Reform, Valuation and Managed Care “Over There”

May 30th, 2011 | Healthcare Reform | Income Approach & Methods | Noncompete Agreements | Seminars & Publications | Valuing Goodwill

I returned from my lecture trip in London and Lincoln last week. Once again, I am fascinated by the similarities between the privately insured segment (about 10% or 6 million individuals) of the British population and what we see here in the States. A variety of American companies in the hospital and ambulatory surgery business are operating there. The National Health Service, famous here for being held up by the current head of CMS as the Example of how U.S. Reform should be undertaken, is itself being reformed. There is an increasing trend to privatization of NHS services and if the current Conservative/Liberal coalition government has its way, a large scale Reform will take place that passes financial control in large part to Commissioning (Purchasing) Consortia controlled by the nation’s GPs (Primary Care Physicians) who already have vast control over referrals to consultants (specialists) and hospitals. The British tradition of primary care is distinctly different from our own – unless you are familiar with capitated managed care such as that in the Medicare Advantage Program. And the White Paper (Equity and excellence: Liberating the NHS) put out by the British Government proposes what looks like a very advanced version of full-scale, PCP-controlled capitation. There are considerably more GPs/PCPs per capita in the UK than in the States as well.

The privatization of NHS functions is a very attractive opportunity for American-based companies operating in Britain and represents a growth area for revenue and profit.

I had an opportunity to speak to and with leading lenders from the large banks in London, a number of private practice specialists (consultants), hospital executives and accountants who specialize in healthcare. Perhaps the biggest concern in the provider community is the increasing use of American-style Managed Care by the health insurance industry in Britain. In addition to the expanding use of fee schedules (tariffs), there are now provider contracts, preferred providers, economic credentialing and de-credentialing, second opinions, utilization review, global fees, bundling and unbundling, and moves by the provider community and the insurers to enlist the government’s support for their conflicting positions. Although there is no anti-referral statute, existing ethics rules and bribery laws may come into play. And, anti-trust is a developing legal area as providers seek to organize to counter the market power of insurers.

Finally, taxation of physician practice goodwill is even more important today than at the time of my 2009 visit as more and more physicians establish private practices in corporate form. Unlike IRC section 351 here which generally precludes taxation upon incorporation, UK tax law treats incorporation as a taxable event. In what then seems to be a Lewis Carroll-inspired Mad Hatter World to this CPA, incorporating physicians want as much goodwill as possible in the value of their practice, because it is taxed at a favorable rate and can be withdrawn (think dividend) at a favorable rate when sufficient cash is available in lieu of compensation, the latter of which is taxed at well over 50%. My work on medical practice valuation and particularly personal versus enterprise goodwill and intangible assets is thus very important to the accounting community and tax authorities.

My thanks to the UK Medical Accountant community’s Oracle at Delphi, Ray Stanbridge, for arranging my lectures and extending a form of hospitality not often seen in my many years on the road.

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