“I think that in a lot of the bigger markets, it’s been hypercompetitive, I think increasingly so, with all the merger activity. It’s that strange theme…where parties, 3 or 4 years ago, wouldn’t have worked together are now trying to [do so] and it’s creating a lot of interesting transactions and joint ventures and interesting questions with respect to valuations,” says Aaron Murski, managing director at the healthcare valuation consulting firm VMG Health.
Mr. Murski, along with Jonathan Helm, also a managing editor at VMG Health, and Jim Hill and Jim Carr, both partners at HealthCare Appraisers, voiced their thoughts and concerns as to how the valuation market has changed in recent years on a panel at the Becker’s Hospital Review’s 5th Annual CEO + CFO Roundtable on Nov.9 in Chicago..
With the web of hospital affiliations and partnerships becoming increasingly complex, some hospital officials think the faster they act on a deal, the better it will be for their facility in the long run. Mr. Hills says that isn’t always the case. That speed with which officials demand valuation firms to act may lead to incomplete documentation and worse, faulty advice as to whether a hospital should enter into a transaction in the first place.
“I think what’s been tough for [valuation] firms in general is that competition has created this need to get things done so quickly and we are asked ‘here’s the data that I’ve been collecting for the last six weeks, can you get through all that and write me a valuation report by the end of the week.’ [We now have to] be responsive to that need to get that deal done quickly…we’re struggling with this idea of how do we meet the demand for services in a project that used to take four weeks but [now] needs to be answered in four hours,” says Mr. Hill.
According to the panelists, the increase in M&A activity has also transformed how hospitals interact with their physicians, particularly in terms of compensation. Hospitals are finding it increasingly difficult to rationalize paying their physicians higher salaries if they’re having trouble keeping operating costs down. Mr. Helm says its important to let hospitals know they aren’t the only ones having trouble dealing with commercial reasonableness.
“[It’s important to tell a hospital that they’re] not the only one out in the market who has this problem [of documenting commercial reasonableness]…if you look at hospital loans or affiliated practices and look at the net income per physician across a number of different specialties, it’s shocking just how much hospitals are losing, not just on specialists, but also on primary care specialists. There are a lot of entities that are have an issue with that,” Mr. Helm says.
The impending transition to value-based care, the panelists agree, may help solve some of those issues and inform the way in which health officials enter into potential negotiations.
“[Though the transition may be tricky,] paying physicians based on the quality of their work rather than fee-for-service will ideally help health systems reallocate funds from the physicians who do a lot of work to physicians who do quality work,” says Mr. Carr.
“The change to value-based care [among others] will impact the way in which hospitals and health organizations dictate partnerships, affiliations [and the like,]” according to Mr. Murski.
