2010 MPFS Proposed Rule: Imaging

July 4th, 2009 | Income Approach & Methods | Market Approach | Medicare | Regulatory Matters | Seminars & Publications

This is likely to be the first of several posts as I explore the more than 1100 pages in the Proposed Rule. First no-surprise is that Imaging gets hammered once again. As recommended by MedPAC and initially contained in legislation that did not pass last Fall, the utilization assumption for high-tech imaging equipment costing more than $1.0 million is to rise from 50% to 90%, resulting in a dramatic reduction in the practice expense component/technical component payment per scan.

Quoting the Rule: "We believe the studies cited by MedPAC suggest what we have long suspected, that physicians and suppliers would not typically make huge capital investments in equipment that would only be utilized 50 percent of the time." (Duhhh)

This Proposed Change begs a significant Valuation issue. The drop in revenue and even greater drop in contribution margin cannot be quantified via the discount rate; it has to be accounted for in the cashflow forecast and dramatic differences in value will result from the quantification assumption. Good time to check with Industry experts like Doug Smith at Barrington Lakes Group about what operators are expecting and doing with transactions. Doug's Imaging Chapter in BVR's Guide to Healthcare Valuation is an eye-opener about the valuation of Imaging Centers.

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