Written by the Professionals Of

2018 written by the professionals of Health Capital Press, LLC Saint Louis, Missouri © 2018 HEALTH CAPITAL PRESS, LLC 314-994-7641 2127 Innerbelt Business Center Drive, Suite 107 St. Louis, MO 63114-5700 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without the prior written consent of the publisher. Printed in the United States of America ISBN 978-0-578-40492-9 ii DISCLAIMER This work includes information regarding the basic characteristics of various regulatory, reimbursement, competition, and technology aspects of the healthcare industry. It is intended to provide only a general overview of these topics. The author and publisher have made every attempt to verify the completeness and accuracy of the information. However, neither the author nor the publisher can guarantee, in any way whatsoever, the applicability of the information found herein. Further, this work is not intended as legal advice or a substitute for appropriate legal counsel. This information herein is provided with the understanding that the author and publisher are not rendering either legal advice or services. iii DEDICATION As we mark this significant milestone in HCC’s history, we extend our sincere gratitude to our friends, colleagues, and most importantly, our esteemed clients, who have consistently expressed their trust by allowing us to work with them to pursue their organization’s goals over the past 25 years. We look forward to the continued pursuit of excellence on behalf of our clients nationwide, and meeting the new, exciting challenges presented in this ever-changing era of healthcare reform. iv IN MEMORIAM Bob Cimasi 1950 - 2017 When the 2017 Health Capital Topics book went to press last December, HCC, as well as the valuation profession, experienced the tremendous loss of Bob Cimasi. In addition to founding HCC in 1993, he was a great friend, mentor, and professional colleague to us all. Bob was a nationally known lecturer on healthcare industry topics and a renowned author of nine acclaimed books; numerous chapters in legal treatises and anthologies; published articles in peer reviewed professional journals and industry trade publications; and, was often quoted by the healthcare industry press. He was a pioneer of the business and healthcare valuation profession, and devoted a significant amount of his professional life to selflessly giving back to his colleagues, through mentorships; answering colleague questions and requests for data; professional education; and, volunteer efforts on a wide array of association and society board and committee positions. In recognition of his contributions to the profession, Bob was posthumously awarded the Thomas R. Porter Lifetime Achievement Award, in June 2018, by the National Association of Certified Valuators and Analysts (NACVA). Throughout this year, many stories about Bob were shared with us by friends, colleagues, and clients. In Bob’s name, we continue our service to the profession, through teaching, writing, professional research, and serving as the go-to resource for all things healthcare. He is greatly missed. v PREFACE Health Capital Topics is a monthly e-journal, which has been published by HEALTH CAPITAL CONSULTANTS since 2007, featuring timely topics related to the regulatory, reimbursement, competition, and technology aspects of the U.S. healthcare delivery environment. It is sent monthly to over 20,000 healthcare executives, physicians, attorneys, accountants, and other professionals in the healthcare industry. Past issues of the Health Capital Topics e-journal, as well as special alert issues, may be found at www.healthcapital.com. vi ACKNOWLEDGEMENTS The assistance and support of a number of colleagues on the HEALTH CAPITAL CONSULTANTS (HCC) team were instrumental in the development of the Health Capital Topics articles, from which the writings in this book were excerpted. Health Capital Topics is a monthly e-journal published under the direction of HEALTH CAPITAL CONSULTANTS’ President Todd A. Zigrang, MBA, MHA, ASA, FACHE. Jessica L. Bailey-Wheaton, Esq., Vice President & General Counsel, serves as editor and directed the development of this book. John R. Chwarzinski, MSF, MAE, Senior Vice President, and Daniel J. Chen, MSF, CVA, Senior Financial Analyst, who have excelled in representing HCC throughout numerous healthcare client engagements, assisted with research, writing, review, and comments. Sean J. Wallace, Business Development Coordinator, was instrumental in the e-publishing, web archiving, and design of this book. HCC’s research and library staff, as well as, members of HCC’s consulting and administrative support team, were of great help. vii INTRODUCTION In 2018, healthcare reform has returned once again to the forefront of public and political discourse, as it has become one of the top voter issues in the November 2018 midterm elections, driven, in part, by continued concern regarding: rising healthcare costs; the aging Baby Boomer population, which will further increase demand for healthcare services; and, additional challenges to the ACA, e.g., popular provisions such as the prohibition against pre-existing condition exclusions. The healthcare industry landscape, historically subject to constant change, has become an unpredictable environment of new (or in some cases, modified) provider structures, strategies, and tactics to address these concerns. The continuing evolution of value-based reimbursement (VBR), upon which concepts emerging payment models and structures rely to incentivize providers to achieve better outcomes at lower cost, have driven the pursuit of alternative relationships between hospitals and physicians, through strategies such as practice acquisitions, direct employment, provider services agreements (PSAs), co-management, and joint venture arrangements. Corresponding with this growing trend toward hospital-physician alignment, and specifically toward vertical integration, there has been increased federal, state, and local regulatory oversight regarding the legal permissibility of these arrangements, intensifying confusion and uncertainty among providers regarding the future structure of the U.S. healthcare delivery system and its impact on the healthcare industry and markets. In developing an understanding of the forces and stakeholders that have the potential to drive healthcare markets, it is useful to examine what value may be attributable to healthcare enterprises, assets and services as they relate to the Four Pillars of the healthcare industry, i.e., regulatory, reimbursement, competition, and technology. See figure below. The Four Pillars of the Healthcare Industry viii INTRODUCTION (Continued) This book is a compilation of excerpts from articles originally published in the e-journal, Health Capital Topics, which have been loosely organized by topic in relation to the Four Pillars concept. The included articles represent a retrospective look at a topic, as noted by the date of original publication that appears following the article title. The intent of this book is to serve as an (admittedly abridged) brief annual primer and reference source for these topics. In the months and years ahead, we will strive to continue staying on top of key issues in the healthcare industry and publishing them in the monthly e-journal issues of Health Capital Topics and special alerts. We appreciate the many comments and expressions of support for this research endeavor. HCC’s research is the foundation for all of our client engagements and firm as a whole. We as always, solicit your continued input and recommendation of topics or subject matter that you may find useful for us to address. Sincerely, Todd A. Zigrang MBA, MHA, FACHE, ASA President ix Asclepius, from the marble statue in the Louvre. Engraving by Jenkins. Greek God of Medicine & Doctors (London, ca. 1860) CONTENTS DISCLAIMER DEDICATION IN MEMORIAM PREFACE ACKNOWLEDGEMENTS INTRODUCTION SECTION I. VALUATION TOPICS The Due Diligence Imperative (Six-Part Series) .………….......... 2 Valuation of Healthcare Service Enterprises for Purposes of Private Equity Investment (Three-Part Series) .……….………. 32 What's Your Brand Worth? (Four-Part Series) …..…...……… 44 The New Kid on the Block: Micro-Hospitals (Five-Part Series) ...…………….. 55 Management Services Agreements: Considerations for Fair Market Value ......……..……. 71 Trade Secrets: Fair Market Value Considerations …........………. 77 Valuation of Urgent Care Centers in an Era of Reform ……...……….. 80 xi SECTION II. REIMBURSEMENT TOPICS CMS Publishes 2018 Payment Rate Updates ............................. 88 Massive Cuts Made to 340B Prescription Drug Discount Program ............................. 94 Healthcare Spending Slows in 2016 ............................. 97 Checking up on Healthcare’s Hot Trend: Value- Based Reimbursement ............................. 100 The Implications of Medicaid Expansion on Hospital Finances and Viability ............................. 104 Trump Administration Continues Incremental Efforts to Overhaul U.S. Healthcare ............................. 108 MedPAC Outlines Proposed MIPS Replacement Program ............................. 112 MedPAC Votes to Lower Urban Freestanding Emergency Department Payments ............................. 117 CMS Inpatient Reimbursement Rate Updates Proposed for 2019 ............................. 120 2019 Physician Payment Proposed Rule – Cutting the Red Tape ............................. 123 CMS's Continued

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