- We completed an appraisal review of a diagnostic imaging center that was completed by an internationally renowned accounting and consulting firm. In their application of the Market Approach, three of the five comparable public companies that were selected by the firm were Fresenius, LabCorp, and Quest Diagnostics. Fresenius, an international firm that is headquartered in Germany, is focused on the provision of dialysis services and associated equipment and consumables, while LabCorp and Quest Diagnostics are focused on providing outsourced clinical diagnostic testing through the use of blood samples and urinalysis (among others). These entities are not comparable to a diagnostic imaging center, which not only provides very different services, but has also been facing a much different trend in payor reimbursement in recent years.
We completed an appraisal review of a medical group that was completed by a national healthcare valuation firm. While the appraisal did not include a report narrative, the valuation exhibits were very detailed, containing 70 pages of data analysis and valuation modeling. Despite this level of detail, some basic addition and subtraction math errors resulted in EBITDA being understated by nearly 100 percent. This materially affected the value of an entity which was already valued at tens of millions of dollars, before consideration of this adjustment.
We conducted a separate appraisal review of a medical group that was completed by a national healthcare valuation firm, in which the firm misapplied the excess earnings method in determining normalized physician compensation. The firm utilized benchmark data in their analysis which had such a small sample size of respondents and great variance in the data year-over-year, that generating a statistically significant conclusion from this data was impossible.
Most healthcare appraisals are complex valuation assignments. Mistakes that seem small may have large repercussions on the conclusion of fair market value. The extra cost and time associated with completing an appraisal review should be viewed as a smart investment in ensuring that multimillion-dollar transactions are being completed at the correct value.