Valuation of Healthcare Intangible Assets in the Absence of Positive Net Cash Flows
Over the past four years, contrasting viewpoints have arisen in published articles and presentations in the valuation community surrounding the existence of value for intangible assets of a healthcare enterprise in the absence of positive net cash flow being generated by the operations of the entity in its entirety and the methodologies available to the valuation analyst. Over the recent period, trends within the broader economy, similar to the healthcare industry, have indicated that firms are employing, to ever greater extents, intangible assets. As healthcare enterprises continue to increase their utilization of intangible assets, it will become ever more important for practitioners to develop sound valuation strategies to apply to the intangible assets of an organization, keeping in mind that under the concept of highest and best use, the premise of value for a valuation engagement may need to change from value in use, as a going concern to value in exchange, should the enterprise in its entirety not produce positive net cash flows.
Premise of Value
Point of Utility Maximization Between Buyer and Seller
Contributor Notes
Robert James Cimasi, MHA, ASA, FRICS, MCBA, CVA, CM&AA, serves as chief executive officer of Health Capital Consultants, a nationally recognized healthcare financial and economic consulting firm headquartered in St. Louis, Missouri, serving clients in 49 states since 1993. Mr. Cimasi has over thirty years of experience in serving clients, with a professional focus on the financial and economic aspects of healthcare service sector entities, including: valuation consulting and capital formation services; healthcare industry transactions including joint ventures, mergers, acquisitions, and divestitures; and certificate-of-need and other regulatory and policy planning consulting.
Mr. Cimasi is a nationally known speaker on healthcare industry topics, the author of several books, the latest of which include: Accountable Care Organizations: Value Metrics and Capital Formation (2013, Taylor & Francis, a division of CRC Press), and Healthcare Valuation: The Financial Appraisal of Enterprises, Assets, and Services (2014, John Wiley & Sons). Mr. Cimasi is the author of numerous additional chapters in anthologies; books and legal treatises; published articles in peer-reviewed and industry trade journals; research papers and case studies; and he is often quoted by healthcare industry press. Mr. Cimasi serves as chair emeritus of the ASA Healthcare Special Interest Group (HSIG). (e-mail: books@healthcapital.com)
Todd A. Zigrang, MBA, MHA, ASA, FACHE, serves as president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis for hospitals and other healthcare enterprises. Mr. Zigrang has significant physician integration and financial analysis experience: He has participated in the development of a physician-owned multispecialty management services organization (MSO) and networks involving a wide range of specialties, physician-owned hospitals, as well as several limited liability companies for the purpose of acquiring acute care and specialty hospitals, ambulatory surgery centers (ASCs), and other ancillary facilities; participated in the evaluation and negotiation of managed care contracts; performed and assisted in the valuation of various healthcare entities and related litigation support engagements; created pro forma financials; written business plans; conducted a range of industry research; completed due diligence practice analysis; overseen the selection process for vendors, contractors, and architects; and worked on the arrangement of financing. Mr. Zigrang serves as current chair of ASA HSIG.
John R. Chwarzinski, MSF, MAE, is a senior vice president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis of healthcare enterprises, assets, and services. Mr. Chwarzinski holds a master's degree in economics from the University of Missouri–St. Louis, as well as a master's of science in finance degree from the John M. Olin School of Business at Washington University in St. Louis, Missouri. Mr. Chwarzinski's areas of expertise include advanced statistical analysis, econometric modeling, and economic and quantitative financial analysis.
Jonathan T. Wixom, MBA, is a vice president of Health Capital Consultants (HCC). Mr. Wixom holds a Master of Business Administration degree from Washington University, a Bachelor of Arts in Economics from St. Louis University, and a Bachelor of Science in Business Administration from St. Louis University. Mr. Wixom's areas of expertise include valuation consulting, financial analysis, due diligence, and financial modeling. He is a member of the St. Louis Chapter of the American Society of Appraisers, as well as a Level III Candidate in the Charted Financial Analyst Program.