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Issue #1-1 | June 28, 2012

Value considerations and merger mania in healthcare

As reported by business intelligence company PitchBook, specialty outpatient service provider IntegraMed (NASDAQ: INMD) entered into a definitive agreement to be acquired by Sagard Capital for $169.5 million. At $14.05 per share, the price represents a 46% premium to IntegraMed’s average closing price over the last year.

Healthcare mergers and acquisitions like the IntegraMed deal aren’t expected to slow down. Healthcare Realty Development Co. reports an 11% increase in 2011 in the $205.6 billion healthcare merger, acquisition, and takeover market compared to 2010—more hospital mergers and acquisitions than at any time in the last decade, and the uptick is expected to continue in 2012.

As mergers and acquisitions grow, healthcare finance leaders and administrators should consider these key factors that impact value:

  • Size. Size drives negotiating leverage with payors, the ability to take financial risk for the cost of care in models such as the accountable care organization (ACO), and the opportunity to spread the high fixed costs of infrastructure for investments such as electronic health records and medical management of high-risk, multi-diagnosis patients including Medicare/Medicaid Dual Eligibles.
  • Local market. Healthcare markets are highly localized. "One size fits all" does not apply, and careful assessment of local market conditions is critical to choosing the right path.
  • Cyclical consolidation. Consolidation trends are cyclical, and not all mergers and acquisitions work out. A change in market conditions—such as the collapse of much managed care at the end of the 1990s—may eliminate the rationale for a previous merger or acquisition.

Dermatology’s unique valuation scenario

Over the past 10 to 20 years, the services offered by dermatology clinics have grown significantly. The complexity these services add to a practice’s business model has had a significant and unique impact on how entities in this evolving industry are valued. Three of the key factors for placing value specifically on a dermatology practice in today’s market include:

  • Volume and type of services. Each dermatology practice requires individual evaluation. Cosmetic services, for example, are generally a plus in good economic times, but can generate fixed overhead that drags down income when the economy is weak.
  • Contracted insurance rates. Higher insurance rates generate higher income, of course, and all things being equal, higher value. Transferability of insurer contracts to another physician are a consideration.
  • Presence of ancillary income. A dermatology clinic with a successful pathology lab, for example, tends to create enterprise-level goodwill value.

For a limited time, Healthcare Value Wire is offering readers a complimentary Practice Specialty Report on Dermatology, which includes additional insight on dermatology practice value drivers. Download the report here by clicking on the free resources tab.


Obamacare, Romneycare, Whoevercare—Financial incentive realignment applies to all

Healthcare reform is front and center in the 2012 election campaign as Romneycare’s progeny, Obamacare, defines one of the most important and controversial arguments to be presented before the Supreme Court. Win, lose, or draw, active consolidation within the healthcare marketplace is already under way to keep in step with the realignment of financial incentives resulting from reform. The most significant trend, especially in the valuation area, is the employment of an increasing number of physicians by hospitals and health systems and the related need for fair market value compensation opinions. The newly available third edition of the BVR/AHLA Guide to Healthcare Valuation takes a detailed and critical look at physician employment deals and the compensation data often used in these fair market value calculations. The guide’s 44 chapters cover every aspect of healthcare valuation. Learn more here.


Do patient medical records have value?

Patient medical records may have value independent of a medical practice as a stand-alone asset. Valuation experts consider several factors to make that determination. State laws, federal statutes, and maximum fee charges all play into this critical issue. For a detailed look into this topic, check out the article on our blog Healthcare Industry Finance and Value Blog.

 


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About the Editor

Business Valuation Resources, LLC
1000 SW Broadway, Suite 1200, Portland, OR 97205
(503) 291-7963 | editor@bvhealthcarenews.com
www.BVResources.com/healthcare