The no. 1 question in healthcare valuation: intangible assets

BVWireIssue #53-3
February 28, 2007

When a not-for-profit hospital purchases a physician medical practice, how should business appraisers calculate the intangible asset values, “incorporating workforce in place, systems, protocols and procedures, patient revenue base, etc.,” to estimate fair market value for the practice, even though on a discounted cash flow basis, the value of the practice is zero?

That “won the award for best question” at BVR’s recent telephone conference on Healthcare Valuation, according to panelist Don Barbo. “It pulls in a lot of hot topics,” including the value of medical records, a “superstar” physician, and even the practice’s telephone number. While the response is always fact-specific, Barbo and moderator Mark Dietrich discussed valuing each item using a cost approach, the theory being to capture the hospital’s replication cost—and the risk that it might be overpaying.

Panelist Carol Carden also discussed the opposing view, focusing on expected returns. “Why would a hypothetical willing buyer pay an amount for charts or workforce or any of those other assets if they’re not able to generate a cash flow off of them?”

For the complete discussion (CD or transcript), including the impact of recent court cases and Medicare updates on healthcare valuations, click here.

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