Table of Contents

About the Authors
Introduction
Acknowledgements

PART I. THE HEALTHCARE MARKETPLACE

• Chapter 1. Five Years of Healthcare Reform
  • 1.0 A Brief Overview of the Healthcare Insurance Industry
  • 2.0 Medicare National Coverage Determinations (NCDs)
  • 3.0 Reform Components
  • 4.0 Conclusions
  • 5.0 Sources of Information
• Chapter 2. Healthcare Market Structure and Its Implication for Valuation of Privately Held Provider Entities—An Empirical Analysis
  • 1.0 Results of Original Study
  • 2.0 Data Sources and Impact on Analysis
  • 3.0 Public Healthcare Insurers
  • 4.0 Market Share
  • 5.0 History of Blue Cross Plans
  • 6.0 Public Hospital Companies
  • 7.0 Medicare Part A Spending
  • 8.0 Other Hospital Market Factors
  • 9.0 Valuation Imperative
  • 10.0 Example
  • 11.0 Surgery Centers
  • 12.0 Medicare Part B Spending
  • 13.0 Prevalence of For-Profit Hospitals
  • 14.0 Valuation Imperative
  • 15.0 Radnet
  • 16.0 Acquisition Versus Same Store Growth
  • 17.0 Valuation Imperative
  • 18.0 Implications for Valuation of Private Healthcare Providers
  • 19.0 Other Uses of Market Data
  • 20.0 Valuation Imperative
  • 21.0 Regulatory Issues
  • 22.0 Conclusion
• Chapter 3. Factors in Estimating Cost of Capital and Forecasting Cash Flow in Healthcare
  • 1.0 What Comprises the ‘Healthcare Industry’?
  • 2.0 Deriving the Discount Rate
  • 3.0 Weighted Average Cost of Capital (WACC)
  • 4.0 Government Influence
  • 5.0 Identifying Factors That Contribute to Risk
  • 6.0 Near-Term Forecasting and Risk Assessment: MedPAC, the MPFS Proposed and Final Rules, and the Market
  • 7.0 Identifying Reimbursement Trends That Are Not Sustainable
  • 8.0 The MedPAC Crystal Ball
  • 9.0 Primary Care: The Baseline for Risk in Physician Practices
  • 10.0 Understanding the Impact of Payor Relationships
  • 11.0 Using Guideline Company Data to Forecast Cash Flows and Assess Risk
  • 12.0 Conclusion
• Chapter 4. Valuing Intangible Assets Under the Cost Approach: The Current State of the Body of Knowledge
  • 1.0 Introduction
  • 2.0 Preliminary Considerations and Clarifications
  • 3.0 Cost Approach Fundamentals in Intangible Assets Valuation
  • 4.0 The Generally Accepted Cost Approach Method
  • 5.0 Techniques for Quantifying Economic Obsolescence
  • 6.0 The Cost Approach in Tangible Asset Appraisals
  • 7.0 Conclusion

PART II. REGULATORY CONSIDERATIONS IN HEALTHCARE VALUATION

• Chapter 5. The Anti-Kickback Statute and Stark Law: Avoiding Valuation of Referrals
  • 1.0 The Anti-Kickback Statute
  • 2.0 The Stark Law
  • 3.0 Valuation Scenarios to Consider
• Chapter 6. The Volume or Value Standard: Navigating the Stark Law’s Prohibition on ‘Taking Into Account’ Designated Health Service Referrals
  • 1.0 Stark Law Overview
  • 2.0 Navigating the Volume or Value Standard—Documenting Compliance
  • 3.0 Understanding the Volume or Value Standard—Guidance From CMS
  • 4.0 The Volume or Value Standard—Case Law Illustrations
  • 5.0 Conclusion
• Chapter 7. The Imperative to Meeting the Stark Group Practice Definition
  • 1.0 Why the Definition Matters
  • 2.0 Single Legal Entity
  • 3.0 Physicians
  • 4.0 Range of Care
  • 5.0 Services Furnished by Group Practice Members
  • 6.0 Distribution of Expenses and Income
  • 7.0 Unified Business
  • 8.0 Volume or Value of Referrals
  • 9.0 Physician-Patient Encounters
  • 10.0 Productivity Bonuses
  • 11.0 Profit Sharing
  • 12.0 Conclusion
• Chapter 8. Valuation Issues Affecting Tax-Exempt Healthcare Entities
  • 1.0 Introduction
  • 2.0 Valuation Issues
  • 3.0 Other Regulatory Considerations
  • 4.0 Other Medicare Fraud and Abuse Penalties
  • 5.0 Tax-Exempt Entity Definitions
  • 6.0 Tax-Exempt Organization Transactions—Private Inurement and Excess Benefits
  • 7.0 The Initial Contract Rule
  • 8.0 Section 4958 Penalty Excise Taxes
  • 9.0 Intermediate Sanctions
  • 10.0 Excess Benefit Transaction Presumption of Reasonableness
  • 11.0 Conflict of Interest
  • 12.0 Appropriate Data
  • 13.0 Adequate Documentation
  • 14.0 Analyst Considerations Regarding Private Inurement
  • 15.0 Purpose of Intermediate Sanctions
  • 16.0 Imposition of Penalty Excise Taxes
  • 17.0 Rebuttal Presumption of Reasonableness
  • 18.0 Excess Benefit Transaction
  • 19.0 Reasonableness of Tax-Exempt Entity Compensation
  • 20.0 Revocation of Tax-Exempt Status
  • 21.0 Analyst Common Misconceptions Regarding Healthcare Property and Services Valuations
  • 22.0 Summary and Conclusion
• Chapter 9. Patient Medical Records, HIPAA, and State Medical Records Law in Valuation and Litigation
  • 1.0 Introduction
  • 2.0 The Health Insurance Portability and Accountability Act of 1996
  • 3.0 Conclusion
• Chapter 10. By the Numbers: A Case-Based Understanding of Healthcare Valuation Fraud
  • 1.0 Introduction
  • 2.0 Principal Statutes Related to Valuation Fraud
  • 3.0 Import of Qui Tam Relators
• Chapter 11. The Survey Games: FMV in the Tuomey and Halifax Cases
  • 1.0 FMV Methodology in Tuomey and Halifax
  • 2.0 Commercial Reasonableness Analysis in Tuomey and Halifax
  • 3.0 Review of FMV Methodology
  • 4.0 Concluding Notes
• Chapter 12. Bradford Regional Medical Center: Lessons for the Inexperienced
  • 1.0 Introduction
  • 2.0 Court's Findings in Bradford Regional Medical Center (BMRC) Case
  • 3.0 Key Valuation Issues in BRMC Case
  • 4.0 Conclusion
• Chapter 13. Converting Physician Practices to Tax-Exempt Status
  • 1.0 Basic Tax Consequences
  • 2.0 Valuing Intangible Assets
  • 3.0 Personal Versus Enterprise Goodwill
  • 4.0 Hypothetical Sale
  • 5.0 Current Economy Considerations
  • 6.0 Conclusion
• Chapter 14. What Goes Around Comes Around: Derby v. Commissioner
  • 1.0 Case Summary
  • 2.0 Transaction Overview
  • 3.0 Taxpayers’ Valuation for Trial
  • 4.0 The Donation
  • 5.0 Conclusion
• Chapter 15. What Is to Be Learned From Caracci?
  • 1.0 The Key Valuation Issue and Valuation Experts
  • 2.0 History of Sta-Home
  • 3.0 Position of the Parties
  • 4.0 Tax Court Opinion
  • 5.0 The Standard of Value
  • 6.0 Hahn’s Valuation Approaches
  • 7.0 Wilhoite’s Valuation Approaches6
  • 8.0 Appellate Court Opinion
  • 9.0 Synonymous Standard of Value?
  • 10.0 Key Regulatory Issues in Health Care
  • 11.0 Valuation Questions Raised by the Case
  • 12.0 Looking Ahead

PART III. VALUING PHYSICIAN PRACTICE

• Chapter 16. Choosing and Using the Right Valuation Methods for Physician Practices
  • 1.0 The Market in 2015-2016
  • 2.0 Introduction
  • 3.0 Alleged Comparative Practice Sales Method
  • 4.0 Understanding Physician Practice Discount and Capitalization Rates
  • 5.0 Discounted Cash Flow (DCF)
  • 6.0 Using the MGMA Compensation and Cost Data
  • 7.0 Accounts Receivable
  • 8.0 Terms Make the Deal
  • 9.0 An In-Depth Review of the Correct Use of the Excess Earnings Method
  • 10.0 The Use of the Capitalization of Cash Flows in Conjunction With the Excess Earnings Method
  • 11.0 Control Adjustments to the Excess Earnings Valuation Model?
  • 12.0 Chapter Summary
  • The Thornton Letter
• Chapter 17. Using Work RVUs and ‘Particular Market’ Rates to Establish Fair Market Value Physician Compensation
  • 1.0 Executive Summary
  • 2.0 Introduction.
  • 3.0 Failings of the Surveys
  • 4.0 The RVU Method
  • 5.0 Regulatory Impact and Conclusion
• Chapter 18. Evaluating RVU-Based Compensation Arrangements
  • 1.0 Limitations of Resource-Based Relative Value Scale (RBRVS)
  • 2.0 Impact of Contract Rates and Payor Mix on Physician Compensation
  • 3.0 Income-Based Approach to Analyzing Compensation Value vs. Sole Reliance on Survey Data
  • 4.0 Conclusion
• Chapter 19. Reasonable Compensation for Physicians Under the Internal Revenue Code
  • 1.0 Overview
  • 2.0 General Factor in Assessing Reasonable Compensation
  • 3.0 Independent Investor Standard of Exacto Spring
  • 4.0 Mulcahy, Pauritsch, Salvador
  • 5.0 Who Owns the Intangible Assets?
  • 6.0 Specific Intangible Assets
  • 7.0 Norwalk v. Commissioner
  • 8.0 Larry E. Howard
  • 9.0 IRS Technical Advice Memo 200244009
  • 10.0 Specific Case Law Involving Physician Compensation
  • 11.0 Factors Specific to Tax-Exempt Entities
  • 12.0 Schedule J .
  • 13.0 Excess Benefit Transaction Rules
  • 14.0 The IRS Exempt Organization Division Continuing Professional Education Texts
  • 15.0 The Derby Case
  • 16.0 Physician-Specific Factors in Assessing Reasonable Compensation
  • 17.0 Physician Supervision of Midlevel Providers
  • 18.0 Local Market Factors and Payor Rates per RVU
  • 19.0 Impact of Noncompete Agreements
  • 20.0 Trade Secrets and Similar Provisions
  • 21.0 Applying the Independent Investor Test to Physician Practices
  • 22.0 Net Working Capital
  • 23.0 Fixed Assets
  • 24.0 Trained Workforce
  • 25.0 Ancillary Technical Component Profits in Detail
  • 26.0 Some Common Mistakes
  • 27.0 Example
  • 28.0 Transactions
  • 29.0 Individual Market Idiosyncrasies
  • 30.0 Contract Rights
  • 31.0 Patient Charts
  • 32.0 Payor Contracts
  • 33.0 Goodwill
  • 34.0 Understanding and Documenting the Reasonable Compensation Analysis
  • 35.0 Determination of Midlevel Profits
  • 36.0 Massachusetts Medical Study
  • 37.0 Center for Studying Health System Change
  • 38.0 Massachusetts Attorney General’s Report
• Chapter 20. Assessing Intangible Value in a Physician Practice Acquisition
  • 1.0 Key Concepts and Definitions
  • 2.0 The Context for Valuing Physician Workforce
  • 3.0 Example
  • 4.0 A Review of the Significant Issues
  • 5.0 Conclusion
• Chapter 21. Valuing Trained and Assembled Workforce in Healthcare Provider Entities Using the Cost Approach
  • 1.0 Introduction
  • 2.0 Overview of Job Types in Healthcare Provider Entities
  • 3.0 Types and Levels of Training Within a Healthcare Provider Entity
  • 4.0 Assembling a Workforce for a Healthcare Provider Entity
  • 5.0 Applying the Generally Accepted Cost Approach Method
  • 6.0 Calculating Replacement Cost New
  • 7.0 Estimating the Forms of Depreciation in RCNLD
  • 8.0 Confirming the Cost Approach Value Indication for TAWF
  • 9.0 Specific Liabilities Accompanying TAWF
  • 10.0 Due Diligence and Data Gathering
  • 11.0 Specific Areas of Consideration for Valuing TAWF in Physician Practices
  • 12.0 Conclusion
• Chapter 22. Examining the Valuation of Trained and Assembled Workforce Under a Liquidation Premise of Value
  • 1.0 Introduction
  • 2.0 Premise of Value for Intangible Assets
  • 3.0 The Bankruptcy Case Law Thesis
  • 4.0 Examining the Attributes and Conveyance of TAWF
  • 5.0 Valuation of TAWF Under a Liquidation or In-Exchange Premise of Value
  • 6.0 Conclusion
• Chapter 23. Resolving the Debate About the Value of Physician Practices: A Comprehensive Analysis
  • 1.0 Introduction
  • 2.0 Clarifying the Issues in the Debate
  • 3.0 Physician Compensation: The 300-Pound Gorilla in the Room
  • 4.0 Use of Post-Transaction Compensation in the Valuation
  • 5.0 Application of the Income Approach
  • 6.0 Application of the Cost Approach in Valuing Intangible Asset
  • 7.0 Application of the Asset-Based Approach
  • 8.0 Application of the Market Approach
  • 9.0 Reconciling Value Indications From the Approaches to Value
  • 10.0 Application of the Appropriate Premise of Value
  • 11.0 Arriving at a Conclusion of Value
  • 12.0 Conclusion
• Chapter 24. Critical Condition—A Coding Analysis for a Physician Practice Valuation
  • 1.0 Established Patient Office Visits
  • 2.0 Other Examples
  • 3.0 Sources Of Data
  • 4.0 Identifying Problematic Coding
  • 5.0 Analysis
  • 6.0 Modifiers
  • 7.0 Utilization of Tests
  • 8.0 Surgical Practices
  • 9.0 Beware Changes in the Value of Codes
  • 10.0 Conclusion
• Chapter 25. Understanding and Using the Technical and Professional Components of Ancillary Revenue When Valuing Medical Practices
  • 1.0 Some Common Mistakes
  • 2.0 Jurisdictional Issues
  • 3.0 Transactions
  • 4.0 Individual Market Idiosyncrasies
  • 5.0 Conclusion
• Chapter 26. Identifying and Measuring Personal Goodwill in a Professional Practice: Part I—Basic Concepts
  • 1.0 Illustrative Examples
  • 2.0 Enforceability of Noncompetes
  • 3.0 Reasonable Compensation
  • 4.0 Categories of Intangibles
  • 5.0 Mechanics of Valuation
• Chapter 27. Identifying and Measuring Personal Goodwill in a Professional Practice: Part II—Using the Single Period Capitalization Model
  • 1.0 Probability of Competition
  • 2.0 Key Conclusions
• Chapter 28. Valuation Solutions for Special Situations With Medical Practices
  • 1.0 A Series of Group Practice Buy-In Considerations
  • 2.0 Reality Checks
  • 3.0 Solving the Two-Person Practice Buyout Dilemma
  • 4.0 Strategies for Creating Merger Value
  • 5.0 Structures for Successful Mergers
  • 6.0 Divorce
  • 7.0 Valuing Independent Practice Associations (IPAs)
  • 8.0 Defending Against Unwarranted Damage Claims in a Practice Dissolution
  • 9.0 Chapter Summary
• Chapter 29. Why Transaction Structure and Taxes Affect Value and Other Nuances of Valuing Medical Practices
  • 1.0 A Review of Complex Tax Issues
  • 2.0 Fair Market Value?
  • 3.0 Stock and Asset Transactions
  • 4.0 Healthcare Transactions, in Particular
  • 5.0 Conclusion
• Chapter 30. A Healthcare Appraiser Reviews a Judge-Appraiser’s ‘Report’
  • 1.0 Time Line of the Case
  • 2.0 History of MedPAC’s Identification of High-Tech Imaging Expense Trends
  • 3.0 The Medicare Conversion Factor
  • 4.0 Reduction in the Relative Value of MRI Services
  • 5.0 A Quantitative Analysis of the Court’s Excessive Terminal Growth Rate
  • 6.0 The Broader Revenue Picture in the Healthcare Industry
  • 7.0 Amount of Medically Unnecessary PT Services
  • 8.0 An Observation on the Industry Risk Premium
  • 9.0 Conclusions
• Chapter 31. The CPA’s Role in Mergers and Acquisitions Due Diligence Assistance to PPMCs and Private Equity Firms
  • 1.0 Introduction
  • 2.0 Professional Reporting Standards
  • 3.0 Engagement Planning
  • 4.0 Operating Statistics
  • 5.0 Patient Volume
  • 6.0 Charges and Collections
  • 7.0 Payor Mix
  • 8.0 CPT Code Analysis
  • 9.0 Accounts Receivable
  • 10.0 Financial Information
  • 11.0 Tax Matters
  • 12.0 Conclusion
• Chapter 32. When the Marriage Is Over, What Is the Practice Worth?
  • 1.0 Standard of Value
  • 2.0 Premise of Value
  • 3.0 Valuation Date
  • 4.0 Appreciation
  • 5.0 Buy/Sell Agreements
  • 6.0 Goodwill
  • 7.0 Double Dip
  • 8.0 Summation
• Chapter 33. Jurisdictional Issues in Physician Practice Divorce Valuation: California (A Community Property State)
  • 1.0 Family Code §771, Earnings and Accumulations After Date of Separation Are Separate Property
  • 2.0 Family Code §2552, Valuation Date of Assets and Liabilities
  • 3.0 Premise of Value
  • 4.0 Status of the ‘Double Dip’
  • 5.0 Property Can Be Characterized as Separate, Community, Quasi-Community, or a Combination
  • 6.0 Current Professional Practice Case Analysis
  • 7.0 Conclusion

PART IV. GUIDE TO THE VALUATION OF HEALTHCARE INDUSTRY ENTERPRISES

• Chapter 34. Valuation Considerations Specific to Diagnostic Imaging Entities
  • 1.0 The Unique Structure of Diagnostic Imaging Services Requiring Analysis
  • 2.0 Diagnostic Imaging: Influences on Revenue, Historical Performance Analysis, and Revenue Forecasting
  • 3.0 Regulatory Impacts Specific to Diagnostic Imaging Entities and Their Influence on Forecasting Revenue Streams
  • 4.0 The Primary Influences and Considerations Required When Analyzing and Forecasting Infrastructure Expense Unique to Diagnostic Imaging Entities
  • 5.0 Potential Land Mines and Valuation Considerations That Can Come Back to Haunt You
• Chapter 35. Ambulatory Surgery Centers
  • 1.0 Introduction
  • 2.0 Segment Overview
  • 3.0 History of ASCs
  • 4.0 Certificate of Need Requirements
  • 5.0 ASC Growth
  • 6.0 Changes in Medicare Payment System for ASCs
  • 7.0 Discrepancy in Payments
  • 8.0 CY 2015 Final Ruling
  • 9.0 2015 Sequestration
  • 10.0 Typical ASC Legal Structures
  • 11.0 Typical ASC Financial Structure and Performance
  • 12.0 Income Statement Observations
  • 13.0 Balance Sheet Observations
  • 14.0 Does the Past Tell Us Anything About the Future?
  • 15.0 ASC Risk-Assessment Matrix
  • 16.0 Purchase or Sale of Controlling Equity Interest
  • 17.0 Purchase or Sale of Noncontrolling Equity Interests
  • 18.0 Conversion of an HOPD
  • 19.0 Data Request
  • 20.0 Conclusion
  • 21.0 Bibliography
• Chapter 36. Valuing Dialysis Clinics: Reasons for Valuation
  • 1.0 Regulatory Considerations
  • 2.0 Reimbursement Models
  • 3.0 Valuation Approaches
  • 4.0 Value Drivers
  • 5.0 Government Enforcement Environment
  • 6.0 Conclusion
• Chapter 37. The Valuation of Pathology Services
  • 1.0 Clinical and Anatomic Pathology Background
  • 2.0 Clinical Pathology Services
  • 3.0 Anatomic Pathology Services
  • 4.0 Market for Professional Pathology Services
  • 5.0 Pathology Services Agreements
  • 6.0 Summary
• Chapter 38. The Valuation of Hospitals
  • 1.0 Overview of the Hospital Industry
  • 2.0 Hospital Value Drivers
  • 3.0 Healthcare Reform Law
  • 4.0 Current Challenges Facing Hospitals
  • 5.0 Hospital Reimbursement
  • 6.0 Valuation Process
  • 7.0 Conclusion
  • 8.0 Resource Materials
• Chapter 39. Home Healthcare Services
  • 1.0 The Industry
  • 2.0 Funding of Home Health Products and Services
  • 3.0 Home Health Funding
  • 4.0 Hospice Funding
  • 5.0 Private Duty Funding
  • 6.0 Home Medical Equipment Funding (HME)
  • 7.0 Home Infusion Therapy (HIT) Funding
  • 8.0 Home Health Industry Information
  • 9.0 Valuing Home Healthcare Businesses
  • 10.0 Special Situations Affecting Home Healthcare Value
  • 11.0 Conclusion
• Chapter 40. Valuing Joint Ventures and Other Physician Alignment Initiatives
  • 1.0 Reasons for Valuation
  • 2.0 Regulatory Considerations
  • 3.0 Key Features and Typical Valuation Methodologies
  • 4.0 Types of Information Utilized and Testing Assumptions
• Chapter 41. Urgent Care Centers: Valuation Overview
  • 1.0 Retail Healthcare
  • 2.0 Value Proposition—Patients
  • 3.0 Value Proposition—Payors
  • 4.0 Payor Mix
  • 5.0 Medicare FFS Program
  • 6.0 Industry Growth
  • 7.0 Market Participants
  • 8.0 Private Equity and Urgent Care
  • 9.0 Hospitals and Urgent Care
  • 10.0 Physician Entrepreneurs
  • 11.0 Typical Urgent Care Income Statements
  • 12.0 Transaction Market Defined
  • 13.0 Valuation Characteristics and Methodology
  • 14.0 Cost Approach
  • 15.0 Market Approach
  • 16.0 Income Approach
  • 17.0 Conclusion
• Chapter 42. Valuing CINs, ACOs, PHOs, and IPAs
  • 1.0 Shifting Focus From Volume to Value
  • 2.0 Bringing Providers Together
  • 3.0 Transactions Involving MPNs
  • 4.0 Example 1: Income Approach
  • 5.0 Income Approach Analysis
  • 6.0 Working Capital and Cash Flows
  • 7.0 Summary Financials
  • 8.0 Accounting for the Risk of Shared Savings Revenue
  • 9.0 Residual Value
  • 10.0 Sensitivity Analysis—Multiple Cash Flow Scenarios
  • 11.0 Venture Capital Discount Rate
  • 12.0 Exit Event Assumed on Dec. 31, 2018
  • 13.0 Other Considerations
  • 14.0 Example 2: Market and Cost Approaches
  • 15.0 Conclusion

Index
Index of Court Cases Cited Within This Guide