BVR/AHLA's Guide to Healthcare Valuation
Healthcare is the single largest segment of the economy, the financial aspects of which are perhaps the least well understood and the Reform legislation promises to further complicate that understanding. The 2010 release of the Guide to Healthcare Valuation, co-published by the American Health Lawyers Association and Business Valuation Resources, was a groundbreaking contribution to healthcare valuation. The 2012 Third Edition of AHLA/BVR’s Guide to Healthcare Valuation brings together again the country’s top healthcare industry experts in an expansion of the Second Edition’s comprehensive undertaking aimed at providing both preparers and users of valuation reports with an in-depth understanding of individual industry subsectors. The Guide has been reorganized into major knowledge segments: the Healthcare Marketplace, Regulatory Considerations in Healthcare Valuation, Physician Practices, Physician Services and Hospital Relationships, and other Healthcare Enterprises and includes twelve new Chapters – five devoted to the first comprehensive approach to Compensation Valuation – and 14 revised and updated Chapters. From physician practices to co-management agreements to home health care agencies, valuation across the continuum of medical care venues is addressed.
The 2010 Federal Healthcare Reform legislation or PPACA contributes to the quandary faced in healthcare valuation as appraisers, attorneys and industry members probe the plethora of new regulations implementing the Reform for knowledge and speculate on what yet-to-be-issued regulations will say. Even as the PPACA seeks to impose uniform insurance regulations across an industry characterized by the uniqueness of regional and local markets, the Guide’s opening segment includes a detailed analysis of healthcare markets, updated to reflect the increasing recognition in the trade press and general media of the role that local market forces play.
Despite the significance of national trends and the federal Medicare program in the valuation of healthcare enterprises, these local differences in provider reimbursement by health insurers and individual state Medicaid programs lead to significant differences in operating results and value. A chapter devoted to the unique challenges that local markets present to appraisers in assessing cost of capital and forecasting cashflow is included.
Each member of the panel of valuation experts provides guidance consistent with the mandatory regulatory constraints on valuation assumptions and methodologies in the healthcare industry. Specific risks under the Stark Law and Anti-kickback statute are addressed in a separate Chapter along with real advice on how to deal with them in a valuation engagement. The import of the nonprofit hospital sector is addressed in another chapter on inurement and tax exemption issues. The risks associated with valuation engagements in a unique practice area are examined in a new chapter on the Bradford Regional case, including some suggestions on the choice of valuation model assumptions where the parties are in a position to refer to one another. A detailed analysis of the unwarranted abuse of the Cost Approach in valuing goodwill and other intangible assets written by a number of leading experts rounds out the regulatory discussion.
Notably, each of the valuation chapters provides keen insights on the significance of understanding the revenue cycle. The manner in which healthcare providers – such as physicians, hospitals, imaging or ambulatory surgery centers – are paid or reimbursed for their services varies radically. As such, an assumption about inflation or growth in per unit reimbursement appropriate for one of these sectors may be wholly inappropriate for another.
The most significant additions to the Third Edition are five chapters totaling 65,000 words representing the first comprehensive application of the general principles of business valuation to Compensation Valuation. With the present trend of increasing physician employment by hospitals and health systems, compensation valuation is becoming the most important focus of the valuation community. These five chapters cover the economics of physician practices along with the Income, Market and Coast approaches to value.
The largest number of provider entities and the most frequent valuation engagement remains physician practices and the Guide reflects this. In addition to a new chapter on physician buy-ins and buyouts and a revised and updated chapter on valuation methods for physicians, the Guide includes chapters on personal and enterprise goodwill and noncompete agreements, how to analyze CPT™ codes, damages and the use of MGMA data. Two chapters address the tax aspects of transactions, which can have a significant affect on the manner in which a valuation method is approached. Where a medical practice valuation is the most common form of healthcare valuation, the most common reason for that valuation is a divorce. Two chapters on the unique issues of divorce valuation are also included.
Physician business relationships with Hospitals and other provider entities are perhaps the major driving force in the healthcare industry today and the Guide devotes seven separate chapters to valuation engagements in this critical market segment, including a new chapter on whole-hospital co-management agreements. I am certain the heretofore unseen scale of these comprehensive works will stand as a major contribution to the healthcare community’s Body of Knowledge.
The Guide’s final segment contains chapters on the valuation of Imaging Centers, Ambulatory Surgery Centers, Dialysis Centers, Hospitals, Home Health Agencies and a new chapter on valuation issues associated with Accountable Care Organizations.
As Editor and Technical Editor for this Third Edition of the Guide and on behalf of the American Health Lawyers Association and Business Valuation Resources, our thanks to all of the contributors for their hard work on behalf of their colleagues, who we are certain, will find the Guide to Healthcare Valuation an important and valuable addition to their professional library.
Mark O. Dietrich, CPA/ABV January, 2012
The Guide will be available April, 2012