Nuances of Sub-Specialty Valuation

November 17th, 2006 | Medicare

I am reminded this week of the difficulty of drawing conclusions about how a particular practice will be affected by an impending change in Medicare reimbursement without first doing a CPT code analysis (see my article with Frank Cohen in the current CPA Expert).  This presupposes of course, access to the data!

For example, in several recent valuations of Ophthalmic surgi-centers, the generic expectation was that Ophthalmology would benefit greatly from the proposed change in ASC reimbursement to a percentage of the OPD rate. However, the proposed rule indicated a cut of about 4% for cataract procedures – which are often the principal procedure, particularly if the ASC’s principal users are anterior segment surgeons.

Oncology is another interesting area. The Medicare Modernization Act made radical changes to the manner in which chemotherapy drugs are paid by Medicare, eliminating much of the mark-up that was available under the old AWP methodology and replacing it with a 6% markup over Average Selling Price or ASP. Although a Demonstration Project paying oncologists an additional $130 per patient in 2005 for preparing certain quality reports was put in place, the OIG seems unhappy with usefulness of the program (see August 2006 Report). The 2006 amount was much less ($23) and was pegged to E&M codes (a level 2, 3, 4, or 5 established patient office visit)  rather than infusion codes. Absent a coding analysis and adjustment for the drop from $130 to $23, valuing a practice using 2005 revenues would be impossible.

Given the likely volume discounts available to large practices in a given area, it is also questionable whether a small oncology practice could actually buy drugs at the ASP, suggesting the 6% mark-up might not even cover costs. Historical data can give very misleading results if the valuation analyst is not on top of current and pending changes and the need for normalization of those historical results.

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