Recognizing and Mitigating Key Areas of Risk

Risk is most commonly thought of as the potential to experience a loss. It is a well-recognized concept that as actual or perceived risk increases, the value (real or perceived) of financial investment or strategic decision declines. Risk comes in a variety of forms in healthcare, with the most concerning often being regulatory concerns. When contemplating or conducting an affiliation or transaction, unfortunately, risk can be overlooked. Some examples where risks may not be fully appreciated in a transaction or affiliation include the following:

• Capacity:
  Any agreement or transaction will necessarily have an underlying assumption of volume. This could be in the form of wRVUs for physicians, number of tests for labs, or number of patients, and average length of stay for hospitals. Volumes should not be assumed without a true understanding of capacity. If the infrastructure necessary to support projected volumes is not in place, outcomes will be less than desired.

• Volumes:
  Where capacity represents the infrastructure needed to provide services, volume levels represent an additional risk. Variations from assumed levels can be detrimental. In a transaction, not generating expected volumes can contribute to overpayment for an entity. When considering physician compensation, production levels higher than anticipated can create unwanted fair market value issues if the compensation plan was not designed correctly. In either case, understanding the volumes drivers and the potential impact from competitors is key to assessing volumes.
• Undocumented Changes to Agreements:
  In several circumstances, a vendor may have provided a service or set of services for years. However, as clinical practice or resources change, the party to the agreement that actually provides the resource or supply may not correspond to what is documented in the contract. As a result, a party may unfairly benefit from a transaction financially. If physicians are involved, this could implicate regulatory penalties.

The risks in healthcare are truly numerous. However, with a focused and consistent approach to understanding each deal and working with legal counsel, risks can be appropriately understood and mitigated. Contact us today to see how Coker Group can allay risk in your organization.