Insurers Acquiring Physicians, Not Always at Fair Market Value

As the business models of providers and health insurers increasingly converge, could insurers’ use their ability to acquire physicians at above fair market value to their competitive advantage?

At the 12th Annual Spine, Orthopedic and Pain Management-Driven Conference in Chicago on June 13, Stuart Neiberg, MAcc, CPA, CFA, a director at HealthCare Appraisers, discussed trends in physician practice acquisitions and employment.

Overall, hospital and health systems continue to aggressively acquire physician groups, largely “to keep the downstream revenue and referral base from going to another competitor,” said Mr. Neiberg.

Roughly 90 percent of current practice acquisitions today are fixed-asset deals, which limit the historical malpractice liability of the acquirer. “Hospitals are trying to limit their liability,” Mr. Neiberg said. Under a fixed-asset model, the acquirer pays a fair-market value for the practice’s assets, such as inventory and other tangible fixed assets, licenses, trade names and staff in place.

When deals are completed between “referring parties,” they must be at fair-market value to be compliant with Stark and Antikickback law. However, the increase in practice acquisitions by insurers and other managed care providers creates a grey area around the fair-market value regulations surrounding healthcare acquisitions.

Do insurers need to comply with fair-market-value standards?

“The answer is maybe,” said Mr. Neiberg. “It usually on it depends on how conservative the attorneys for the insurance companies are.

Oftentimes, the deciding factor is ‘does the insurance company operate any Medicare Advantage plans or manage any government funds?’”

If the answer is yes, then the lawyers typically recommend taking the safe route, exercising fair-market value, explained Mr. Neiberg.

As the business models of providers and health insurers increasingly converge, insurers’ could use their ability to acquire above fair-market value to their competitive advantage. How can hospitals compete when they are beholden to stricter legal standards?

The answer to that question has yet to be worked out but will be interesting to watch as it plays out in years to come.

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