Considerations for Fair Market Value Healthcare enterprises are increasingly relying on intangible assets to enhance their ability to provide timely, quality professional medical services to patients. Trade secrets are one such class of intangible asset that may be owned by a healthcare enterprise. A trade secret is any information that has economic value and is not generally known by the public. Technical and specialty research may be considered the “work-in-progress” of patents, copyrights, trademarks, or other intangible assets, and this research usually entails the use of trade secrets, i.e., special “know how” that is often protected (or padlocked), in contrast…
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This article briefly discusses the current trends in the practice management industry, as these trends may directly and indirectly affect both the management company and the healthcare entity. This overview of the services provided by practice management groups, is followed by a discussion of the competitive, reimbursement, regulatory, and technological environments in which practice management groups operate.
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Enterprises, Assets, and Services With the emergence of value-based reimbursement, such as accountable care organizations (ACOs), clinically integrated networks (CINs), and bundled payment models, which rely on achieving the “Triple Aim” of healthcare at lower cost, U.S. hospitals are increasingly looking to change how services are being delivered by seeking more collaborative relationships with physicians, including vertical integration strategies such as the acquisition of healthcare-related enterprises, assets, and services (e.g., physician practices), direct employment, co-management, and joint venture arrangements with physicians and other providers. This abridged article was the first in a series of articles that appear in The Value…
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The Value of a Business is Not Always What it Seems (Part II of II) Personal goodwill is taxed at the individual capital gains tax rate, not the higher corporate income tax rate. Therefore, a credible personal goodwill calculation can amount to significant tax savings. One that is not adequately defensible invites risk of an audit. Every personal goodwill calculation is unique to each business, and the management interview is crucial. In this second part of the article, the author discusses issues that arise valuing identifiable intangible assets if goodwill is derived by first valuing personal goodwill, questions to ask…
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Physician On-Call Services This article focuses on physician on-call services and issues that valuation professionals must anticipate and consider in such an engagement. The article is a distillation of an in-depth article published in The Value Examiner July/August 2017 issue. In that issue, the authors also discuss classification and valuation of compensation for physician services and valuation of medical director compensation arrangements.
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ANAV Method Illustrative Example This discussion is the final installment of a series related to the asset-based business valuation approach. The prior discussion described the theory and methodology of the adjusted net asset value (ANAV) method. This final discussion presents an illustrative example of the application of the ANAV method.
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Why it Shouldn’t be A Dirty Word in the Valuation of Physician Practices The topic of goodwill in a physician practice acquisition continues to be hotly debated. There are very different viewpoints from reputable appraisers on how to value physician practices and whether hospitals can pay for goodwill in an acquisition. I often hear healthcare professionals involved in acquisitions say, “Hospitals can’t pay for goodwill.” However, there is no legal or financial reason why goodwill cannot be considered in a physician practice acquisition. This article discusses the merits of considering and including goodwill in the valuation of a physician practice.
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What About Subsequent Events—Lessons from the Valuation of Artwork? In the December 2015 Tax Court Memo Estate of Newberger v. Commissioner, the Tax Court considered post-date-of-death sales prices in the valuation of three separate pieces of artwork owned by the decedent. Considered in one instance was the sale of the actual piece of art itself, and in two other instances, the sale of other pieces of art considered comparable to the art owned by the decedent. Also at issue was how the Great Recession impacts value in the context of reliance on actual or comparable sales transactions. Although this case…
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The Compensation-Productivity Nexus Affiliate employer agreements that do not involve designated health services may not be subject to Stark Law. However, where there is an ownership nexus—shared parent or direct subsidiary—between the hospital and affiliate employer, regulators may be able to find Stark Law violations. As governmental agencies drill down well beyond simple compensation comparatives, into the productivity and collections information at issue, hospitals, health systems and the valuation consultants who advise these organizations need to be aware of the ever-increasing scrutiny not only of compensation but the fair market value opinions that may support such compensation. This article examines…
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Obviously, every equity compensation plan is different and the particular tax treatment of a given security depends on the facts and circumstances of the arrangement. Samantha L. Albert, senior financial analyst with Mercer Capital, examines equity-based compensation and the tools available when examining these arrangements. To read more about the results of this report in the Mercer Capital’s Financial Reporting Blog, click: The IRS Equity Compensation Audit Guide. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit: http://mercercapital.com/category/financialreportingblog/.
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When Using Guideline Transaction Data Income taxes play a major role in the pricing and structure of business transactions because income tax consequences associated with the sale or purchase of a business can substantially reduce the seller’s net proceeds and/or lower the net cost of a purchased ownership interest to the buyer. Because of this issue, it seems appropriate to assume that actual transactions are structured by buyers and sellers to address such income tax consequences. This article addresses the impact of federal income taxes on transaction prices and terms, and considers the impact of taxation on the selling prices…
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An In-Depth Series on Healthcare Valuation This first installment will discuss Fair Market Value, the most prevalent standard of value in the healthcare industry, and why this is the required standard of value for most healthcare transactions. This article will also discuss the premise of value, which further defines the circumstances of the transaction, and how to determine which methods may be applicable to valuing an outpatient enterprise.
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Are you aware of these interesting tips regarding Section 409A? There may be more to it than you think. Travis Harms, leading Mercer Capital’s Financial Reporting Valuation Group, answers eight questions to offer practical and comprehensive information about how Section 409A works. Read more about the results of this report in the Mercer Capital’s Financial Reporting article, 8 Things You Need to Know About Section 409A. This article is republished from Mercer Capital’s Financial Reporting Blog. It is reprinted with permission. To subscribe to the blog, visit http://mercercapital.com/category/financialreportingblog/.
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Managing Expectations of Sellers and Buyers Using the Right Standard of Value The author presents eight standards of value that a valuation analyst may need to consider and discuss with a client. Each standard has a different set of rules and the valuations can vary greatly. Valuing a business is an art – not a science – even though careful calculations are made to arrive at an appraisal of the business. The author also provides some insight regarding how these are used and how the valuation analyst can protect their client.
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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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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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The Art of Licensing Your Trademark What is the value of a name? A trademark? In this article, the authors discuss the traditional valuation approaches and their limitations deriving the fair market value of the trade name.
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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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This past summer, the firm of Pluris Valuation Advisors LLC released a detailed white paper on the valuation of life insurance. According to the authors, when valuing life insurance or life insurance-linked instruments such as split-dollar collateral assignment receivables or split-dollar promissory notes, there are only three elements of Fair Market Value. These include: Illustrations from the insurance company projecting expenses, premiums and cash values The mortality rates applicable to the insured life as of the valuation date The discount rates applicable to the cash flows from the policy as of any given year. The full report, Life Insurance: Mortality…