Question

Select three examples of intangible value in healthcare. Create a post that proposes one or more approaches that a healthcare organization might use to measure each of these values. Provide examples of each approach, citing sources when necessary, following APA formatting guidelines.

Answer 1

Healthcare organizations, such as physician practices, hospitals or other medical service providers, typically possess many types of valuable intangible assets. These include personal and professional goodwill, practice protocols and treatment plans, and noncompete covenants, among others. Whether in a merger and acquisition (M&A) or in some other acquisition context, it’s important to know the value of these intangible assets.

Healthcare organizations, such as physician practices, hospitals or other medical service providers, typically possess many types of valuable intangible assets. These include personal and professional goodwill, practice protocols and treatment plans, and noncompete covenants, among others. Whether in a merger and acquisition (M&A) or in some other acquisition context, it’s important to know the value of these intangible assets.

There are numerous reasons why a valuation analyst may be asked to conduct a health care industry intangible asset valuation.

First, consider the types of intangible assets that are commonly found in the health care industry. And, identifiy the types of health care entities that commonly own or operate these intangible assets.

Second, review the various types of intangible asset valuation analysis.

Third, summarize the differences between a notational valuation and a transactional valuation, particularly with regard to health care intangible assets.

Fourth, list the most common categories of reasons to conduct the valuation.

Fifth, describe many of the individual reasons to conduct the valuation.

Finally, summarize who should perform the industry intangible asset valuation.

And, this considers whether that determination of the appropriate type of valuation analyst is affected by the reason for the analysis.

Types of Health Care Intangible Assets

The Common Health Care Industry Intangible Assets types that are typically identified in health care industry valuations.

• Medical, dental, and other professional licenses
• Certificates of need
• Patient relationships
• Patient files and records (manual and electronic)
• Electronic medical records computer software
• Medical and administrative assembled workforce
• Office systems, procedures, and manuals
• Position or “station” procedures and manuals
• Facility operating licenses and permits
• Physician (and other professional) employment agreements
• Physician (and other professional) noncompetition agreements
• Executive (and other administrator) employment agreements
• Executive (and other administrator) noncompetition agreements
• Administrative services agreements
• Medical (and other professional) services agreements
• Facility or function management agreements
• Equipment and other supplier purchase agreements
• Service marks and service names
• Joint venture agreements
• A professional’s personal goodwill
• An entity’s institutional goodwill
• Equipment use or license agreements
• Medical (other professional) staff privileges
• Joint development or promotion agreements

Types of Intangible Asset Valuation Analyses

Owner/operators, legal counsel, and other parties often refer to all of these types of economic analyses as a valuation:

1. Valuation – the estimate of a defined standard of value for the intangible asset; the valuation date can be retrospective (as of a historical date), contemporaneous (as of a current date), or prospective (as of a future date).

2. Evaluation – an assessment of the potential economic benefits of the intangible based on some (typically hypothetical) future conditions; this analysis could project future revenue produced, services provided, royalty income generated, expenses saved, or some other economic benefit. An intangible asset evaluation often involves a “what if” assessment of possible alternative use scenarios.

3. Economic damages – a measurement of the lost profits, lost value, royalty rate, or other damages measure suffered by the intangible asset owner/ operator due to the wrongful actions of another party; the wrongful actions are typically a breach of contract or a tort. The economic damages are typically measured by a generally
accepted damages measurement method, such as one of the “but for” methods, the with and without damages method, or the royalty rate method.

4. License royalty rate – an estimation of the arm’s-length royalty rate that a licensee would pay to a licensor for a license to use the health care intangible asset; the license fee (typically expressed as a royalty rate) is market-derived in that it assumes independent parties entering into the license agreement. The royalty rate
is typically a function of both (a) the economics of the subject intangible asset and (b) the terms and conditions of the subject license agreement.

5. Intercompany transfer price – a determination of the price related to a transfer of an intangible asset between controlled entities under common ownership; the transfer price is determined as a proxy for an arm’s-length price that would be negotiated for the intangible asset transfer between unrelated parties; the intercompany transfer price is typically used for either (a) financial accounting purposes or (b) federal or state income tax accounting purposes.

6. Remaining useful life – an estimate of the remaining time period (i.e., the remaining useful life) over which the intangible asset will generate economic benefits to the owner/operator; this analysis often also encompasses the conclusion of a value decay rate or depreciation rate—i.e., the expected rate of the decrease in intangible asset value over time. This life estimate is typically used for either (a) financial accounting purposes or (b) income tax accounting purposes.