support.
Action Step for Healthcare Rollups: Actively seek out and integrate high-value, fractional services and technology solutions across your platform to optimize the cost structure of acquired practices and improve overall margins through economies of scale beyond just human capital. This optimization enhances the attractiveness and profitability of the combined entity.
Rethinking Revenue Cycle Management (RCM)
We discussed the common dilemma of managing RCM—in-house versus outsourced. Mitt provided valuable insight into this, advocating for a hybrid approach as the biggest trend he's seen working well lately. This model involves retaining some key insourced staff to support and oversee the RCM effort while leveraging outsourced support for tedious, repetitive tasks. Mitt believes fully insourced or fully outsourced models can work, but he prefers the hybrid approach to lower costs while maximizing oversight and communication. He cautioned against simply "dumping" the RCM function entirely to an outsourced team without internal oversight, as this often leads to breakages because the external team struggles to understand the clinic's internal dynamics, billing nuances, and credentialing requirements.
Action Step for Independent Small Clinics: Evaluate your current RCM structure and consider implementing a hybrid model. Retain or hire an internal staff member with leadership qualities and RCM knowledge to oversee an outsourced team responsible for repetitive tasks, ensuring critical internal processes and nuances are understood and managed effectively.
Action Step for Healthcare Rollups: Standardize and implement a hybrid RCM model across acquired practices. Ensure that dedicated, qualified internal oversight is maintained within each practice or regional hub to bridge the gap between clinic operations and outsourced RCM functions, guaranteeing the outsourced team understands the specific needs and workflows of each entity.
Considering Private Equity Partnerships
For independent doctors considering partnering with private equity, Mitt offered crucial advice on understanding the process and potential pitfalls. He noted that while PE groups are adept at selling the strategy of scale, the ability to execute on that vision is paramount. A key mistake he's observed is groups scrambling for talent at the last minute instead of having established operational talent with a track record of strategic growth.
Providers need to look beyond the "brand" and assess the talent supporting it – will they actually produce what the brand promises? Mitt feels many PE deals struggle (he estimates that only 20% of deals end up fulfilling their promised growth) often because they hire talent that lacks the necessary operating experience in healthcare to execute the growth strategy. True scale-up requires operators, not just bankers, who can understand the deep complexities of healthcare operations from front desk to provider interactions.
Action Step for Independent Small Clinics: Before partnering with a PE group, conduct thorough due diligence on their operational team and track record in healthcare scale-up. Don't just look at the promised growth, but assess the experience and capability of the specific individuals who will be responsible for integrating and growing your practice, ensuring they are operators who understand the nuances of healthcare delivery.
Action Step for Healthcare Rollups: Build and invest in a robust internal operational leadership team with a proven track record of integrating and scaling healthcare practices before aggressively pursuing acquisitions. Ensure this team has the deep operational expertise ("operators not bankers") needed to navigate the complexities of integrating diverse healthcare businesses effectively.
The Critical Role of People and Culture
Perhaps the most resonant theme from our conversation was the paramount importance of the "people angle" in healthcare. As Mitt pointed out, healthcare isn't manufacturing washing machines; it's fundamentally human-to-human interaction. The revenue engine is the doctor seeing the patient, supported by staff.
When outside investment changes incentives, communication, and structure, it impacts the human element. Mitt identified provider productivity risk as a significant problem when doctors lose equity stake. Some may become less productive after cashing out, while others burn out trying to maintain productivity because they didn't fully cash out initially. His somewhat provocative advice for providers is to cash out fully upfront to maintain control over their future productivity level. He believes the PE landscape is shifting towards a more entrepreneurial model where everyone has "skin in the game".
Regardless, the core enterprise value in healthcare lies with the providers. Keeping providers engaged, happy, and included is crucial for the business model to thrive and retain patient loyalty. Integration needs to be about more than just bolting practices together; it requires cohesion, connection, and treating corporate and staff as one team with a shared vision.
Action Step for Independent Small Clinics: Ensure that any potential partnership agreement clearly defines the expectations around provider productivity and equity, ideally allowing for significant upfront value realization to preserve future flexibility and control over your work life. Actively seek partners who demonstrate a commitment to integrating teams cohesively and valuing the existing staff and culture.
Action Step for Healthcare Rollups: Develop and implement robust people-centric integration strategies that prioritize engaging physicians and staff, ensure transparent communication, build a provider recruitment pipeline, and foster a unified culture. Recognize that providers are the core enterprise value and design compensation and equity structures that incentivize long-term engagement and productivity, addressing the risk of burnout or decreased motivation. Avoid commoditizing roles or simply applying large enterprise models to mid-market practices. Lastly but perhaps most importantly, build a clinician pipeline to ensure that clinic utilizations are maximized.
Embracing Technology for Efficiency
Looking ahead, Mitt sees significant opportunities for margin improvement driven by technology, particularly AI and robotics. While the focus shifts to taking care of providers and people, technology tools are increasingly available to create efficiency and save money. AI is expected to become heavily involved in finance, enabling quick analysis and decision-making. This technological leverage will be key for entrepreneurial growth in the future.
As I mentioned during our chat, I'm already seeing businesses exploring how AI can operationally improve everything from hiring to workflow management, automating tasks and distilling information for leaders. This technological wave will empower humans and talent who are engaged and understand how to use these tools to scale in the right direction.
Action Step for Independent Small Clinics: Explore and pilot cost-effective AI and automation tools for administrative tasks, data analysis, or RCM support to improve operational efficiency and enhance financial margins, leveraging technology to complement human efforts.
Action Step for Healthcare Rollups: Strategically invest in and implement technology, including AI-powered financial analysis tools and operational platforms, across your portfolio to drive margin improvement and scalability.
Conclusion
While understanding financial metrics, leveraging technology, and optimizing operations are all vital components of success in healthcare finance, the most important takeaway is the criticality of the "people angle," particularly the providers and the teams supporting them. Both independent practices and rollup platforms must recognize that the revenue engine is driven by human interaction. Sustainable success hinges on keeping providers engaged, motivated, and integrated into the business model, ensuring their well-being and recognizing their immense value. The future of healthcare finance, while benefiting from technological advances, will ultimately depend on how effectively businesses nurture and prioritize the people who deliver care.
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