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2010 MPFS Proposed Rule: Practice Expenses RVUs

These proposed changes are pretty astounding and I wonder whether the intense lobbying by specialty societies before the release of the Final Rule in early November will leave them in place. There are truly dramatic reductions in the Practice Expense component for specialties including Cardiology, Interventional Radiology, Radiation Oncology, Radiology and Nuclear Medicine. Because RVU changes are required to be revenue neutral, these decreases are offset by not quite as dramatic increases for Ophthalmology, Optometry, Family Medicine, Internal Medicine and (surprise) Physical Therapy.

The data-file in the link below was exported to excel from the Proposed Rule using Adobe and then converted to pdf. I've highlighted the larger increases in yellow and the decreases in red.

Download Highlight 2010 MPFS Proposed Rule RVU Changes_0709

2010 MPFS Proposed Rule: Imaging

This is likely to be the first of several posts as I explore the more than 1100 pages in the Proposed Rule. First no-surprise is that Imaging gets hammered once again. As recommended by MedPAC and initially contained in legislation that did not pass last Fall, the utilization assumption for high-tech imaging equipment costing more than $1.0 million is to rise from 50% to 90%, resulting in a dramatic reduction in the practice expense component/technical component payment per scan.

Quoting the Rule: "We believe the studies cited by MedPAC suggest what we have long suspected, that physicians and suppliers would not typically make huge capital investments in equipment that would only be utilized 50 percent of the time." (Duhhh)

This Proposed Change begs a significant Valuation issue. The drop in revenue and even greater drop in contribution margin cannot be quantified via the discount rate; it has to be accounted for in the cashflow forecast and dramatic differences in value will result from the quantification assumption. Good time to check with Industry experts like Doug Smith at Barrington Lakes Group about what operators are expecting and doing with transactions. Doug's Imaging Chapter in BVR's Guide to Healthcare Valuation is an eye-opener about the valuation of Imaging Centers.

PDF Version of the Medical Practice Valuation Guidebook

We have revised the pdf version of the Guidebook into a single, searchable, Adobe file using the Optimization feature of Adobe Acrobat. It is now available for rapid download for $125. You will also receive the current edition of my Report on the Healthcare Economy (April 2009). The Report on the Healthcare Economy is a perfect inclusion in your Appraisals. The July 2009 edition will include an update based on my analysis of the just-released 2010 Medicare Physician Fee Schedule Proposed Rule.  Carol Carden, Frank Cohen and I will be discussing that Proposed Rule at the AICPA National Healthcare Industry Conference in Phoenix in September.

June 23 BVR Teleseminar

Tuesday's second BVR Seminar from contributors to the Guide to Healthcare Valuation was a great success. My colleague Tim Smith did an exceptional job of laying out the new paradigm for physician compensation FMV and Doug Smith highlighted just how complex forecasting Imaging revenue is in the current environment of downward pressure on price and utilization.

Among my own favorite observations: when the industry normal capital structure includes debt and a debt-free enterprise is being valued on the basis of an equity-only capital structure, one must consider the conceptual impact on the cost of equity of a levered/unlevered Beta analysis if using the build-up method. The cost of equity in a debt-free company must of necessity be less than that of a company with debt, all other things being equal.  That is one lesson in the current economic crisis that stands out as highly levered companies drop like flying bugs in a cloud of Raid(!). Failure to make the adjustment to the cost of equity results in an undervaluation of the entity.

AHLA Tax & Finance Practice Group Member Briefing

My article Converting Physician Practices to Tax-Exempt Status: Is There an Upside to the Downturn? was published earlier this week as a Member Briefing by the American Health Lawyers Association. I would like to thank the editors, who included Travis Blaisdell at Mintz Levin, for their efforts in translating my submission into a form appropriate for the AHLA audience.  After my Journal of Accountancy article and ABA Health Lawyer article with Reed Tinsley, this is the third most edited article I have had published. The article contains some observations that are particularly important in the current environment.  Among these are the

1. Import in an appraisal of considering the tax impact of a liquidation when a taxable practice converts to exempt status

2. Continuing importance of the DCF method in determining whether and to what extent a practice has Intangible Value. I continue to believe that absent extraordinary circumstances, the Cost Approach should not supplant the Income Approach as the appropriate reference point in Healthcare Valuation.

3. Valuing the Transaction reflected in the transaction documents as required by the Derby case discussed elsewhere in this BLOG

4. Considering local law as to the enforceability of noncompete and similar provisions

5. Considering limitations on obtaining both debt and equity capital in the current environment on the discount rate and/or the consideration of marketability.

See this earlier Post: http://cpanet.typepad.com/cpanet/2009/03/exempt-organization-cpe-text.html

June Seminars

As part of Business Valuation Resources three-part series based on the Guide to Healthcare Valuation, I will be participating in a Teleseminar on June 23 with Carol Carden (Chair), Doug Smith (Imaging Centers) and Tim Smith (Fair Market Value and Physician Compensation); my presentation will be based on my Chapter in the Guide on Medical Practice Valuation. My co-presenters are each leading experts in the topics they will present and this will be an excellent opportunity to obtain valuable insights.   http://www.bvresources.com/defaulttextonly.asp?f=June23AudioConference09

I'll also be speaking on valuation and litigation support issues in the current economy in a program chaired by Marc Bello, CPA/ABV at Mass Continuing Legal Education on June 25.

Separately, I would like to thank the many colleagues who came up after my presentation at the NACVA conference last Friday and offered stories about how my books, articles or responses to their questions via e-mail or on the phone had assisted them in their valuation practice. During my presentation, I made a point of thanking some of my colleagues who had helped me in those articles, including Kevin Yeanoplos, former Chair of the AICPA ABV Committee, and Michael Hayes, who edited my Journal of Accountancy article. I am also reminded of the passing in January of my friend and mentor Jim Rigby, who selfessly dedicated much of his time to the advancement of less well-known members of the valuation community.

2009 Seminar Schedule

I'll be speaking at the NACVA Conference this Friday, May 29, on Tricks and Traps in the Valuation of Medical Practices. I'll also be speaking at the AICPA Healthcare Conference in September on New Views of RVUs with Greg Anderson and then with Frank Cohen and Carol Carden on the 2010 Proposed Rule and Other Changes; in October, I'll be at the MGMA National Conference speaking on Medical Practice Valuation with Reed Tinsley as well as chairing a panel at the ASA Advanced Business Valuation Conference in Boston on Private Equity in Healthcare with Todd Rudsenske, Michael Blau and Greg Koonsman.

Finally, Carol Carden, Don Barbo and I will do a pre-Conference session at the AICPA Business Valuation Conference in November on Valuing Medical Practices. With half a day to present, this promises to be a real learning opportunity for all in attendance.

Managed Care and Taxation in the UK

I have been in London where I’ve had the chance to meet and consult with representatives of the burgeoning private practice physician organizations to discuss the progression of American-style managed care and regulation and what the stages might look like – and none too soon it would appear.  I was also granted the opportunity to give a seminar on valuation of physician practices for tax purposes and describe the significant differences between US and UK tax policy and how it might affect value – notably, there is no equivalent to IRC section 351 and the transfer of goodwill to a corporation by an unincorporated individual in the UK is a taxable event.  The taxation and value of physician goodwill have become quite important as the number of private physician practices has climbed in response to the partial move away from National Health Service (NHS) to a mix with private health insurance. Many doctors have begun private practices in addition to their weekly commitment as employees of the NHS. There are quite a few private hospitals in London as well, some owned by large American companies, notably HCA. Private health insurance and the related export of American-style managed care is somewhat surprising, particularly in light of present trends here in the US.

 

I have been invited to write an article for the leading physician trade magazine on managed care and its stages of progression and once it is published, I will post excerpts of it here.

Owl's Roost Rumble, Greensboro, NC

I am pleased to report that I finished third in the "old man's" division in this morning's 3.5 mile trail race, well behind the overall winner who I believe was 61. The better story is that I had changed positions with a 9 year old several times during the race and thought I had left him behind until the last half mile, most of which was a steep climb over exposed tree roots. I literally heard footsteps as I came out of the woods and headed for the finish line and realized the 9 year old was trying to out-sprint me to the finish line. Inspired, I managed to sprint myself and we finished dead-even, me more on the dead side. I gave him a high five but he later came over and apologized for the sprint! As it turns out his mother was the overall winner in the women's division, so I suspect he will be an Olympian someday.

One more for the Road

Carol Carden, Don Barbo and I enjoyed doing the AICPA Webinar this afternoon and as usual, I learned some things from my two learned colleagues. Rumor has it we will be "live and in-person for one show and one show only" at one of the national valuation conferences later this year.

We failed to mention, I think, an excellent source of industry data about Imaging: Aunt Minnie (www.auntiminnie.com). My good friend, contributing author to BVR's Guide to Healthcare Valuation and leading industry Consultant Doug Smith of Michigan's Barrington Lakes Group suggested it and it has been a great resource.