The healthcare industry offers EB-5 investments with certain safeguards that are not found in any other industry. For instance, healthcare tends to be recession proof because people need the services of a healthcare provider no matter what market conditions are like. Additionally, it is not dependent on imports, exports or regional economies. It does not rely on any of the four seasons, and it is immune from labor unions while relying on an abundance of skilled and unskilled caregivers nationwide.
What is even more profound here than in any other industry is the payer source. For the most part, healthcare providers are paid by the good faith and credit of the United States government through its participation in nationwide Medicare and Medicaid programs. Notwithstanding government payouts, insurance companies are responsible for a nearly equivalent amount of revenues for the healthcare company accepting patients from employers and individual healthcare insurance policies. Losses due for non-payment of bills are negligible.
The barrier of entry for healthcare companies is well regulated by state and federal agencies that require strict supervision through licensing and reporting schedules. Because of this, healthcare is definitely not for the passive investor and should only appeal to a hands on proprietor-to-be. It will require training provided by a seller and discipline from the new owner to succeed. There are no other options for attainment. Fortunately, this level of stringency can serve as a defense against future failures, since controls are mandatorily implemented and followed.
Healthcare companies work on regulated reimbursement rates published by the government and insurance companies. They function much like a commodity and cannot be discounted or over priced by a healthcare provider. Typically gross profits margins are in the thirty percent (30%) to Forty percent (40%) range, with very few exceptions. This would allow a new owner to earn an average of fifteen percent (15%) to twenty percent (20%) net profit margins, depending on the efficiency of the operator. Of course, the greatest outcome besides making a good living and earning a safe return on an investment is knowing you are being a good Samaritan who provides services that help mankind!
Unlike other industries that are controlled by a few frontrunners, healthcare has hundreds of thousands of members doing anywhere from $500,000 a year to a $200,000,000 a year in revenues. There seems to be a preponderance of companies in the $2 Million revenue range that are doing business successfully and turning a profit. Below the $2 Million mark, it can be harder to achieve a high level of profitability since certain fixed costs remain constant regardless of revenue.
Companies are typically valued according to the Capitalization of Earnings method. Most commonly, a multiplier of adjusted pre-tax earnings known as EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is used. Healthcare provider companies can sell from a multiplier as low as 3X EBITDA to a high of 6X EBITDA, excluding real estate. Prices are determined by trends, location, profitability and efficiency.
If you’d like to discuss options regarding your EB-5 investment in healthcare, please give us a call at 310-437-4422.