Healthcare Valuation Considerations when Valuing Outpatient Services With healthcare evolving, how can practitioners project the future benefit stream related to outpatient services? In this article, the authors discuss the use of hypothetical and extraordinary assumptions. They argue that use of these assumptions requires careful consideration as they can have a significant effect on value. In addition, the valuation analyst must adhere to the disclosure requirements set forth in USPAP which requires the valuation analyst to clearly and accurately disclose all assumptions used in the assignment
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The Structure of Physician Compensation The structure of compensation for hospital/health-system employed physicians is a constant struggle for administrators with the rise of physician practice acquisitions and subsequent employment of these physicians. Based on estimates from Jackson Healthcare1, approximately 35 percent of all physicians are employed by a hospital/health-system. As a result, the issue of how to structure and benchmark physician compensation has emerged as a leading topic among both valuators and hospital/health-system administrators. In this article, the author discusses the pros and cons of the work RVU compensation model, the most popular model.
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In this second part of a two-part series, the authors discuss why and when the highest and best use standard should apply.
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Traditional valuation methodologies have relied upon the analysis of historical accounting and other data as predictive of future performance and value. However, this may not hold true with every economy, industry, or even every enterprise within an industry, over time. For example, the turbulent status of the healthcare industry over the last five decades, since the passage of Medicare in the 1960s, has introduced intervening events and circumstances that have had a dramatic effect on the revenue, expense, and subsequent net economic benefit stream of enterprises operating in the healthcare marketplace. Accordingly, the “road map of historical performance” of healthcare…
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Merger and acquisition activity in the healthcare industry has increased over the past few years. The playbook used in the past has shifted. In this article the authors share their views on whether and when to announce the deal, the importance of conducting pre-deal due diligence, appearing before the Board of Directors, understanding the constituents that are needed to succeed, and conducting pre-market due diligence in anticipation of Federal Trade Commission scrutiny.
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Valuators Take Note Fair market value is key to compliance with both the Stark Law and the Anti-Kickback Statue. Solid, well-reasoned valuations can be essential in establishing compliant arrangements, and these must consider practice losses as applicable. In this article, Lynn Gordon, Esq., states that it is “prudent to have a valuation in place that supports compensation as fair market value,” especially if the practice area incurs losses. Gordon adds this is especially important in “high-stakes transactions likely to draw attention (e.g., transactions with significant inpatient care reimbursement such as cardiology and orthopedic surgery).” Gordon advises, “valuator[s] should work together…
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In this article, Robert Cimasi and Matthew Wagner provide a roadmap of the valuation and legal issues valuation professionals confront valuing a medical practice that also provides ancillary and technical component (ASTC) services. The fact that the ASTC services are often integrated with the professional services of a practice does not restrict the ASTC service line from having value separate and aside from that of the practice enterprise. The authors share their views on how to value the hypothetical “carve-out” ASTC, including what approaches to consider.
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Insights from the Analysis of Mega Transactions By scrutinizing data from large transactions, valuation experts can glean important information and insights into current healthcare valuations. In this article, Collin McDermott and Bridget Triepke summarize SEC filings, review the implied valuation of large healthcare mergers—based on the purchase price—and provide a detailed review of the fairness opinions provided by investment banks to both Vanguard’s and Health Management Associates board of directors and shareholders. Specifically, the authors detail the results and key assumptions utilized by the investment banks for the GPCM, M&A Method, and Discounted Cash Flow Method.
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On September 18, 2014, the Internal Revenue Service (IRS) issued two new notices—one proposing changes for when a taxpayer can revoke healthcare coverage in a cafeteria plan and enroll in a plan on the health insurance marketplace exchanges; the second notice proposes an approach for how to measure the lookback period for determining who is a fulltime employee when an employee changes positions within the same employer group. Cafeteria Plan Elections In Notice 2014-55, the IRS proposed amendments to Regs. Sec. 1.125-4 to permit employees to revoke their election of employer-sponsored healthcare coverage under a cafeteria plan and purchase…
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Among many legal challenges to the validity of the Affordable Care Act (ACA), is Halbig vs. Burwell. The challenge concerns a passage in the statute, when literally read as worded, makes federal tax credits for insurance programs available only to those enrollees in states that have created a state-designed and operated healthcare exchange. Read as it currently exists, the statute does not allow for such tax credits in states that did not set up their own exchanges, but instead chose to allow residents to purchase insurance through a system created by the federal government. This distinction was part of…
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Approaches and Methods Used to Realize Income from Licensing IP Assets This article discusses valuation topics related to a subset of intangible assets which are most applicable to healthcare businesses. Business valuation professionals are often engaged to value specific intangible assets, either as part of a detailed business valuation or after a transaction has been completed. When valuing healthcare-oriented service businesses, it is common for a business’s intangible value to be far greater than the value of its fixed tangible assets. Intellectual property (IP) can be licensed and provide a source of income.
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Reimbursements from insurers, made to healthcare facilities for the care they administer, are an essential part of the valuation of hospitals, clinics, outpatient care centers and other facilities. As if that exchange wasn’t complicated enough, it’s about to go through another transition that very well may impact the valuation of all healthcare institutions. According to a new white paper released by McKesson, the existing fee-for-service model will be phased out by a new “value-based” payment model within five years. The survey, commissioned by McKesson and conducted by ORC International, estimates that by 2020, nearly 70 percent of reimbursements will…
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A standard distinct from the fair market value standard The fair market value is distinct from the commercial reasonableness standard. The article highlights how these standards are applied in a healthcare transaction and why it is important to distinguish these standards.
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Compensation for PCPs is increasing The increasing supply shortage of primary care physicians (PCPs) will have a significant impact on physician compensation. In turn; this will have an equally powerful effect on the valuation of PCP practices.
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Four things valuators should know about medical claims and coding In this second installment of his review of medical claims coding, Mr. Moffatt sets forth his final two examples that explain the unique circumstances of the medical practice revenue cycle that affect cash flow and how they relate to the valuation of a medical practice. Part 1 of this article was published on March 4, 2014.
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While mergers and acquisitions within the healthcare sector are expected to grow this year, the bulk of the deals will likely involve targets such as large, outpatient care centers and allied healthcare facilities, as opposed to large in-patient hospitals. This analysis comes as part of a white paper recently released by Ponder & Co. Also included were projections that nonprofit institutions will be the more popular target, with a renewed emphasis on combining regional systems and another tough year for the traditional, community hospital. You can get the full details at the link below. [button color=”blue” link=”http://www.ponderco.com/downloads/Ponder-MA-White-Paper-Q1-2014.pdf” target=”_blank” font=”arial” align=”left”]Read…
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Four things valuators should know about medical claims and coding While all valuators need to be able to cite specific factors considered in the determination of fair market value, many times the measures selected could be applied to a variety of industries. In this first of a two-part series, Jeffry Moffatt examines why revenue is most often a primary area of interest for valuation, because without revenue, there can be no cash flow. However, not all revenue streams are created equal, and therefore, specialized knowledge of certain industries is needed to qualify the underlying value of cash flow. The healthcare…
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Continued consolidations among healthcare providers and suppliers David Jasmund examines the effect the Affordable Care Act (ACA) is having on mergers and acquisitions across the healthcare service and supply sector. Using Third Quarter data, Jasmund displays where the opportunities and challenges are occurring within the overall industry.
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How the ACA impacts the valuation of physician-owned hospitals Nick Janiga and David Walline of HealthCare Appraisers, Inc. (HAI) examine how the Affordable Care Act (ACA) affects the valuation of physician-owned hospitals and what the future holds for the 240 such medical institutions across the country.
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Healthcare consulting in an era of reform Part 2 In Part 1 of this article, the impact of healthcare reform on the opportunities for healthcare consulting was discussed. In Part 2, methods utilized by healthcare consultants, as well as the phases of a typical healthcare consulting engagement, are discussed.