Blast from the Past

October 28th, 2010 | Regulatory Matters | Seminars & Publications

In anticipation of my upcoming sessions at the AICPA National Business Valuation and Healthcare Industry Conferences – and thinking about the bizarre similarity between today’s market for medical practices and that of the late 1990s – I offer you something I wrote about 10 years ago – the link to the OIG page is STILL valid!

OIG Special Advisory Bulletin to Consultants
In June of 2001, the Office of the Inspector General of Health and Human Services released a Special Advisory Bulletin addressed to Business Consultants, including valuation consultants. The Bulletin notes that consultants may be subject to liability under the False Claims Act.

“Promises and Guarantees. Consultants may explicitly or implicitly promise or guarantee specific results that are unreasonable or improbable. In some cases, consultants may resort to improper means to effectuate these promises or guarantees, such as submitting false claims or preparing false cost reports on behalf of a client. This misconduct potentially subjects both the consultant and the provider to liability under the False Claims Act.”

One of the examples cited is

• A valuation consultant promising or assuring a client that its appraisal of a physician’s practice will yield a “fair market value ” that satisfies the client’s need for a particular valuation, regardless of the actual value of the practice.

Comment: It would be highly irregular for a valuation consultant to issue an engagement letter “promising” that “fair market value” would be equal to some pre-determined amount. Valuators should bear in mind that THE standard of value for most healthcare transactions will be “fair market value” and NOT strategic or investment value. Since “intent” is required in a criminal investigation under the False Claims Act, intent will be inferred from the facts and circumstances surrounding a particular matter. (Note: the false claim is likely to arise from “overpaying” for the physician practice which in turn is seen as a kickback or otherwise improper payment leading to all claims filed by that physician subsequent to the acquisition as being considered “false.”) Both “reckless disregard” and “deliberate ignorance” may be evidence of intent! Use of strategic value in a healthcare transaction may be seen by regulators as “reckless disregard” of the rules, notwithstanding the fact that there is no clear line distinguishing between the two standards of value and valuators themselves often disagree on where the line should be drawn. The focus of the regulations with respect to fair market value is that the value ultimately determined must not take into account the volume or value of referrals or the fact that the parties entering into a transaction are in a position to generate business for one another.

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