Assessing Financial Underperformance in an Acquired Cardiology Practice
Client/Profile
A large Mid-Atlantic non-profit community health system
Challenge/Situation
To determine the cause of significant operating losses at a large, multi-location cardiology practice with physicians employed by the health system. The system had anticipated that acquisition of the practice would generate significant profits based on independently prepared pre-acquisition financial projections.
Process
Veralon reviewed and tested the pre-acquisition projections for accuracy and reasonableness and compared projections to actual financial results. We evaluated the efficacy of the complex group compensation model, and assessed how the model was being implemented; many physicians were earning incentive compensation despite the overall poor financial performance of the group.
We found several significant errors in the pre-acquisition financial projections that had resulted in the material overstatement of estimated future net income.
Results
Based on our findings we prepared updated financial projections for the cardiology group, and made several recommendations for improving profitability, including adjustments to compensation levels and payment terms.
The client is currently implementing our strategies to incent enhanced performance by the cardiology group. The health system is also building additional measures to ensure financial performance into all future transactions it pursues.