The Role of Black Box Analysis in Healthcare Decision-Making

In pursuit of improved financial performance and stability, many healthcare organizations are exploring clinical alignment or integration deals to strengthen their financial foundations.

For these strategies to succeed, however, organizations need access to the right data and information to make informed business decisions. Otherwise, their efforts to strengthen or grow their businesses could fall short, resulting in disruptions to care in their communities and financial losses.

Black box data analysis is a key component of successful healthcare deals and partnerships that can help healthcare leaders ensure physician-organization alignment.

What is black box analysis?

Black box analysis refers to an independent and confidential third-party comparison of two or more healthcare organization’s reimbursement, productivity and compensation models.

This analysis is commonly used when health systems, academic medical centers, faculty practice plans, and medical groups are evaluating strategic physician-organization alignment models. It’s a crucial part of due diligence, practice valuation, funds flow modeling, and strategic planning that supports growth and expansion strategies and tactics. Some of the activities black box analysis supports include:

• Acquisitions and divestitures
• Design of network development strategies
• Development of community practice and private practice network models

How does black box analysis work?

A black box analysis is based on information that is usually confidential from each entity evaluating a transaction. Examples of confidential information commonly used in these analyses include:

• Reimbursement rates
• Provider compensation models
• Productivity targets

It’s important that the analysis provides detailed information to support decision-making without violating the confidentiality of the information from each entity. Different firms take different approaches to providing this information while protecting confidentiality.

At BDO, we take the following approach when conducting black box analyses:

1. Productivity Analysis: We begin by analyzing specialty-specific productivity against industry benchmarks and comparing current provider productivity with performance standards for the acquiring entity.
2. Reimbursement Analysis: The second step is to carry out a comparative analysis of reimbursement differences using contracted rates from each entity.
3. Compensation Analysis: At this stage, we analyze provider compensation models from each entity.
4. Data Modeling: The final step is to model data to evaluate the differences in reimbursement and compensation based on potential changes in productivity levels. By sharing the aggregate differences in reimbursement, compensation, and productivity, we can provide an in-depth analysis while maintaining the confidentiality of key financial information for each entity.

Do you need black box analysis?

If your organization is planning a deal, transaction, or partnership, you may benefit from black box analysis.

Reach out to our team to learn how black box analysis can help you make the right decisions for your organization.