Fair Market Value Study in Women’s Diagnostic Imaging

After several years of patient frustration and dissatisfaction, a local independent Radiology Group (“the Physicians”) identified strong demand for a free-standing imaging center focused exclusively on providing outpatient women’s imaging services within the local marketplace. 

Situation

The Physicians, a well-established group in the community, noticed a gap in women's imaging services, with existing facilities lacking personal connections and causing long wait times, resulting in low patient satisfaction scores. The Physicians also realized the tailwinds associated with payors steering patients to lower-cost sites of care and patients becoming more cost-conscious amidst a surge of high-deductible health insurance plans and self-funding. Recognizing an opportunity, they developed a business plan to establish the first outpatient diagnostic imaging center exclusively for women, securing a convenient site in a Medical Office Building on the hospital campus. After setting up the facility, securing contracts, and hiring staff, they expanded scheduling availability, resulting in a profitable $3 million in annual revenue in the second year. 

With the success of their venture, the local hospital approached them for a joint venture to expand services further, indicating the growing recognition and value of their offerings in the community. 

Solution

VMG Health was jointly engaged by the Physicians and the hospital to provide a fair market value opinion of an ownership interest in the business. VMG Health conducted an in-depth analysis of the current operations to understand the net operating revenue, payor mix and reimbursement, operating expenses, staffing metrics, competition in the local marketplace, and other available market data. VMG Health worked closely with both parties to understand the operational history and go-forward performance expectations for the business. Through detailed analysis, discussions and assistance from both parties, a pro forma was created and a fair market value analysis was completed. This analysis informed negotiations and adherence to regulatory compliance. 

Success

Ultimately, the Physicians and the hospital successfully negotiated a transaction that included the hospital’s purchase of an ownership interest in the business, relying upon the results of VMG Health’s fair market value opinion. The parties are now exploring their options to grow the services offered by their joint venture through expanding the capacity of their current service lines, adding additional service lines, and consideration for additional sites of service in the local marketplace.