Bridging Business & Healthcare : Healthcare Management Consultants for Dispute Resolution, Valuation & Clinical Compliance

PYA’s one-stop healthcare reform information website is getting great reviews in its debut at the American Health Lawyers Association conference in Seattle.

PYA ReformLoupe is our free, interactive website that continuously updates our firm’s healthcare alerts, news stories, blogs, social network sites and other Internet information while it idles on a computer desktop or mobile communications device. Users can also use ReformLoupe to search the hundreds of pages of the healthcare reform act (PPACA.)

Typical comments from Seattle are: “This is great. What’s the subscription fee?” When told there’s no cost to use it, the next question is, “For how long?”

The original idea was to do something that is quick and easily accessible for physicians, healthcare executives and others, like attorneys, whose primary professional interests are in healthcare. As our affiliates at Bluegill Creative were building and designing the site, we decided that journalists, bloggers or anyone else with an interest in healthcare reform might find it useful. We opened it up for everyone, and there really is no cost for using it.

Users can customize the flow of information they want to see, save their preferences for the next visit and search the summary of the federal healthcare reform law.

Look for posts from several of our staff, including Marty Brown, senior healthcare consulting shareholder; Mark Browne, MD, principal consultant and a former practicing physician and hospital executive; James Lloyd, shareholder and healthcare valuation specialist; and Carol Carden, a finance, valuation and managed care consulting shareholder.

After you’ve visited the site, let us know what you think and give us your suggestions on the Contact link.

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NY Times:

In Health Care Overhaul, Boons for Hospitals and Drug Makers

March 21, 2010

“Hospitals have little to fear...the hospitals agreed to help defray the costs of the legislation by agreeing to contribute $155 billion....”

Moody’s Investors Service:

Long-term Credit Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals

April 2010

So who are we to believe? The “old gray lady,” a journalism destination in the midst of a journalism wasteland...or a comprehensive analysis as prepared by Moody’s Investors Service....

The conflict of perception is stark in its nature, but it reflects the lack of understanding by millions of people about the impact of the PPACA.

I find Moody’s analysis to be thoughtful and thorough; yet even it is limited by the potential impact of reconciliation, state reactions, regulatory interpretation, and numerous other competitive reactions.

To quote Roger Goodell, NFL commissioner, “do not let 'perfect' get in the way of better.” But there is always a better, and I don’t think better will always come out of legislation. To wit, hospitals did not agree to defray the cost of the legislation by agreeing to contribute $155 billion over 10 years as the NY Times states. Hospitals simply absorbed this legislative impact, understanding that other significant changes must occur which will hopefully offset this cost.

This analysis of PPACA is still not complete. And as patients and providers are impacted, you can rest assured, more changes will be promulgated. Providers, however, must begin the planning and education process now. We have performed five health system education sessions for their board members and the dialogue that has occurred in those sessions was superb and thought provoking.

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This post addresses the issue of fair market value in connection with “buy and employ” transactions involving hospital acquisitions of physician practices. First, it’s important to understand just what fair market value is.

The most commonly used definition of fair market value is: “the price at which the property or service would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of the relevant facts..

The above definition is consistent with the Stark Law definition of fair market value and general market value, which are as follows:

Fair Market Value: “The value in arm’s length transactions, consistent with the general market value.”

General Market Value: “The price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement.” (Federal Register / Vol. 69, No. 59 / Friday, March 26, 2004 / Rules and Regulations)

Key components of the above definitions are:

1. willing buyers and sellers (i.e. as opposed to specific buyers and sellers),
2. no compulsion,
3. reasonable knowledge of the relevant facts by both parties, and
4. without consideration of one party’s ability to generate business for the other (note: the obvious concern here is that a hospital might overpay for the practice in return for referrals from the physicians).

A similar issue is that fair market value does not take into consideration any potential synergies or other benefits that a particular buyer (i.e. hospital) might be able to achieve post acquisition (such as higher volume or reimbursement rates). Consideration of such synergies would generally change the standard of value from fair market value to investment value. This is often a challenging issue for physicians to grasp and accept because they understand that such synergies often do exist.  

Another challenging issue is when the practice being acquired has significant technical revenue (such as diagnostic testing equipment or a cath lab). In such cases, the technical revenue and expenses will generally need to be separated from the professional components of the practice for purposes of estimating future cash flows and accurately determining fair market value.  

In summary, physician practices come in a wide variety of shapes and sizes. Some are small/single specialty practices that primarily depend upon the reputation and goodwill of the individual physician, and others are large /multi-specialty practices with significant technical revenue and enterprise goodwill. To put it another way, some practices are merely extensions of the individual physicians and have little or no intangible value as standalone enterprises and others have substantial intangible value.

For more information about buy and employee transactions see the first two posts in this series.

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I continue to hear that 2014 is the year that so much of PPACA will really "kick in."  Our clients have been lulled into this false sense of security. In today's PYA Alert, it is apparent that action must be taken immediately in the areas of In-Office Imaging Services and Refund of Overpayments.

Please read the alert to see if you are impacted, and if you haven't already subscribed, please sign up here to receive PYA Alerts.

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