OIG Opinion 15-10: Fair Market Value Implications for Related-Party Services Agreements

Published by Becker's Hospital Review On July 20, 2015, the Officer of the Inspector General (OIG) issued Advisory Opinion No. 15-101, in which a health system and a related psychiatric hospital sought an advisory opinion related to a non-clinical personnel lease and management services arrangement. The health system had proposed that the compensation be set at the cost to provide the services (salaries, benefits, and overhead) without any mark-up or administrative fee. The health system attested the payment would not vary with volume or value of referrals; however it was unable to set the fee in advance because operational and management needs may change over the term of the agreement. Ultimately, the OIG ruled that the arrangement was low risk based on three factors: 1) Medicare cost reporting rules for related parties; 2) the arrangement helped to gain cost efficiencies for the hospital; and 3) there was no evidence the arrangement would induce or increase referrals. While it could potentially generate prohibited remuneration under the Anti-Kickback Statute, the OIG said it would not impose administrative sanctions on the parties. That said, the OIG also concluded the proposed arrangement could generate prohibited remuneration since the rate may be below Fair Market Value (FMV).2 Click to continue to the full article.

Inspector General’s Kickback Alert Signals Doc Crackdown

Published by Law360 An inspector general’s fraud alert on Tuesday warned referring physicians of fines and prison time that can result from accepting kickbacks disguised as medical directorships, the latest sign of rising interest in punishing individual doctors instead of just corporations for ripping off Medicare and Medicaid, experts say. The alert from the Office of Inspector General at the U.S. Department of Health and Human Services focused on directorship roles in which physicians perform various oversight functions at hospitals, nursing homes, dialysis clinics and other institutional providers. Click to continue to the full article.

Understanding Compensation per Work RVU

Published by NACVA QuickRead The structure of compensation for hospital/health-system employed physicians is a constant struggle for administrators with the rise of physician practice acquisitions and subsequent employment of these physicians. Based on estimates from Jackson Healthcare1, approximately 35 percent of all physicians are employed by a hospital/health-system. As a result, the issue of how to structure and benchmark physician compensation has emerged as a leading topic among both valuators and hospital/health-system administrators. In this article, the author discusses the pros and cons of the work RVU compensation model, the most popular model. The structure of compensation for hospital/health-system employed physicians is a constant struggle for administrators with the rise of physician practice acquisitions and subsequent employment of these physicians. Based on estimates from Jackson Healthcare1, approximately 35 percent of all physicians are employed by a hospital/health-system. As a result, the issue of how to structure and benchmark physician compensation has emerged as a leading topic among both valuators and hospital/health-system administrators. Click to continue to the full article.

Complications Await the Unwary in Healthcare Deal Valuations

healthcare deal valuationsThe healthcare transaction environment is unique in many respects, compared to most other industries, making it challenging to understand for the casual observer and experienced professional alike. Depending on the buyer and seller, geographic location, and type of business, there are a myriad of nuanced business-specific issues and state and federal regulatory considerations that can dramatically affect deal structure, terms, and ultimately the valuation at which a transaction can occur. In most industries, buyers can be classified as financial or strategic. The corresponding valuation each type of buyer might be willing to pay can vary dramatically. Sellers are generally aware of how much strategic value a buyer can unlock post-transaction, and in a typical bidding situation, some of that strategic value often ends up in higher deal valuation or better terms. To the extent buyers overpay or structure deals poorly, they are left with poor returns and perhaps a reputation for mismanaging shareholder value. In healthcare, however, overpaying or inappropriately structuring a transaction can be outright illegal, resulting in severe criminal and civil penalties for those involved in the deal. Before going further, this article should not be construed as legal advice. References to laws and regulations are for illustrative purposes and should be viewed from a valuation, not legal, perspective. Within the healthcare setting, typical buyers and sellers involve for-profit and not-for-profit hospitals and health systems, investor- and physician-owned surgery and diagnostic businesses, and medical groups, to name a few. Healthcare delivery is highly fragmented and extremely localized at its core, and at the local level, competitive relationships among participants can be complex. In addition, most healthcare enterprises participate in the federal Medicare and state Medicaid healthcare programs. This means that the body of law and regulations pertaining to these programs applies to healthcare sector transactions as well. Click here to view the full article on healthcare deal valuations.

Tomosynthesis: Does it Create Value for Your Imaging Center?

Published by ImagingBiz Written by William Teague Tomosynthesis is a relatively new type of imaging technology that utilizes x-rays to create a 3-dimensional image of the breast and is mainly used to detect and diagnose cancers. Not yet considered the standard in clinical care, most imaging centers still employ conventional digital mammograms as their primary method of detecting breast cancer. Conventional mammograms take x-rays of the breast from different angles to create cross-sectional 2-dimensional images. Imaging centers must decide if replacing existing conventional mammography systems with tomosynthesis makes sense from a clinical and financial perspective. What are some factors that drive this decision making process? Will adding this technology to your imaging center create value for shareholders? From a patient perspective, the clinical outcomes utilizing tomosynthesis are apparent. The National Cancer Institute (NCI) reports that approximately 20 percent of cancers are not detected during the initial conventional mammography screening. In addition, patients are often recalled to conduct spot views of overlapping tissue or lesions that were unclear in a 2-dimensional image. Many times biopsies must be performed when the spot views do not provide a definitive conclusion. Also with conventional mammography, the breast tissue must be compressed in order to minimize tissue overlap and improve visibility which many women find extremely uncomfortable. Tomosynthesis enables earlier detection of cancers that may be concealed in dense breast tissue or undetectable in overlapping tissue from conventional mammograms. This requires fewer call backs, biopsies and less patient stress. Earlier detection and diagnosis also significantly improves clinical outcomes in the treatment of the cancer itself. Finally, the patient undergoes significantly less breast compression during the tomosynthesis process, improving patient comfort. Click here to view the full article.

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.

Analysis of the Performance of Ancillary Healthcare Stocks

Published by ImagingBiz As valuation professionals, we actively follow publicly traded companies in the healthcare industry. These companies provide insight into how company management and investors evaluate the opportunities and risks faced by a particular industry. Challenges in the diagnostic imaging business are not unique; nearly all ancillary healthcare service companies are experiencing similar macroeconomic headwinds. However, ancillary healthcare stocks have continued to demonstrate gains. An ancillary service is defined as an auxiliary or supplemental service, such as diagnostic imaging, used to support the diagnosis and treatment of a patient condition. Ancillary services are generally non-core to acute care hospital operations and involve patients in non-life threatening circumstances. Arguably, ancillary services are elective in nature as patients have control over the frequency, timing and choice of service provider, and may even “opt-out” entirely of recommendations by their physician (i.e. ignore a physician-recommended request to get an MRI). Although not perfectly comparable, the diagnostic imaging industry can gather insights from the experiences of other publicly-traded ancillary companies (collectively referred to as “Ancillary Companies”) which face similar challenges. We will review the stock performance and management commentary of the Ancillary Companies to highlight how these companies have reacted and will continue to address current industry trends.
  • RadNet, Inc. (Ticker – RDNT) – Owner  and /or operator of approximately 250 outpatient imaging centers primarily in California, Maryland, Delaware, New Jersey, New York, and Rhode Island;
  • Laboratory Corp. of America Holdings (Ticker – LH) – National operator of clinical laboratory tests including 44 primary laboratories and approximately 1,700 patient service centers;
  • Quest Diagnostics Inc. (Ticker – DGX) – National and international operator of clinical laboratory tests including routine, gene-based, esoteric and forensic drugs; and
  • AmSurg Corp. (Ticker – AMSG) – National operator of approximately 235 ambulatory surgery centers of which approximately 151 are focused in gastrointestinal endoscopy while 84 are multi-specialty. AmSurg added physician services to its portfolio with its purchase Sheridan Healthcare during the 3rd Quarter of 2014.
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The ASC Market by the Numbers: A 2014 Transaction Primer

Published by Becker's ASC Review With contributions from Kevin McDonough From the large scale — AmSurg and Sheridan — to the small — individual physician buy-in —the ambulatory surgery center business is buzzing with transaction activity. Here are 22 key points for ASC owners considering a transaction to know. Click to continue to the full article.

The Rise of High Deductible Health Plans

Published by ImagingBiz The U.S. Commerce Department’s Bureau of Economic Analysis (BEA) recently announced that healthcare spending costs rose 9.9 percent in the first quarter of 2014, which was the largest quarterly increase in more than 30 years. The continued rise in healthcare spending costs has a direct effect on the entire United States population, but most directly effects consumers via overall higher healthcare costs including higher insurance premiums. As highlighted in this chart, which was published by Kaiser Family Foundation, a nonpartisan healthcare trends researcher, the average annual insurance premium for a family increased approximately 7 percent compounded annually from $8,003 in 2002 to $15,745 in 2012 while the individual amount increased by approximately 6.2 percent compounded annually from $3,083 in 2002 to $5,615 in 2012. As a result, consumers are searching for some relief in their healthcare spending. One increasingly popular option is the growth of High Deductible Health Plans (HDHP). Imaging center operators need to take notice. n HDHP is simply defined as a health insurance plan with lower premiums and higher deductibles than a traditional health plan. HDHP’s were traditionally considered and utilized as a form of catastrophic coverage which was intended to cover the high level of expense associated with catastrophic illnesses. According to a study by the Kaiser Family foundation, employers reported that just 4 percent of their workers were covered by some type of high deductible plan in 2006. Recently, this number has climbed to approximately 20 percent with large employers more likely to offer this type of plan. Kaiser found that 43 percent of firms with 1,000 or more workers had an HDHP as an option. By choosing an HDHP over a traditional health plan, there is a tradeoff for the consumer; a lower health care insurance premium on a month-to-month or annual basis, but a higher deductible and an increased financial burden should one become ill. In exchange for a relatively low annual or monthly premium when compared to the traditional health plan, the insurance benefits do not kick in until the consumer has met their annual deductible which is much higher than the traditional health plan—often $3,000 or more in many cases. The lower premium for the HDHP is the primary appeal for most consumers and may be a good fit for younger healthy individuals. However, there could be significant financial strain and upfront costs for the patient considering for example, the average cost of an MRI scan ranges between a few hundred dollars to a few thousand dollars depending on which MRI procedure is performed and where the MRI test is performed. Click here to continue to the full article.

Scaling Down the Hospital

Published by Healthcare Finance From a real estate perspective, the healthcare landscape is dramatically changing. The massive, monolithic structures that have come to represent the acute care setting are becoming more stratified in smaller buildings across wider swaths of a community. As Medicare policy encourages shorter inpatient hospital stays and drives patients into the post-acute care world, the need for colossal facilities is declining, real estate analysts say. Click to continue to the full article.