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Understanding Premiums and Discounts
Dr. David E. Marcinko; MBA, CMP™
Hope R. Hetico; RN, MHA, CMP™
Some physicians today do not realize that after a medical practice is appraised, price discounts / price premiums may apply to the final selling / purchase price. These “externalities” may include the following:
Practice Appraisal Discounts:
A discount may be applied to a medical practice valuation when there is no ready market for such interest, as in the case of a small town community, specialty provider or niche market. If the interest is not a controlling one, then a minority discount or lack-of-control discount may be appropriate.
Two appraisals may even be used; one to valuate the practice, while the other to valuate the discount.
Control Premiums:
A control premium occurs when majority practice ownership provides a physician executive with the ability to: set practice business strategy, hire and fire employees, accept and reject managed care contracts, and determine compensation and perquisite levels, among other things. This is a valuable prerogative to possess.
Reverse Practice Appraisal Premiums:
On the other hand, the IRS may disallow a minority interest discount, and instead apply what is known as a swing-vote-premium (SVP). How does this work?
Let’s say that if a 20% interest in a three doctor practice is being valuated, and there are two other physician shareholders each owning 40%, the fair market value of that 20% may have significant and valuable controlling aspects, suggesting the SVP.
Conclusion
What is your experience with the above fair market value externalities? Were you previously aware of them? Please opine and comment.
NOTE: For comprehensive institutional information on this topic, please subscribe to our premium, 1,200 pages, 2-volume quarterly print subscription guide: Healthcare Organizations [Financial Management Strategies] http://www.stpub.com/pubs/ho.htm OR www.HealthcareFinancials.com
Speaker: If you need a moderator or a speaker for an upcoming event, Dr. David Edward Marcinko; MBA is available for speaking engagements. Contact him at: MarcinkoAdvisors@msn.com
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Filed under: Practice Worth |
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Hospital prompt-pay discounts
Did you know that the HHS Office of the Inspector General [OIG] recently gave its approval for prompt-payment discounts to patients who pay their hospital medical bills quickly?
The advisory opinion was needed because of self-referral inducement fears that seemed to encourage patients to buy medical services that might not be needed. The OIG noted that a safe harbor already existed to protect waivers of coinsurance and deductibles for inpatient services under some circumstances.
But primarily, the government didn’t want hospitals to give a discount and then try to get more money by calling the discounted fees bad debt.
How this all might impact medical practice or healthcare entity value is difficult to access.
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