A Step-by-Step Guide to Sell-Side Due Diligence for Drug Rehab Sale

Selling a drug rehab business is a complicated procedure requiring careful attention to operational details. No matter, if you are the owner or an entrepreneur looking to purchase a drug rehab facility, understanding sell-side due diligence and its prerequisites, can save you from both financial and investment losses. According to Polaris Market Research, the market for addiction treatment is anticipated to expand dramatically, reaching an estimated $12.3 billion in 2023. So, ensuring a safe exit is necessary to maximize your ROI.

Strategique Partners can provide expert sell-side due diligence and brokerage services for your drug rehab business sale, Consult Today!

4 Pillars of Finance Valuation: What Buyers Look for in a Drug Rehab Business

People who want to buy drug rehab centers look at a few key factors to figure out how much the facility is worth. Being aware of these pillars can mean the difference between a business deal going through and not going through. When people are looking at your rehab center, these four things are the most important to them:

Pillar 1: Legal Compliance

Compliance with regulations is a deal-breaker. People who are interested in buying your building want to know that it follows all state and federal rules. This includes making sure that your licenses for each state are current and that you follow any Medicare or Medicaid rules that apply.

• Make sure you have all the latest certifications you need, like SAMHSA and DEA.
• Check the staff’s qualifications, such as the licenses that medical staff and therapists need.

Working with behavioral health licensing experts can help speed up the compliance process if you don’t know much about the rules and regulations.

Pillar 2: Sound Financial Health

Being open about your finances is important for showing that your building is financially healthy. Buyers want clean financial records that are ready for an audit, as well as a diverse group of payers, ideally with a balance of self-pay, private insurance, and government support.

• Profit margins for drug rehab that are healthy, are usually 15% or more for outpatient programs and 10% or more for inpatient programs.
• Not many accounts receivable (less than 5%) are past due by 90 days.
• A well-put-together financial package with a detailed quality of earnings (QoE) report will help show that your rehab center is a safe and profitable business.

Pillar 3: Higher Treatment Success

Strong clinical results are important to buyers because they have a direct effect on the facility’s image and ability to stay open in the long term. Low relapse rates (aim for less than 40% within six months of release) are important to note.

• A good number of staff to patients, usually 1:6 for inpatient care and 1:10 for outpatient care.
• Focusing on your rehab center’s professional success can make it seem more valuable to buyers who care about getting good results.

Pillar 4: Room for Future Improvement

People who want to buy your building are also interested in how it can grow in the future. There are several ways to show this:

• Not being used bed capacity—if your facility is approved for 50 beds but only uses 35, this means there is room to grow.
• Scalable infrastructure, like the ability to grow with owned buildings or leases that can be changed to fit your needs.
• This includes putting together technology like EHR systems and remote features.

Making your rehab center’s growth potential stand out can make it a more appealing business. Consult company development advisors to plan your exit!

 

 

Process of Due Diligence: Pre-Sale Checklist to Follow

We have compiled the process of due diligence for your drug rehab through our expert step-by-step guide, including:

1. 6-12 Months Before Sale

Do a Compliance Audit to make sure that all of your licenses and other government permits are current.

• Take Care of Any Pending Legal Issues: Take care of any ongoing legal issues or reviews that could cause the sale to be delayed.
• Renegotiate Contracts With Payers: Get better deals with insurance companies to increase the number of people who will pay you.

2. 3-6 Months Before Sale

• Sort Out Your Financial Documents: make financial records for the last four to five years and make sure they are ready for an audit.
• Train Staff on HIPAA Compliance: Make sure that all of your employees know about HIPAA and behavioral health and other rules that protect patient privacy.
• Optimize EHR Data for Reporting: Make sure that your electronic health record system can produce correct reports that show how patients did to improve data tracking and outcome management.

3. 1-3 Months Before Sale

• Write an Executive Summary: Write an executive summary that tells potential buyers about your facility’s strengths, compliance, financial performance, and growth possibilities.
• Put Together Licensing Paperwork: Make sure that all of your licenses and other papers are easy to get to.
• Work With M&A Advisors: You might want to work with a mergers and acquisitions advisor to improve your approach and plan for selling.

Licensing and Compliance: Legal Check Before Sale

Stay ahead of regulatory changes, such as those under the Ryan Haight Act for telehealth services. Make sure that your policies and practices are up to date-and compliant with the latest CMS mandates.

Regulatory compliance problems are a big reason why drug rehab deals don’t go through. Buyers will closely examine your facility’s compliance, so it’s important to fix any problems that might come up before they happen.

Step 1: Check to See if You Meet State and Federal Requirements.

• Make sure that all of your SAMHSA certifications are up to date, especially those for Opioid Treatment Programs (OTPs).
• Take care of any DEA checks or audits that are still open, as these can be big deal-breakers.
• Check to see if you are following 42 CFR Part 2, which protects the rights of people who are getting help for addiction.

Step 2: Take Care of Issue With Staffing

Studies have shown that buildings with more than 20% casual staff are worth less. To prevent this, make sure that the number of people working for you stays stable.

Need help hiring people? Our team can help you keep your employees stable and make sure that changes go smoothly.

Financial Optimization: Presenting Audit-Ready Records

Consider hiring a financial expert to prepare a quality of earnings (QoE) report, which can help you sell faster and at a higher price.

One of the most important things that affects a buyer’s decision-making process is how much money they have. Here are some ways to show that your financial records are clean and well-organized:

Fix Money Problems That Are Killing the Deal:

• Services Not Billed For: Coding mistakes cause about 12% of rehab income to not be received. Check claims and make sure payment is correct using tools like Kareo.
• Over-Reliance on Self-Pay: If more than half of your customers pay for their care, you may not get paid as much. Try to get better insurance plans to improve your payer mix.
• Pending Court Cases: Take care of any cases or malpractice claims before you start the selling process so that you don’t turn away potential buyers.

Operational Maintenance: Standing Out in Services

People who are interested in buying your building want to see that it is clean, efficient, and able to grow. To show that your rehab center can do well after the sale, this is a good idea.

Write Down Operational Assets:

• Training Guides: Provide thorough staff training materials to show how quickly new workers can fit in at your business.
• Contracts with Vendors: Buyers like having long-term ties with trustworthy suppliers and vendors.
• Referral Networks: Make a list of any relationships you have with hospitals, courts, or other groups in the area that send clients to your facility.

People Who Buy Tech Stack Love:

To show that your rehab center is up-to-date with technology, buy an Electronic Health Record (EHR) system that works well. When you use outcome tracking tools, you can show buyers real-time clinical results, which is very appealing.

Legal Hurdles: Avoiding Fraud, Privacy, and Real Estate Risks

Legal risks can lower the value of your rehab center by a lot. Before you start the sale process, make sure you take care of any possible legal problems.

Stay Away From Fraud Risks:

Always make sure that the way you bill is clear and follows all the rules. Buyers will be looking for any signs of fraud, such as strange billing or plans to get money from sellers.

• Protect Patient Privacy: Make sure you follow HIPAA rules to protect patient privacy and avoid expensive lawsuits.
• Real Estate Risks: Buyers will also look at how much the land around your building is worth. Fix any problems that might come up with the property’s ownership, the terms of the lease, or the rules for zoning.

Partnering with a Broker to make a Turn-Key Sale Opportunity

Still, perplexed due to a complex due diligence process for your business? Worry no more, consult Strategique Partners’ expert due diligence advisors to streamline the sale of your drug rehab without any loss of financials and covering all legal hurdles. Our team is expert in:

• Due diligence process
• Deal Breaking
• Signing NDA
• Transition
• M&A Advisory

Register Yourself as a Seller to reach out to our experts helping business owners exiting with maximum ROI.

Common Queries About the Due Diligence of Behavioral Health Business

Some of the queries of rug rehab owners regarding due diligence include

How Long Does the Sell-Side Due Diligence Process Take?

Depending upon the complexities and legal hurdles, the due diligence process of a business can take from six months to a year. Consider filling all your operational defects and legal issues before the due diligence process to shorten this time frame.

What if My Business Has Compliance Issues?

A drug rehab with compliance issues will have fewer buyers than usual. The due diligence process for such businesses will depict financial and compliance flaws that will delay the process of sale until the issues are resolved.

How Do I Know My Financial Records Are in Place?

Consult a financial advisor in the behavioral health industry to prepare a financial statement of your facility depicting all of the ROIs, EBITDA, and profit loss statements. In this way, you will be able to better understand the financial standings of your business.