Risks for Healthcare Businesses

Growing healthcare businesses get into trouble for all sorts of reasons. It’s one of the hardest sectors to really succeed in, as any entrepreneur will tell you.

However, if you manage to get it right, it can be a heady experience. The level of success that some startups achieve is phenomenal, especially if they succeed in protecting their intellectual property.

The challenge, of course, is getting to that level. Being able to run a healthcare business that goes all the way isn’t the easiest job in the world.

Of course there are some familiar reasons why growing healthcare businesses get into trouble. By the end today, you should have a better idea of the minefield that’s out there, and how to avoid it.

Billing Errors

One issue that a lot of healthcare businesses run into is the problem of billing errors at scale. Getting this wrong can lead to all sorts of problems once revenue really begins to ramp up, which is why it is critical to stay on top of it.

When healthcare businesses are small and revenues are below around $2 million, you don’t see that many problems. But when they grow to more than $50 million and chargebacks are running at 5% or more, that’s when the pain really begins to hit.

You can usually fix billing errors by signing contracts, getting client sign-offs, and basically being careful who you charge. This way, you can reduce the risk of fraud allegations significantly.

Over-Reliance On A Single Payer

Another issue growing healthcare businesses get into trouble is that they become too reliant on a single payer. Often, they have one entity that is providing them with money, whether that’s a hospital, insurer, or someone else.

If you run a healthcare firm, you want to avoid this at all costs, unless you have an iron-clad contract with the other party that they will continue to pay you long-term. Don’t get into a situation where you have one buyer who can pull the plug at any time, as that puts you in a position of weakness and wrecks your negotiating abilities.

The same also applies to referrers. Imagine you only have one physician who is plugging your products. That’s a real issue if something happens to them or they decide to change their mind on the matter of working with you.

Private Debt And Equity Issues

You also see a lot of healthcare businesses running into private debt and equity issues. Many operations require a lot of funding from the start, but when the numbers run hot, that can be a problem for long-term cash flow.

Investors should understand the nature of the business timeline from the start. They should have a knowledge of when money is likely to come in and what realistic progress looks like. They shouldn’t be pulling funding after a couple of quarters of low revenues.

If investors are asking for immediate revenues, they could be the wrong people to have onboard. Ideally, funding should come from individuals or organizations that understand the industry and are willing to provide support long-term, even if there are setbacks.

Non-Linear Provider Scaling

A slightly more esoteric issue is the fact that providers don’t always scale the way a lot of healthcare businesses expect. If the first provider is 100%, many entrepreneurs assume that others will scale in the same way. However, that’s not usually how it works. Many new providers only generate 70% or less of what the original did, leading to all sorts of problems down the road.

The main issue here is the problem of overhead. Providers tend to cost around the same, but revenues don’t always follow as quickly. As a result, cash flow issues can mount quickly.

Cybersecurity Issues

Healthcare businesses that collect data can also run into cybersecurity issues as they grow. Suddenly, they’re on the map, and criminals and hackers target them.

Today, this is a big issue, since so many companies are so heavily reliant on their data. They need to protect it at all costs.

More and more technology is entering every workplace, and each can add risk, and each new generation and every upgrade compounds those risks.

Blue Goat Cyber, points out, “A lot of people think, ‘Well, let’s just replace all those devices with newer ones.’ But that’s a larger problem than most people realize because it’s not just a replace and just assume everything’s going to be fine. You also have to train all the staff on how to use a new device. There’s a big learning curve. A lot of healthcare delivery organizations don’t want to pay for new devices.”

Regulatory Creep

You will also notice that regulations are a considerable issue in the healthcare space. Regulators are constantly seeking ways to interfere with healthcare businesses in the purported interest of the public good.

These regulations can build over time and sometimes undermine entire business models. Data regulations, for instance, have made it harder to use patient information to provide better services.

The scrutiny has also appeared on the financial side of the equation. Many states are looking for new ways to identify shady financial practices among businesses in the healthcare space, leading to even more issues long-term.

The only real way around this is to work with accountants and lawyers in the area who understand the latest rules. They should be able to provide you with the right agreements and set ups, and warn you of changes coming down the pike and how they might affect your enterprise.

Founder Dependence And Cultural Rot

A further problem is the issue of founder dependence. Often, many great healthcare startup companies are the brainchild of a very special individual. This person is often the brains and the motivation behind the outfit. When they eventually disappear or move on, the entire enterprise is thrown into jeopardy.

If you have key person risk, work to eliminate it. Shadow new leadership to see if they are doing what they should.

Also, look for evidence of cultural rot in your absence. See whether key employees indicate they might leave if you do. Ideally, you want the enterprise to continue as if you’re still there, even after your leave. If that doesn’t happen, your legacy could be in doubt.

So there you have it: some of the biggest reasons why growing healthcare companies get into trouble.