Valuation in the ever-changing healthcare sector was front and center at the AICPA’s 2015 Healthcare Industry Conference in Las Vegas, where 375 attendees participated in some valuable sessions. BVWire was there, and here are just a few points of interest.
Mark O. Dietrich (Mark O. Dietrich, CPA, PC) presented a breakthrough new valuation method for determining the FMV of physician compensation. The method is designed to be more accurate than the current use of faulty survey data, which is “guaranteed to indicate a loss.” The existence of losses on doctors and acquired practices is the thrust of all the recent cases where the government says there’s fraud and violations of the Stark Law. The government has been winning these cases and reaping hundreds of millions of dollars in fines against hospitals. This new valuation method—if given the chance—could take the wind out of the government’s sails. You will have the chance to read more about this new method in early 2016 in the forthcoming BVR/AHLA Guide to Healthcare Finance and Valuation, 4th Edition.
Hospitals will see lower revenue from new off-campus outpatient departments under the federal budget bill that was passed November 2, several speakers declared. These facilities will get lower reimbursements under Medicare—but existing facilities are grandfathered, so they are not affected. The provision caught many people off guard.
Many healthcare valuators are surprised that retail healthcare is a huge financial concern—second only to changing reimbursement models—speakers said during a panel of healthcare CFOs moderated by Britt B. Tabor (Erlanger Health System). Retail healthcare facilities are the urgent care centers, Walmart and CVS clinics, and similar centers springing up. As patients become price-shopping consumers who are also looking for convenience, it’s a trend that’s growing, and it’s here to stay.
A new healthcare valuation practice area is emerging: conducting an independent analysis of “commercial reasonableness” for healthcare acquisitions. Recent court cases have imposed large fines on hospitals over this issue, says Jim Lloyd (Pershing Yoakley & Associates PC). One hospital scrapped a $20 million dollar deal after reading the valuator’s analysis.
Look for more joint ventures between for-profits and nonprofits in healthcare, according to attorney James Pinna (Hunton & Williams LLP), but there are valuation wrinkles due to the federal tax laws governing charities. For example, if the nonprofit’s valuable brand name is contributed to the venture, it must be valued and an adequate return must be earned. Otherwise, it could be seen as a private interest reaping the benefit from a charitable asset, which is taboo.
There was some cocktail party chatter about a $28 million settlement just paid by a New Jersey nonprofit hospital that lost its property tax exemption over a number of different issues, including unreasonable compensation of executives and questionable contracts with for-profit physicians. Experts say it could trigger similar actions from cash-strapped municipalities and possibly spark challenges to tax-exempt status from the IRS.
The January 2016 issue of Business Valuation Update will have details on these—and other—valuation matters in healthcare.