3 interesting valuation issues for hospital leadership

A number of healthcare valuation trends have emerged in recent years, some of which are centered on the complexity of compensation under a value-based healthcare model.

During a recent teleconference hosted by McGuireWoods, Scott Becker, JD, partner at McGuireWoods and publisher of Becker's Healthcare, asked the speakers to discuss the most interesting issues in healthcare valuation they're seeing. Below are some of the issues the speakers identified.

1. Emergence of quality provisions. Physicians are increasingly being compensated for providing high-quality care, and quality provisions have begun working their way into physician contracts. "They are already in the hospital space…and are starting to creep their way into the surgery center space," said Todd J. Mello, partner and co-founder of HealthCare Appraisers. However, these types of agreements can be difficult to put together because there is not a lot of good quantitative information available to show what physicians earn for producing quality outcomes, according to Jim Carr, partner at HealthCare Appraisers.

2. Rise in unusual partnerships. "On the transaction side, what has been interesting is a trend for really unlikely parties joint venturing," said Greg Koonsman, senior managing director and founder of VMG Health.

One example Mr. Koonsman highlighted was the partnership between nonprofit Baylor Scott & White Health and for-profit Tenet Healthcare. The two Dallas-based organizations completed a joint venture in January to own five Texas hospitals. "In the Baylor-Tenet deal, that transaction had to be at fair market value or at a range of fair market value because Baylor, being tax exempt, has to approach the valuation of the JV appropriately to protect its tax exempt status," said Mr. Koonsman.

3. Use of benchmarks. Assuming it is not efficient to do a valuation for every physician that is hired, hospital compliance officers increasingly want information they can benchmark off of. Although this may work for many physician compensation arrangements, it is not the best method to use in all cases, according to Jonathan Helm, managing director in the professional service agreements division at VMG Health. "If someone is an outlier you would probably want a separate valuation," he said.

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