Valuation & and Healthcare Consulting

July 1st, 2010 | Posted by Mark Dietrich in - (Comments Off on Valuation & and Healthcare Consulting)

Our expertise in valuation and negotiation enables us to provide you with appraisal or representation in a sale of your medical practice or in the purchase of another practice, contracting with managed care organizations, or in affiliation agreements with integrated delivery systems, practice management companies, physician networks and similar entities. Our special expertise is in the regulatory aspects of healthcare valuation, including the Stark laws, Anti-Kickack Statute and tax exemption issues,such as the Intermediate Sanctions Provisions. You can view our PowerPoint Presentation “Guide to Hospital-Physician Transactions” here.

Please be certain to check out our publications page.

Practice Valuation and Sale Negotiation Engagements

SpecialtyYearPurpose
INTERNAL MEDICINE2011Calculation: Purchase
INTERNAL MEDICINE2011Calculation: Purchase
PERIODONTICS2011Divorce (Review Report)
IMAGING CENTER2011Sale (Calculation)
MULTI-SPECIALTY GROUP2011Sale
GASTROENTEROLOGY2011FMV Compensation
INTERNAL MEDICINE2011Purchase
GENERAL DENTISTRY2011Divorce
FAMILY MEDICINE2011Purchase
FAMILY MEDICINE2011Purchase
MULTI-SPECIALTY GROUP2011Purchase
MEDICAL RESEARCH2011Purchase
FAMILY MEDICINE2011Purchase (Review Report)
DERMATOLOGY2011Divorce
IMAGING CENTER2010Sale (Review Report)
IMAGING CENTER2010Sale (Review Report)
IMAGING CENTER2010Sale (Review Report)
GENERAL DENTISTRY2010Divorce
IMAGING CENTER2010Merger
RADIOLOGY2010Divorce
INTERNAL MEDICINE2010Divorce
CARDIOLOGY2010Purchase
WALK-IN MEDICAL CENTER2010Purchase
MULTI-SPECIALTY GROUP2010Sale
GROUP INTERNAL MEDICINE2010Sale
ORTHOPEDICS2010Divorce
WALK-IN MEDICAL CENTER2010Purchase
INTERNAL MEDICINE2009Purchase
FAMILY MEDICINE2009Purchase
GENERAL SURGERY FMV COMP2009Divorce
MULTI-SPECIALTY GROUP2009Divorce
FAMILY MEDICINE2009Purchase
DERMATOLOGIC SURGERY2009Purchase/Sale
PEDIATRIC MEDICINE2009Purchase/Sale
ORAL SURGERY2009Divorce
MULTI-SPECIALTY GROUP2009Sale
IMAGING CENTER2009Purchase
IMAGING CENTER2009Purchase
DERMATOLOGY2008Litigation Support
ANESTHESIA2008Sale
PODIATRY2008Divorce
RHEUMATOLOGY2008Divorce
ORTHODONTICS2008Divorce
VETERINARY MEDICINE2008Divorce
PLASTIC SURGERY2008Divorce
OFFICE RADIOLOGY2008Purchase
DERMATOLOGY2008Divorce
CARDIOLOGY2008Purchase
ORTHOPEDICS2008Divorce
OPHTHALMOLOGY2008Divorce
GENERAL DENTISTRY2008Divorce
GENERAL DENTISTRY2008Divorce
MULTI-SPECIALTY2008Divorce
IMAGING CENTER2008Sale
CARDIOLOGY2008Divorce
CARDIOLOGY2008Divorce
CARDIOLOGY2008Divorce
DERMATOLOGY2008Divorce
GENERAL DENTISTRY2008Divorce
SURGERY CENTER/SURGICAL HOSPITAL OPERATOR2008Divorce
IMAGING CENTER2007Purchase
MULTI-SPECIALTY2007Litigation Support – Noncompete
FAMILY MEDICINE2007Purchase, Tax Asset Allocation
INTERNAL MEDICINE2007Purchase, Tax Asset Allocation
MENTAL HEALTH2007Purchase
GENERAL DENTISTRY 2007 Divorce
ORTHODONTICS 2007 Divorce
INTERNAL MEDICINE 2007 Purchase, Tax Asset Allocation
FAMILY MEDICINE 2007 Purchase, Tax Asset Allocation
FAMILY MEDICINE 2007 Purchase
HEMATOLOGY/ONCOLOGY 2007 Divorce
GENERAL DENTISTRY 2007 Divorce
ENDODONTICS 2007 Divorce
OPHTHALMIC ASC 2007 Divorce
OPHTHALMOLOGY 2007 Divorce
ENDOSCOPIC SURGI-CENTER 2007 Purchase/Sale Minority Interest
INTERNAL MEDICINE 2007 Purchase
ORAL SURGERY 2007 Divorce
IMAGING CENTER 2007 Purchase
CARDIOLOGY 2006 Divorce
ORTHOPEDICS 2006 Divorce
ORTHOPEDICS 2006 Divorce
FAMILY MEDICINE 2006 Sale: Joint Retention
CARDIOLOGY 2006 Divorce
INTERNAL MEDICINE 2006 Sale
MENTAL HEALTH 2006 Purchase
VASCULAR LAB 2006 Purchase
RADIATION THERAPY 2006 Sale
OPHTHALMOLOGY 2006 Purchase
OPHTHALMOLOGY 2006 Divorce
OPHTHALMIC ASC 2006 Divorce
OPHTHALMIC ASC 2006 Purchase
PLASTIC SURGERY 2006 Rebuttal Divorce
ANESTHESIA 2006 Litigation Support
INTERNAL MEDICINE 2006 Purchase
RADIOLOGY 2006 Litigation Support – Daubert Challenge
FERTILITY 2006 Divorce
INTERNAL MEDICINE 2006 Purchase
ANESTHESIA 2006 Divorce
GENERAL DENTISTRY 2006 Divorce
FAMILY MEDICINE 2006 Divorce
HEMATOLOGY/ONCOLOGY 2006 Divorce
GENERAL DENTISTRY 2005 Divorce
IMAGING CENTER 2005 Sale: Joint Retention
MEDICAL RECORDS TRADE SHOW 2005 Divorce
MENTAL HEALTH 2005 Purchase
OCULAR SURGERY 2005 Divorce
PLASTIC SURGERY 2005 Litigation Support
FAMILY MEDICINE 2005 Purchase
ORTHOPEDICS 2005 Divorce
GENERAL DENTISTRY 2005 Divorce
INTERNAL MEDICINE 2005 Divorce
GENERAL DENTISTRY 2005 Divorce
FUNERAL HOME 2005 Divorce: “Double Dip”
ORTHOPEDICS 2005 Litigation Support
FERTILITY 2005 Divorce
ONCOLOGY 2005 Sale: Joint Retention
OPHTHALMOLOGY 2004 Divorce
ENDOSCOPIC SURGI-CENTER 2004 Divorce
FAMILY MEDICINE 2004 Sale
ALLERGY 2004 Buy-In
REHABILITATIVE THERAPY 2004 Divorce
GYNECOLOGY 2004 Sale
GENERAL DENTISTRY 2004 Divorce
ENDODONTICS 2004 Divorce
HEMATOLOGY/ONCOLOGY 2004 Divorce
FERTILITY/GYNECOLOGY 2004 Divorce
ORTHOPEDICS 2004 Divorce
OB/GYN 2004 Divorce Mediation Joint Retention
MULTI-SPECIALTY 2004 Merger
OPHTHALMOLOGY 2004 Tax Asset Allocation
INTERNAL MEDICINE 2004 Divorce
ORTHOPEDICS 2004 Divorce Joint Retention
PULMONARY MEDICINE 2004 Divorce
GENERAL DENTISTRY 2003 Divorce
ORTHOPEDICS 2003 Divorce
NURSING HOME 2003 Sale
OB/GYN 2003 Litigation Support
AUTOMOBILE DEALERS 2003 Litigation Support
OPHTHALMOLOGY 2003 Sale
FAMILY MEDICINE 2003 Divorce
INTERNAL MEDICINE (U.S. TAX COURT) 2003 Reasonable Compensation, Value Of Noncompete
OB/GYN 2003 Divorce
GENERAL SURGERY 2003 Divorce
OPHTHALMOLOGY 2003 Divorce
PLASTIC SURGERY 2003 Divorce
ORTHOPEDIC SURGI-CENTER 2003 Buy-In
RADIOLOGY 2003 Litigation Support
PATHOLOGY 2003 Buy-In
MULTI-SPECIALTY 2003 Merger
MULTI-SPECIALTY 2003 Merger
MULTI-SPECIALTY 2003 Merger
OB/GYN 2003 Divorce
PHYSICAL THERAPY 2003 Divorce
INTERNAL MEDICINE 2002 Buy-In
SLEEP HEALTH 2002 Litigation Support
GENERAL DENTISTRY 2002 Divorce
ORTHOPEDICS 2002 Litigation Support
OPHTHALMOLOGY 2002 Divorce
ORTHOPEDIC SURGI-CENTER 2002 Joint Retention For Buy-Out
PHYSICIAN BILLING SERVICE 2002 Litigation Support
PRIMARY CARE NETWORK 2002 Managed Care Contracting
PRIMARY CARE NETWORK 2002 Managed Care Contracting
DERMATOLOGY 2002 Divorce
INTERNAL MEDICINE 2002 Divorce
OB/GYN 2002 Litigation Support
RADIOLOGY 2002 Litigation Support
PATHOLOGY 2002 Litigation Support
NEUROSURGERY 2002 Divorce
PRIMARY CARE NETWORK 2001 Managed Care Contracting
INTERNAL MEDICINE 2001 Purchase
RADIOLOGY 2001 Sale Valuation Estimate
PEDIATRIC MEDICINE 2001 Buy-In
CARDIOLOGY 2001 Buy-In
PRIMARY CARE NETWORK 2001 Managed Care Contracting
PRIMARY CARE NETWORK 2001 Managed Care Contracting
OB/GYN 2001 Litigation Support
PSYCHIATRY 2001 Divorce
PHYSICAL THERAPY 2001 Divorce
INTERNAL MEDICINE 2000 Sale
INTERNAL MEDICINE 2000 Purchase
PEDIATRIC MEDICINE 2000 Buy-Out
PRIMARY CARE NETWORK 2000 Managed Care Contracting
ORAL SURGERY 2000 Sale
DERMATOLOGY 2000 Buy-In
AMBULATORY SURGERY CENTER 2000 Sale Of Minority Interest
IMAGING CENTER 2000 Sale Of Minority Interest
OPHTHALMOLOGY 2000 Litigation Support
RADIOLOGY 2000 Sale
PRIMARY CARE NETWORK 2000 Network Affiliation Agreement
PERIODONTICS 2000 Divorce
ORTHOPEDICS 2000 Divorce
CARDIOLOGY 2000 Divorce
ANESTHESIA 2000 Litigation Support
OPHTHALMOLOGY 2000 Buy-In Negotiation
RADIOLOGY 1999 Divorce
TECHNOLOGY 1999 Venture Capital Negotiation
PRIMARY CARE NETWORK 1999 Minority Interest Value
FAMILY MEDICINE 1999 Buy-In
OPHTHALMOLOGY 1999 Buy-In Negotiation
FERTILITY 1998 Buy-In Negotiation
OPHTHALMOLOGY 1998 Buy-In Negotiation
GROUP INTERNAL MEDICINE 1998 Merger
GENETICS 1998 Buy-Out
INTERNAL MEDICINE 1998 Purchase
OPHTHALMOLOGY 1998 Buy-Out
INTERNAL MEDICINE 1998 Merger
MULTI-SPECIALTY 1998 Purchase
OPHTHALMOLOGY 1998 Arbitration
PATHOLOGY LAB 1998 Minority Interest Option
PSYCHIATRY 1998 Practice Sale Consultation
RADIATION THERAPY 1998 Purchase
OTOLARYNGOLOGY 1998 Sale
OCCUPATIONAL MEDICINE 1998 Purchase
RADIOLOGY 1998 Sale Negotiation
DERMATOLOGY 1998 Buy-In Negotiation
FAMILY MEDICINE 1998 Purchase
TECHNOLOGY 1998 Sale Negotiation
ENDODONTICS 1998 Buy-In Negotiation
INTERNAL MEDICINE 1997 Purchase
INTERNAL MEDICINE 1997 Purchase
INTERNAL MEDICINE 1997 Purchase
INTERNAL MEDICINE 1997 Purchase
FAMILY PRACTICE 1997 Purchase
GROUP INTERNAL MEDICINE 1997 Purchase
EPISODIC CARE/INDUSTRIAL MEDICINE 1997 Purchase
INTERNAL MEDICINE 1997 Sale Negotiation
INTERNAL MEDICINE 1997 Purchase
EPISODIC CARE/INTERNAL MEDICINE 1997 Purchase
OB/GYN 1997 Purchase
INTERNAL MEDICINE/CARDIOLOGY 1997 Purchase
PRIMARY CARE/GENERAL SURGERY 1997 Purchase
GYNECOLOGY 1997 Internal Buy-Out
PEDIATRIC MEDICINE 1997 Purchase
RADIOLOGY 1997 Sale Negotiation
FAMILY AND INTERNAL MEDICINE 1997 Purchase
PEDIATRIC MEDICINE 1997 Purchase
PEDIATRIC MEDICINE 1997 Affiliation
DERMATOLOGY 1997 Buy-In Negotiation
OB/GYN 1997 Sale Negotiation
OPHTHALMOLOGY 1997 Buy-In Negotiation
INTERNAL MEDICINE 1996 Purchase
INTERNAL MEDICINE 1996 Purchase
PEDIATRIC MEDICINE 1996 Purchase
GROUP INTERNAL MEDICINE 1996 Sale Negotiation
GROUP INTERNAL MEDICINE 1996 Sale Negotiation
INTERNAL MEDICINE 1996 Sale Negotiation
FAMILY PRACTICE 1996 Purchase
ORTHOPEDICS 1996 Divorce
INTERNAL MEDICINE 1996 Purchase
GROUP PEDIATRIC MEDICINE 1996 Sale Negotiation
INTERNAL MEDICINE 1996 Purchase
PRIMARY CARE NETWORK 1996 Managed Care Contracting
PEDIATRIC NETWORK 1996 Managed Care Contracting
INTERNAL MEDICINE 1996 Purchase
GROUP INTERNAL MEDICINE 1996 Purchase
GROUP OB/GYN 1996 Purchase
GROUP PEDIATRIC MEDICINE 1996 Purchase
FAMILY PRACTICE 1996 Purchase
RADIOLOGY 1996 Sale Negotiation
INTERNAL MEDICINE 1996 Purchase
INTERNAL MEDICINE 1996 Purchase
PRIMARY CARE/GENERAL SURGERY 1996 Purchase
GROUP OB/GYN 1996 Sale Negotiation
INTERNAL MEDICINE 1995 Purchase
INTERNAL MEDICINE 1995 Purchase
INTERNAL MEDICINE 1995 Purchase
GENERAL/ENDOCRINE SURGERY 1995 Purchase
GROUP INTERNAL MEDICINE 1995 Purchase
GROUP INTERNAL MEDICINE 1995 Sale Negotiation
GROUP INTERNAL MEDICINE 1995 Sale Negotiation
PEDIATRIC MEDICINE 1995 Purchase
PEDIATRIC MEDICINE 1995 Purchase
INTERNAL MEDICINE 1995 Purchase
GROUP INTERNAL MEDICINE 1995 Sale Negotiation
GROUP FAMILY PRACTICE 1995 Purchase
FAMILY PRACTICE 1995 Purchase
INTERNAL MEDICINE 1995 Purchase
FAMILY PRACTICE 1995 Purchase
OB/GYN 1995 Purchase
INTERNAL MEDICINE 1995 Purchase
RADIOLOGY 1995 Sale Negotiation
GROUP INTERNAL MEDICINE 1995 Purchase
GROUP PEDIATRIC MEDICINE 1994 Purchase
GROUP INTERNAL MEDICINE 1994 Sale Negotiation
INTERNAL MEDICINE 1994 Purchase
GROUP OB/GYN 1994 Purchase
GROUP INTERNAL MEDICINE 1994 Purchase
GROUP OB/GYN 1994 Purchase
INTERNAL MEDICINE 1994 Purchase
GROUP INTERNAL MEDICINE 1994 Purchase
INTERNAL MEDICINE 1994 Purchase
INTERNAL MEDICINE 1994 Purchase
INTERNAL MEDICINE 1994 Purchase
INTERNAL MEDICINE 1994 Purchase
OB/GYN 1994 Purchase
GROUP PEDIATRIC MEDICINE 1994 Purchase
INTERNAL MEDICINE 1994 Purchase
INTERNAL MEDICINE 1994 Purchase
INTERNAL MEDICINE 1994 Purchase
GROUP INTERNAL MEDICINE 1994 Sale Negotiation
INTERNAL MEDICINE 1994 Purchase
OB/GYN 1993 Purchase
GROUP INTERNAL MEDICINE 1993 Purchase
ORTHOPEDICS 1993 Divorce
OB/GYN 1993 Purchase
GROUP INTERNAL MEDICINE 1993 Purchase
FAMILY PRACTICE 1993 Purchase
INTERNAL MEDICINE 1993 Purchase
FAMILY PRACTICE 1993 Sale
PEDIATRIC MEDICINE 1993 Purchase
PRIMARY CARE 1993 Sale
INTERNAL MEDICINE 1993 Purchase
INTERNAL MEDICINE 1993 Purchase
INTERNAL MEDICINE 1993 Purchase
INTERNAL MEDICINE 1993 Purchase
INTERNAL MEDICINE 1993 Purchase
PEDIATRIC MEDICINE 1993 Purchase
FAMILY PRACTICE 1993 Purchase
PEDIATRIC MEDICINE 1992 Purchase
PODIATRY 1992 Purchase
OB/GYN 1992 Sale
FAMILY PRACTICE 1992 Purchase
INTERNAL MEDICINE 1992 Purchase
GROUP INTERNAL MEDICINE 1992 Sale
INTERNAL MEDICINE 1992 Purchase
INTERNAL MEDICINE 1992 Purchase
INTERNAL MEDICINE 1992 Purchase
GENERAL SURGERY 1991 Divorce
INTERNAL MEDICINE 1991 Purchase
PLASTIC SURGERY 1990 Admission
INTERNAL MEDICINE 1989 Retirement
INTERNAL MEDICINE 1989 Admission
RADIOLOGY 1988 Admission
RADIOLOGY 1988 Admission

There was some discussion of this topic at the Healthcare Conference to be sure. Here is a quote from Advisory Opinion 09-09, footnote 5:

"Our conclusion might be different if the valuation of the respective contributions of the investors included intangible assets. For example, given the circumstances of the Proposed Arrangement, we might be concerned if the valuation were based on a cash flow analysis of the Surgeon ASC as a going concern. Because the Surgeon Investors are referral sources for the Surgeon ASC, a cash flow-based valuation of that business potentially would include the value of the Surgeon Investors’ referrals over the time that their ASC was in existence prior to the merger with the Hospital ASC. The result might be that the Surgeon Investors would receive a greater return on their capital investment than the Hospital, which could reflect the value of their referrals to the Surgeon ASC. (In these circumstances, the Hospital ASC, being newly developed at the time of the proposed merger, may have little or no cash flow record, but we might be similarly concerned with a valuation based on a cash flow analysis of a hospital-owned ASC for which the hospital could influence referrals.) We do not assert that a cash flow-based valuation or other valuation involving intangible assets would necessarily result in a violation of the anti-kickback statute; the existence of a violation depends upon all the facts and circumstances of a particular case."
http://oig.hhs.gov/fraud/docs/advisoryopinions/2009/AdvOpn09-09.pdf

This comment harkens back to the Thornton letters (1992/1993) http://oig.hhs.gov/fraud/docs/safeharborregulations/acquisition110293.htm
http://oig.hhs.gov/fraud/docs/safeharborregulations/acquisition122292.htm 

and Advisory Opinion 07-05
http://oig.hhs.gov/fraud/docs/advisoryopinions/2007/AdvOpn07-05C.pdf,

the latter of which caused considerable consternation.    At issue is that the OIG appears to define "capital invested" as cash and tangible assets rather than the term used in "fair market value" (market value of invested capital) which includes intangible assets. As the quote indicates, intangible assets may be problematic from a AKS standpoint, given all the facts and circumstances.

Thanks to my colleague Tim Smith for elucidating my thinking on this.

I am continuing to review the outstanding work being submitted for Business Valuation Resources Healthcare Valuation Guide.  Most recently, Todd Sorensen of Value Management Group (VMG) - one of the country's premier healthcare appraisal firms – provided an invaluable chapter on Ambulatory Surgery Center valuation. This work will be an important resource for appraisers and providers alike as it shares the in-depth knowledge VMG has of the ASC market and operations.

The Guide is also privileged to have a chapter on Valuation Standards contributed by Ed Dupke, one of the three principal authors of the AICPA's Business Valuation Standards. Greg Anderson of Horne, LLP provided a chapter on physician On-Call Compensation and Daryl Johnson and his colleagues at Healthcare Appraisers have been generous, co-authoring with Greg a chapter on Co-Management Agreements and writing a separate piece on valuation issues in the Life Sciences Industry. Kathie Wilson (yes, the same!) and Tracy Farryl Katz provided a historical overview of marital dissolution case law in California while Stacey Udell wrote a comprehensive chapter on medical practice divorce valuation with key court cases on the topic, which is one of the best overviews on the matter I have read.

Stay tuned for an estimated publication date!

In the next edition of Financial Valuation and Litigation Expert I will have an article summarizing the changes in ASC payments by Medicare, the Medicare Physician Fee Schedule Proposed Rule and most importantly, CMS’ hinted changes in the Stark law regulations, which will likely have significant impact on discount rates and/or cashflow forecasts for the affected sectors.

CMS published the Final Rule for the new Ambulatory Surgery Center payment system pegged to the Hospital OPPS rates, using a factor of 67% versus the 62% contained in the 2006 Proposed Rule.  Although the payments will be somewhat better than originally thought, the 5% spread is not indicative of the true difference because certain required adjustments have not yet been made.  One big winner in the Final Rule was the payment for cataract surgery, which was set at 8% higher than in the proposed rule and nearly 4% higher than the present payment.


Despite being pegged at the outset to OPPS rates, future increases in ASC rates will be based on the CPI for Urban Consumers while OPPS rate increases are based upon a separate "market basket" of cost inputs for hospital outpatient departments.  The market basket is usually higher than the CPI.


The new rates were supposed to be implemented using a 50-50 split with the old rates in 2008 and full implementation in 2009.  The Final Rule changed this to a 4-year phase-in using a 25-75, 50-50, 75-25 schedule.  Thus, those procedures who would lose under the new payments will lose less and those who would benefit will benefit less.

Opinion No. 07-05 involves the sale of a 40% interest at fair market value in an existing ASC by certain physicians to a tax-exempt hospital.  The fact pattern includes 94% of the interest owned by orthopedic surgeons and 6% by gastroenterologists and anesthesiologists.  The subject 40% interest is owned by the orthopods; the sale proceeds would not be invested in the ASC entity itself but would go directly to the orthopods. 

The OIG concluded that the proposed transaction raised issues under the AKS since not all the physicians were selling interests and more importantly, “the return on the investment would not be directly proportional to the amount of the capital invested by each investor. The amounts payable to the investors would be proportional to their ownership interest in the Company; however, because the Hospital would pay more per ownership unit than the Orthopedic Surgeons paid, the Orthopedic Surgeons would receive a higher rate of return on their remaining shares than the Hospital would receive on its newly-purchased shares.”

On the surface, this Advisory raises serious concerns about sales of interests in ASCs (and just about anything else regulated by the AKS for that matter) since the OIG’s conclusion is that the transaction poses a risk under the AKS.  Particularly problematic from a valuation standpoint is the OIG’s failure to recognize one of the fundamental tenets of Fair Market Value: namely, that the cash proceeds of the sale are exactly equal to the present value of the future returns on the underlying investment.  Therefore, the premise for the OIG’s adverse conclusion that “the Orthopedic Surgeons would receive a higher rate of return on their remaining shares than the Hospital” for the OIG’s adverse conclusion” is entirely false.  ‘Return’ is based upon the fair market value TODAY of the underlying shares which is exactly what the Opinion states the hospital is paying and the orthopods are receiving.  ‘Return’ includes both cash distributions and appreciation.  The orthopods are receiving cash for the appreciation to date and foregoing future cash distributions on the portion sold.

 

One can only hope that something more was in the submitted documentation from those requesting the ruling that gave the OIG cause for concern.

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.