The appropriate valuation approach for cancer centers and other oncology businesses (medical practices that treat cancer) depends on the types of services provided, say Tynan Olechny and Will Hamilton (both with Pershing Yoakley & Associates), speaking during a recent webinar.
Three types: Cancer centers and other oncology businesses provide surgical services (e.g., removal of a tumor), medical oncology services (e.g., administration of chemotherapy drug treatments), and/or radiation therapy services (e.g., administration of radiation treatments). The cost approach--and most commonly the net asset value (NAV) method--is typically the most common method for valuing medical oncology practices, they say, since these entities typically generate minimal cash flow once physician compensation has been adjusted to fair market value. The income approach--and most commonly the discounted cash flow (DCF) method-- can generally be used to value centers that offer radiation therapy services either on a standalone basis or in conjunction with surgical and/or medical oncology services.
Olechny and Hamilton also mentioned that there is significant merger and acquisition and joint venture activity in the oncology services industry. They cited recent research from the State of Cancer Care in America 2015 (American Society of Clinical Oncology) that finds:
- 25% of oncology practices signaled they were likely to pursue hospital affiliations within the next year.
- 18% of oncology practices signaled they were likely to pursue affiliations with other private practices within the next year.
- 17% of oncology practices signaled they were likely to pursue affiliations with academic medical centers within the next year.