Key insights
- Health care and life science transactions are currently strong, requiring valuations and compensation analysis to support terms that are fair market value.
- Labor pressures and margin concerns may necessitate exit strategies, divestitures, acquisitions, new approaches, different geographies, and other business decisions.
- Provider compensation arrangements should reflect fair market value or risk triggering Stark or Anti-Kickback Statute (AKS) laws.
Stay competitive in the changing health care industry.
Multimillion dollar settlements are not unusual in the health care industry, serving as a reminder why proper valuations and compensation reviews are necessary.
Despite the regulatory risks, negotiations for transactions and other arrangements across health care and life sciences (HCLS) will continue. Why? Consider the following:
- Health care now comprises more than 17% of the gross domestic product
- National health expenditures total $4.5 trillion
- HCLS transactions in 2023 are still higher than pre-pandemic years
- Artificial intelligence and technology will likely drive new decision points
- Labor pressures and margin concerns may necessitate exit strategies, divestitures, acquisitions, new approaches, different geographies, and other business decisions
- Private equity continues to be active in health care
With this in mind, explore a few scenarios where business valuations and compensation analysis can come into play for HCLS organizations.
Health care and life sciences valuations
New ambulatory surgical center (ASC) service lines
Trends are moving surgeries out of the hospital setting to ASCs. Demographic shifts and chronic disease management are important to a suburban community, which is why your ASC is looking at expanding its services.
A physician in one of those new services is interested in buying into your ASC. What should you think about? How will a new specialty impact the ASC’s value for the existing owners? A valuation can help determine that physician’s value to the ASC, the market potential, and your future planning.
Succession/exit strategy, medical aesthetics practice
A doctor has a medical aesthetics practice along with a plastic surgery practice. There are multiple physicians and multiple entities involved — which makes the corporate structure complicated.
The practice is doing well but the physician owner is looking to sell. What should her exit strategy be? Should she sell the practice to private equity? Should she sell to another physician? What tax and wealth planning implications does she need to consider? Scenario planning can help determine a favorable path forward for the business and the business owner.
Dentist buy-out, dental service organizations (DSO)
A DSO with private equity ownership has had multiple transactions over the years. But change management is not always easy, and mergers don’t always stick.
That’s the case with one dentist who now wants to return to private practice. There’s a need to understand the value of the dentist’s departure on future enterprise value and the dentist’s individual value — both will affect the buy-out price.
Physician compensation arrangements
Maintaining vital rural service
A small hospital in a rural location has sufficient volume for a labor and delivery unit, but struggles to recruit and retain physicians. You have one OB/GYN in the market now. In this situation, a cookie cutter approach to physician compensation may not be successful.
Instead, consider an approach encompassing the nature of obstetrics in rural health care. Crafting a report and market study demonstrating the value of compensation needed to keep the doctor in this community would be an asset. It would help create a competitive contract negotiation to keep the physician in town and reflect fair market value for Stark law or AKS considerations.
Compensating a superstar surgeon
Baby Boomers are aging, and this demographic will need more orthopedic procedures. While your health system can recruit orthopedic surgeons, you have one surgeon who is a rockstar and beloved by patients. Productivity is off the charts. Normal compensation arrangements may not reflect the asset of this physician to your health system. To satisfy law/AKS related considerations, a fair market value assessment for this physician generally includes a holistic view of all facts and circumstances of the arrangement, including local supply and demand factors, community needs, leadership duties, and other potential qualitative factors to go alongside quantitative analysis of physician productivity data.
How CLA can help with health care valuations and compensation
Our national HCLS team has decades of experience working with hospitals, physicians, dentists, ASCs, DSOs, and pharmacies on many different scenarios. For reviewing particular and complex situations, CLA’s valuations/compensation and consulting practice can help with:
- Compliance considerations
- Developing fair market value support for compensation packages
- Maintaining market competitiveness
- Developing business succession plans
- Considering exit strategies, sales, mergers, acquisitions
- Looking at private equity options
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