CPA.net

MGMA-Denver, October 12, 2009

Reed Tinsley and I had a good crowd at our two-part presentation at MGMA in Denver on Valuing Medical Practices. Always good to see my long-time friend Reed. I can no longer remember which one of us came up with which idea on this stuff. At this stage, however, neither one of us cares.

The weather could have been better.

Managed Care Across the Pond?

Just back from Phoenix and the Healthcare Conference. Met my colleague from the UK there who was kind enough to have flown over the Pond with the September issue of Independent Practitioner Today in which my article on Managed Care appears. Read it here. Download Managed Care_Independent Practitioner Today

Given all the hoopla about European-style healthcare in the Reform discussion here, my readers might find it interesting to get a first-hand view of what goes on in the UK. Subscriptions for Independent Practitioner Today – the unique UK business magazine for doctors with a private practice – are usually 320 dollars (10 issues a year) but there is a special introductory offer of 280 dollars including postage and packing. You can subscribe on www.independent-practitioner-today.co.uk or email jackie@marketingcentre.co.uk

Healthcarebv.com

Nearly 3 years ago, I indicated on this BLOG that I was hoping to launch the above website with a select group of my colleagues who specialize in Healthcare Industry Valuation. (Fanfare)  Took a little longer than we planned, but here it is: www.healthcarebv.com. And thanks to my old friend Reed Tinsley, who announced it first on his BLOG and in his e-newsletter.  www.rtacpa.com

Cost-Shifting

I have heard that my article on the implications of "managed care" in the private health insurance system in the UK will be published in the September Independent Practitioner Today. The following is an extract from that article on cost-shifting.

"Another common form of cost shift exists where providers compelled to provide a discount to an insurer like Medicare or a large private insurer with a strong negotiating position attempt to recoup that discount from insurers with less negotiating strength or from patients with limited insurance coverage or without insurance.  This is a principal reason why the stated price for a service in many U.S. practices is often more than double what they expect to be paid by insurers.  In the area of hospital charges, a stated fee of 10 times what the insurer will actually pay under the contracted rate is not unusual.  Only someone unfortunate enough to be without coverage is faced with paying the stated price since the practice is generally contractually obligated to accept whatever the insurance company says their services are worth.  The attempt by providers to recoup managed care discounts is one of the basic structural reasons for healthcare cost inflation in the States."

I published an article in CPA Expert  Computing The Growth Rate In Physician Practice Revenue in the Winter, 2005 Edition that looks at the actual math of the cost-shift.

I have no way of knowing what the CBO's cost projections are based on at the nuts and bolts level, but it strikes me that if the government took over a larger share of the health insurance system then it presently controls through Medicare and Medicaid with the so-called "Public Option," there would be fewer places to shift costs to. That means that private insurance rates would skyrocket (see the math in the CPA Expert article) OR Medicare and Medicaid rates would skyrocket. The only offset to that result is income tax increases.

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.

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.