Determining Fair Market Value
for Leasing a New
Cardiac Care Technology
Client Profile: Mid-west academic medical center
Project Type: Business Valuation and Physician Compensation Fair Market Value
Challenge: Develop a fair market value assessment for a new cardiac care technology that the client proposed to offer to small to medium-sized cardiology practices on a mobile basis. The practices would be unlikely to be able to obtain this technology on their own due to the high cost of equipment and operations, the need for trained technologists and a lack of experience in interpreting the exams.
The hospital developed a business model designed on the premise that the cardiology groups would want to have access to this technology through leasing arrangements. DGA was asked to develop an opinion on the fair market value and commercial reasonableness of the contemplated lease arrangements and on the value of related services to be provided by the hospital and by the cardiology groups.
DGA Solutions and Results: Our work considered the revenue generating capacity of the new service, as well as how payers were likely to treat the service. We also considered the costs that each physician group would incur including:
- Space on which to park the mobile unit
- Electricity and telecommunications required to operate the equipment
- Supervising physician services
- Nursing services
DGA completed the valuation and concluded that the business model was a fair market value and commercially reasonable arrangement. The hospital pursued development of the mobile business model.
Valuation of a Freestanding
Imaging Center
Client Profile: Community Hospital
Project Type: Business Valuation
Challenge: To value the tangible and intangible assets of multi-modality freestanding imaging center under a fair market value standard. The center, owned by a radiologist, was the product of a recent breakup of a larger radiology group. Consequently, the historical financial and operational data were fragmented and distorted by the process and impact of recent group reorganization.
DGA Solution and Results: DGA worked with the imaging center management and accountants to establish a reasonable representation of the center’s economic position and potential. Employing this analysis as a basis, DGA performed the required income, market and asset approaches to generate a fair market value conclusion.
This conclusion served as the basis for hospital management’s successful negotiations with the center owner. Subsequent to the hospital’s purchase of the center assets, it was relicensed as a hospital outpatient department. The center currently exists as a profitable cornerstone in the hospital’s strategy to expand diagnostic imaging market share.
Business Valuation for Vascular Lab
Components of a Specialty Practice
Client Profile: A 1,100 bed mid-Atlantic health System serving four states.
Project Type: Medical practice valuation
Challenge: Prepare for development of a comprehensive heart and vascular institute by conducting a valuation of two office-based vascular labs, each owned and operated by an independent vascular surgery practice. The labs and health system were to form a joint venture. The valuation was unusual in that DGA was valuing components of physician practices, rather than an entire practice.
DGA Solutions and Results: Our work considered the earning capacity of each lab and the costs associated with operating the vascular labs independent of the practices. Revenue growth projections had to take into account the potential for changes in Medicare reimbursement regulations. We based our analysis on historical procedure volumes, historical revenue and expense patterns and estimated overhead allocations.
DGA completed the valuation and arrived at a valuation conclusion that was acceptable to all the parties, including health system legal counsel. The transaction closed, and the health system was able to move forward with the development of a vascular institute.
Exploring Succession Options and
Valuing a Component of a Multispecialty Practice
Client Profile: Mid-Atlantic community hospital
Project Type: Business planning and medical practice business valuation
Challenge: Assess the options to assure continuity of hematology/oncology services in the hospital’s local market, as one of the hematology/oncology partners in a large independent group approaches retirement. The practice refers most chemotherapy patients to the hospital.
DGA Solution and Results: DGA identified three options for the oncology practice, ranging from hiring new oncologists for the group, to having the hospital take over the hematology/oncology practice, to creating a hospital-group joint venture for hematology/oncology services.
Based on DGA analysis and on discussions with group representatives, the hospital and the group decided to further asses the hospital’s purchase of the hematology/oncology portion of the group.
DGA completed a valuation of this portion of the group, an unusual valuation situation. Since we were valuing a component of a larger practice, we had to consider complicated allocations of expenses and provide an opinion as to the fair market value of the hematology/oncology practice.
The hospital subsequently acquired the hematology/oncology practice and hired a replacement physician. Through this transaction, the hospital was able to successfully maintain the hematology/oncology chemotherapy business and the practice from eroding as a busy practitioner retires.
Determining Fair Market
Rates for Provision of
Cardiac Catheterization Services
Client Profile: Community Hospital
Project Type: Physician Compensation Fair Market Value and Financial Planning and Modeling
Challenge: To provide an opinion on a proposed “under arrangements” cardiac catheterization lab joint venture. The initial challenge was to determine the fair market rates to be paid by the hospital to the joint venture for the provision of cardiac catheterization services to hospital patients.
After this work was finished and the joint venture established, newly proposed federal legislation cast doubt on the legal viability of the “under arrangements” structure. DGA was then asked to evaluate the financial feasibility of alternative joint venture structures.
DGA Solution and Results: We performed the required market, cost and income analyses to support the fair market opinion on the “under arrangements” joint venture fee structure. After the change in federal law, DGA evaluated the financial feasibility of restructuring the joint venture to operate either as an independent diagnostic and testing facility (IDTF) or as a provider-based entity.
The results of this analysis indicated that the provider-based entity would be preferable. The hospital established this as the “fall-back” structure should the “under arrangements” structure be rendered illegal in the future. This has helped in retaining participating cardiologists and maintaining integration between key members of the medical staff and the hospital.
Providing Analytic Support to Counsel in a
Health System-Payer Dispute
Client Profile: Legal counsel to major metropolitan health system
Project Type: Litigation support
Challenge: Developing analyses and opinions to determine the supportability of counsel’s legal approach in a dispute between a payer and the health system regarding specific payment issues. These analyses required data from a number of public and private sources, and considerable thought and creativity in developing supporting rationale.
DGA Solution and Results: DGA obtained data from the client health system, from Medicare and from other sources. Our analyses showed that counsel’s legal strategies were supportable with facts and data, and we prepared an extensive written opinion with our findings and data interpretation. We also participated in numerous strategy meetings and discussions with the attorneys and client staff in coming to an optimal approach to the case.
The case was settled out of court to the client’s satisfaction.
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