Dietrich reveals tips ‘only a retired expert would share’
Nationally known healthcare valuation expert Mark Dietrich recently retired from active practice—but he is very active in sharing the knowledge he amassed over 45 years in the field. During a recent BVR webinar on valuing specialty medical practices, he gave a few sage pieces of advice he said “only a retired expert would share,” although, in the past, he’s been very generous in this regard:
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A revenue analysis by Current Procedural Terminology (CPT) code is crucial for the valuation of any physician practice. CPT codes are an industry standard for coding medical procedures and services. If the practice is not forthcoming with these data, Medicare claims data for every physician in the country are located on the CMS website if you click here. These data can be sorted by physician specialty, state, locality, etc. or any combination thereof.
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For practices that make significant use of the codes for office visits (evaluation and management (E&M) codes), income can be manipulated in anticipation of the physician’s divorce or an M&A deal (yes, it happens). This type of scheme puts added importance on a multiyear coding analysis. Of course, this upcoding or downcoding could be inadvertent, but it still should be examined.
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Dietrich uses an Excel VLOOKUP function to summarize the services by major category using the Professional Edition of the AMA’s CPT Guide (a “must have” guide), and he assigns individual CPT codes to these categories by using a SUMIF function.
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His extensive research debunks the use of surveys for determining reasonable compensation in favor of a relative value unit (RVU) analysis. A free RVU calculator is available if you click here.
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The practice expenses RVU (peRVU) values must be modified to reflect site of service (a procedure done in the office versus a hospital or ambulatory surgery center). If not, your compensation calculation will be wrong.
These pieces of advice are just the tip of the iceberg—much more is included in Dietrich’s new book, Engagement Guide to Understanding and Valuing Medical Practice Specialties. You already have this book in your library if you are a subscriber to the BVResearch Pro platform.
Damages experts point to areas of practice growth
Damages related to cannabis firms, cryptocurrency, and intellectual property are on the rise, according to the editors of the recently released 7th edition of BVR’s Comprehensive Guide to Economic Damages. The guide includes new as well as revised chapters on these topics, co-written by damages experts and attorneys to give added perspective.
Valuation and damages experts Jimmy Pappas (Marcum) and Bill Scally (Marcum) along with attorney Steve Veenema (Murphy & King) continued in their role as editors, corralling over 70 financial experts and attorneys for the two-volume guide’s 50 chapters. While the task was extremely challenging, it was also stimulating and insightful, the editors tell BVWire. Working on a project such as this exposes you to the latest thinking by top experts in their fields of specialty.
Breaking in:Valuation for damages purposes is not that much different than for other purposes. Experts wanting to break in should specialize in some specific area of damages and/or industry sector. Attorneys will hire a damages expert who has never testified before if they bring some special knowledge to the table.
The guide is now available from BVR, but, if you have the BVResearch Pro platform, the new edition is already in your library at no extra cost.
Be cautious with AI, advises Alerding
While artificial intelligence is not quite ready for prime time, it can impact valuations not only in the process of performing a valuation, but also on the value of a subject business, says veteran valuation expert Jim Alerding (Alerding Consulting). During a recent BVR webinar, he discussed a few examples of putting ChatGPT through its paces with some basic business valuation questions.
ChatGPT was asked this question: “What information do you need to write a business valuation engagement letter?” The response was incomplete, and some of it was plain wrong. In another “conversation,” ChatGPT was asked about BVR’s DealStats database. At first, it didn’t recognize the DealStats name, but, when prompted using the database’s prior name, Pratt’s Stats, it corrected itself and then told us all about the database. It was actually impressive the way the app corrected itself (and it also apologized).
Key point:It’s important to note that the content AI generates comes from public domain material, which can be questionable in the first place and not very useful for professional purposes. The application cannot reach behind paywalls nor access other materials that are generally not available to the public. Its use of language is generally good, but it can still appear awkward and stilted. Also, it can demonstrate biases that it picks up on its own or is led to them by the users or generators.
In summary, Alerding sees ChatGPT as just the beginning of the AI era—a sensation much like Atari was back in the 1970s, with everyone wanting to jump on the bandwagon. Users need to be very cautious before using any information this application generates.
More details of Alerding’s insights into AI are in an article in the May issue of Business Valuation Update.
Have you used AI in a BV context? Tell us about it at info@bvresources.com.
May kicks off BV conference season!
Flowers bloom in May and so do business valuation conferences—and most of them have a virtual option. Here is the lineup we’re eyeing for the month (click on the conference title for links):
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May 11: ASA Houston Energy Valuation Conference (Houston and virtual). Energy economics 2023, energy infrastructure in a carbon-neutral market, upstream valuations, panel on Inflation Reduction Act, more.
We will cover as many of these events as possible here in BVWire and in more detail in Business Valuation Update.
Correction: Link to ASA conference schedule
Last week’s issue had an incorrect link to the schedule-at-a-glance for the ASA International Appraisers Conference to be held October 1-3 in New Orleans. For the correct link, click here.
We apologize for any inconvenience.
Global BV News
In China, the ‘G’ in ESG impacts COE the most
For Chinese-listed companies, there is a significant negative correlation between the environmental, social, and governance (ESG) score and the firm’s cost of equity (COE), a new paper finds. What’s more, the analysis examines each component of the ESG score and finds that the “G” score component has the greatest influence on the company’s COE. The researcher also examined manufacturing versus nonmanufacturing companies as well as state-owned enterprises and non-state-owned enterprises separately and found that, for all of them, higher ESG scores reduced COE. The paper is “The Relationship Between ESG Rating and the Cost of Equity Capital: Evidence From China,” by Sunhan Rao (Wenzhou-Kean University, Zhejiang, China), in the March 2023 journal, BCP Business and Management. The paper was presented at the 2022 International Conference on Economics, Mathematical Finance and Risk Management (EMFRM 2022) in Dubai.
What’s in the May issue of Business Valuation Update
Here’s what you’ll see:
· “Kick-Starting a CPT Revenue Analysis for a Physician Practice” (Mark O. Dietrich). An example of how to get started on a Current Procedural Terminology (CPT) revenue analysis for an orthopaedic practice, including detailed background data on this type of practice.
· “Alerding Gives Some Insights Into AI and BV” (BVR Editor). Be cautious when using artificial intelligence for business valuation work, advises BVLaw editor Jim Alerding (Alerding Consulting). A few examples show that this tool is not yet ready for prime time.
· “Industry Updates for Firms Most Impacted by the Labor Shortage” (BVR Editor). The accommodation and food service sectors are especially feeling the pain of the current labor shortage, which can cause ripple effects on a valuation. Here are some recent updates for various firms in these sectors, courtesy of the Vertical IQ industry research platform.
· “One of My Favorite Court Cases Reveals What Makes a Guideline Company—It’s a Classic” (Gary Trugman). The very essence of the market approach is summed up in this court case that has stood the test of time.
· “How One BV Practice Helps Train Its Young Professionals” (BVR Editor). A BVR survey reveals that many valuation practices need to improve their training programs. Here’s an idea that one practice uses to continually develop its young practitioners.
· “It’s About Time: Webb on Fractional Interests in Real Estate” (BVR Editor). After more than 25 years of valuing nonmarketable interests in real estate, Dennis Webb (Primus Valuations) says that the single most important thing in this type of valuation is “time.”
The issue also includes:
· A full section of “BV News and Trends/Global BV News and Trends”;
· Regular features: “Ask the Experts” and “Tip of the Month”;
· BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and
· BVLaw Case Update: The latest court cases that involve business valuation issues with one case featured in a detailed analysis.
To stay current on business valuation, check out the May 2023 issue of Business Valuation Update.
The International Association of Certified Valuation Specialists