Impact of Trends in Professional Reimbursement on the Valuation of a Freestanding Imaging Center

Freestanding Imaging CenterPublished by ImagingBiz Written by Clinton Flume, CVA & Nikolaus Melder Contrary to the recent technical reimbursement cuts this year, which have negatively impacted diagnostic imagingoperators, professional reimbursement for the same CPT codes have experienced a stable to slight decline; although, in some instances there was an increase. Modalities such as Computed Tomography (“CT”) and Magnetic Resonance Imaging (“MRI”) experienced technical reimbursement declines between 1 percent and 45 percent. For many freestanding imaging operators relying heavily on governmental payors, without an increase in volume and/or expense reductions, the technical reimbursement declines directly impact the operating earnings of the business. With consideration of the Centers for Medicare and Medicaid Services’ (“CMS”) 2015 Medicare Physician Fee Schedule (“MPFS”) Proposed Rule, the continuous upward trend of professional reimbursement could adversely impact operators. For operators who bill globally and contract for professional read agreements (“PRA”) to an outside or invested radiology group, the rate at which radiologists are compensated may have a material impact in the value of a freestanding imaging center. As the imaging market continues to consolidate, largely due to reimbursement pressure, radiologists could seek opportunities to ensure their professional compensation trends with CMS, which will likely place increased pressure on the operating earnings under a freestanding environment. As the freestanding imaging industry continues to evolve given recent trends in reimbursement, it is prudent for both buyers and sellers to understand the impact the professional component has on the operations of these facilities. Ultimately, the value of a freestanding imaging center can be highly influenced by the structure of the PRAs. The most prevalent example of pending changes to PRAs focuses on the invested radiology group in a freestanding center. In a proposed transaction, if the target imaging center is owned by a radiology group and post transaction the buyer will enter into a PRA with the seller (radiology group), the contracted terms of the PRA should be included in the projected cash flows. Failure to accurately project post transaction compensation may lead to an incorrect determination of value. The prior examples highlight that, regardless of the historical PRA associated with the radiologist, if negotiated differently, the future earnings to an acquirer may be materially different. Click here to continue to the full article.