Healthcare Valuation Issues in 2013 and Beyond

Healthcare revenue planning challenges

Beware of valuing a healthcare practice based on 2012 revenue. Reimbursement rates are lower in 2013, and penalties are being assigned by Medicare. This could further reduce a healthcare practice’s value.

Healthcare Valuation

With the implementation of the Affordable Care Act (ACA), also known as Obamacare, business valuation professionals need to be especially cognizant of the specific medical service they are being asked to value and how the changes in reimbursement rates affect their analysis. medical  Supporters of the ACA claim that it will increase revenue by generating more paying patients under expanded health insurance exchange and Medicare coverage, but beware; this assumption is not always what it seems when you are engaged to value a medical practice.

Historically, appraisers have been able to look at past  revenue growth trends and  increase the revenue projection for anticipated new patients and relative value unit (RVU)  from the procedures performed.  With the implementation of the ACA, an appraiser needs to examine the reimbursement changes for the specific billing codes for the medical practice and compare the prior year’s reimbursement rate to the current year’s reimbursement rate.  In addition, further analysis needs to be made about the billing codes concerning the mix of payers for a specific practice.  We now need to spend much more time reviewing and examining, in detail, the revenue model for a medical practice to determine if we can rely on what the practice’s accountant or business manager has developed.

Beware, not all medical procedure reimbursements are  the same for every practice specialty.  As many physicians are consolidating some practice specialties are able to negotiate increased revenue reimbursement for their members’ billing codes.  This may result in an increase in the value of an acquisition to a consolidator or larger medical practice group.  Accordingly, don’t just look at 2014 revenue projections—based on 2013 revenues—as future reimbursements may be trending down.  Recently, I was involved with an ophthalmology practice that had its Medicare reimbursement for procedures dropped by 25 percent.  Your specific medical practice may not be experiencing this level of revenue decrease, but you will need to examine revenue projections very carefully.

When valuing a medical practice, make sure that you understand the value drivers for that specific practice.  Many businesses have started to add physician assistant and nurse practitioner personnel to provide the group with a faster throughput of patients, cutting down on delays in scheduling appointments.  When a medical practice employs any combination of these additional care providers, occasionally referred to as productive staff, be sure to determine the level of utilization of these individuals and their incremental contribution to the overall profitability of the practice.   

With January 2014 being the deadline for compulsory implementation of electronic medical record-keeping, practices have been scrambling to comply. The result is a tool providing more detailed data to examine the trends of billing codes and individual productivity.  Securing data about the detail of a medical practice is becoming more readily available, and with  electronic record-keeping, this information will serve as an excellent foundation to evaluate the future revenue stream of a specific medical practice.

Edward T. Wandtke, MBA, CPA, CVA, leads Wandtke & Associates, Inc., a Westerville, Ohio business and IP valuation, brokerage and management consulting firm.  For more information, visit www.wandtke.com