How Healthy Is the ASC Transaction Market?

Published by Becker's ASC Review With contributions by Colin McDermott Colin McDermott, CFA, CPA, is a senior manager for Dallas-based VMG Health. He specializes in healthcare financial, valuation and transaction issues. Here Mr. McDermott discusses current trends in the ASC transaction industry, as well as how surgery centers can improve their valuation and market share. Click to continue to the full article.

Four Deal-breakers in Hospital Imaging Transactions and How to Avoid Them

Published by ImagingBiz When the hospital is the buying party in an imaging joint venture, there are four potential issues that could terminate the transaction, all of which stem from due diligence. These issues include one or both parties failing to understand the distinction between fair market value and strategic value, conflicts surrounding how professional payments are determined after the transaction, collection irregularities or other problems with revenue recognition, and management and governance issues for the newly joint-ventured or acquired imaging center. All four of these transaction deal-breakers, however, can be avoided through understanding, preparation, commitment to communication, and setting expectations.

Fair Market Versus Strategic Value

Too often, one or both parties in a transaction will fail to understand the difference between strategic value and fair market value. A seller might have preconceived notions regarding the value of its business based on discussions with other industry participants or on local market conditions, giving the seller expectations regarding the value of the business. In addition, sellers often anticipate the proposed purchase price of their businesses to include the characteristics and strengths of the buyer, such as economies of scale, purchasing power, or higher reimbursement levels. Strategic value often reflects the added value of the buyer post-transaction and is not the standard of value relied upon in health-care transactions. Health-care facility transactions typically take place at fair market value, which does not include post-transaction buyer benefits in value, but rather is calculated based on the ideas of a typical willing buyer and typical willing seller. Owing to this difference, fair market value is often lower than strategic value. This means that the seller is often disappointed by the buyer’s offer, particularly if the seller was unaware that the buyer would be engaging an appraiser or valuation expert to determine fair market value. Buyers should be transparent about their use of appraisers, and sellers should expect to receive fair market (not strategic) value for their businesses. Click to continue to the full article.

Assessing the Value of Radiologist Services with an Imaging Center Acquisition

Published by Becker's Hospital Review With the recent enactment of the Multiple Procedure Payment Reduction and the increased equipment-utilization rate (used to calculate Medicare reimbursement) contained in the American Taxpayer Relief Act, reimbursement pressures on physician-owned imaging centers are intensifying. These centers, many of which are facing declining profits and looming capital expenditure needs, provide potential acquisition targets for hospitals and health systems seeking to grow and strengthen their outpatient imaging service line. With certain acquisitions, it may be important to engage the radiologists to provide management or professional interpretation services to the center post-transaction. These post-transaction service arrangements are generally executed through a professional service agreement. To mitigate regulatory compliance risk (federal Stark law, anti-kickback law or, for federal tax-exempt organizations, IRS regulations) and to validate the fairness of the compensation terms, an independent valuation firm may be procured to assess if the compensation terms of a PSA are consistent with fair market value. This article describes primary factors that a valuation firm considers in assessing compensation for management and professional interpretation services. Click to continue to the full article.

What’s Your Practice Worth?

The introduction of healthcare reform in the United States will make uncertainty a fact of life for physicians and hospitals over the next several years. As a result of heightened uncertainty and risk, orthopaedic surgeons may seek to sell their practices to hospitals or establish joint ventures. But before making that decision, orthopaedic surgeons should pay special attention to the current regulatory environment and understand the fundamental drivers that determine the value of their practices.

What’s Included and Not Included in Physician Compensation Survey Data?

Physician compensation survey data is normally distributed to eager eyes waiting to see the current benchmarks, but a comprehensive look of the actual underlying content in those surveys could prove to be valuable, according to an article from VMG Health (pdf). Jonathan Helm, a manager in the professional services agreements division of VMG Health, wrote that the definition of "total compensation" must be thoroughly examined to understand how survey data should be read. For example, according to the 2011 Medical Group Management Association Physician Compensation and Production Survey: 2011 Report Based on 2010 Data, physician compensation was defined as all "compensation on a W2, 1099 or K1 [for partnerships] plus all voluntary salary reductions such as 401(k), 403(b), Section 125 Tax Savings Plan and Medical Savings Plan. The amount reported should include salary, bonus and/or incentive payments, research stipends, honoraria and distribution of profits." Click here to continue to the full article.

Radiology Alignment: Common Structures and the Value of Radiologists’ Services

Published by ImagingBiz Whether given incentives by the continued cuts in reimbursement levels or by the desire to monetize an operating asset, radiologists in the market continue to sell their imaging centers to buyers of many kinds—for-profit imaging-center owner/operators, for-profit hospitals/health systems, and not-for-profit hospitals/health systems, among others. Although the sale of the imaging center transfers all (or a portion of) the ownership to the buyer, there are still opportunities for radiologists to remain involved in the business. Specifically, many radiologists continue to provide exam interpretations and/or specific management services. The relationship between the newly purchased imaging center and the radiologist is generally consummated through a professional-services agreement. Compensation paid to the radiologist often stands out as one of the most significant factors of any professional-services agreement. To mitigate regulatory-compliance risk (involving the federal Stark law; anti-kickback statutes; or, for organizations exempt from federal tax, IRS regulations) and to validate the fairness of the compensation terms, the services of an independent valuation company can be procured to assess whether the compensation terms of a professional-services agreement are consistent with fair market value. Click to continue to the full article.

Long-Term Benefits of Regular Valuations for ASCs

Published by Becker's ASC Review With contributions by Aaron Murski Valuations are an important part of any business, including ambulatory surgery centers. Aaron Murski, senior manager and leader of the Business Valuation Team at VMG Health discusses how ASC leaders can benefit from regular valuations and improve the value of their centers for the future. Click to continue to the full article.

Three Keys to Identifying and Quantifying Imaging Reimbursement Risk

Published by ImagingBiz Written by Matthew Strother and Justin Mowrey The diagnostic-imaging industry continues to face significant reimbursement headwinds as a result of recent Medicare reimbursement cuts. Industry-specific cuts recently enacted include the Multiple Procedure Payment Reduction (MPPR), which was introduced in the 2012 Medicare Physician Fee Schedule (MPFS) and expanded in the 2013 MPFS, and the increased equipment-utilization rate (used to calculate Medicare reimbursement) contained in the American Taxpayer Relief Act (ATRA), passed in January 2013. These industry-specific reimbursement cuts, not to mention any potential overall health-care cuts related to the automatic budget cuts of March 1, 2013, or to the sustainable growth rate formula, will present the industry with a very challenging reimbursement environment, over the next couple of years. Many of our clients hoping to acquire (or having recently acquired) an imaging center have asked us how these reimbursement cuts will affect the revenue, cash flow, and (ultimately) value of the target entity. The answer to this question depends on three factors: the target entity’s payor mix, its procedure mix, and its ability to realize operating-expense efficiencies to mitigate the effect of reimbursement cuts. Click to continue to the full article.

Three Key Considerations for Streamlining Imaging-center Acquisitions

Published by ImagingBiz Valuations of a business or enterprise and real estate share numerous methodologies, terms and standards, which often result in confusion amongst the distinct disciplines. Both types of valuation largely depend upon an income approach. Both utilize financials that are usually prepared and audited by a third-party and in accord with Generally Accepted Accounting Principles. Both valuations depend upon an appraiser's ability to determine either a stabilized income stream or to prepare a reasonable forecast based upon historical performances, current market conditions and projected future market conditions. Understanding the difference between business and real estate valuation methods can be useful for healthcare leaders who are seeking to enter into transactions that involve hospital businesses and/or their real estate. Business valuations utilize EBITDA (earnings before interest, taxes, depreciation and amortization) as a key format metric to determine value. An appraiser's ability to either determine a stabilized level of EBITDA or a reasonable forecast of EBITDA then allows for the application of a market-derived multiple or a discounted cash flow analysis in order to determine a supportable determination of value. Click to continue to the full article.

ASC Reimbursement Trends: On the Up and Up

Published in Becker's ASC Review For each of the past five years, VMG has distributed the Intellimarker™: Ambulatory Surgical Center Financial & Operations Benchmarking Study (the "Intellimarker™") that compiles the financial and operational data for over 240 ASCs nationwide. A trend observed in the Intellimarker™ is an increase in median net revenue per case for ambulatory surgery centers for three of the last four years. It's common to hear several industry leaders discuss both commercial and government reimbursement cuts. Surprisingly, the charts above show that the median net revenue per case (across all specialties) has increased by approximately 6.0 percent compounded annually from $1,297 in 2007 to $1,639 in 2011. Based on discussions with management companies and administrators, there are several plausible reasons for the increase in median net revenue per case. First, the uptick in reimbursement may be explained by procedure acuity. As physicians continue to perform lower acuity procedures in-office, the number of higher acuity procedures performed in ASCs has increased. In addition to the shift of lower acuity procedures being performed in physician offices, some procedures historically reserved for inpatient venues are now being performed in outpatient settings. This is largely due to the development of technology and the increased acumen of physicians and support staff. Click to continue to full article.