Past trends in medical
practice acquisition deals should be considered by both the hospital-employer
and the physician-employee when structuring an agreement in today’s market. The
medical practice acquisition boom of the 1990’s resulted in many failed
investments, unsuccessful practices, and unhappy physicians. Hospitals often
provided physicians with salary guarantees, essentially eliminating the physician’s
incentive to remain productive while providing a pathway for a smooth
transition into retirement. Between the lessons learned from failed acquisitions
in the past and the evolving federal and state regulations pertaining to
medical practice valuation, the message is clear: Physicians and hospitals need
to structure an acquisition agreement so that the deal provides
performance-based compensation that is consistent with the fair market value of
the services provided by the physician.
Federal law prohibits
tax-exempt entities from compensating physician-employee’s in excess of the
fair market value of their services. The “anti-kickback” regulations limit the financial
incentives hospitals can consider when determining the value of a sought-after
practice. Accordingly, the price paid for a practice can only take into account
the business generated by the practice itself, not what the practice can
generate for the hospital through referrals and facility fees. Whether the physician’s
salary is production based or fixed, compensating physicians in excess of the
fair market value of their services can expose both the hospital and the physicians
to fines and/or criminal prosecution.
The safest and most
logical way to structure a purchase price within the bounds of federal
regulation is through credible third-party valuation experts. A competent valuation expert can take the
guess-work out of the hands of the hospitals and physicians by determining the
fair market value of a medical practice as well as a compensation package that
is compliant with the myriad of federal laws and regulations. - Contact Michael Brocks & Associates to learn more about Health Care acquisitions and fair market value. | 
