42 Medical Billing Software with A Revenue Management Software and A Healthcare Business Valuation software all tied into one interoperate platform designed specifically for the small clinical practice especially on the healthcare business valuation component as unlike most generalist business valuation software in the marketplace generalizing many industries this one specifically tracks new patient growth versus attrition, retention, mortality, morbidity and allows how to factor multiple of earnings based on those factors in addition to market approach, income approach, asset approach, intangibles, tangibles, goodwill or intrinsic value. Ultimately the business valuation becomes the prospectus for any potential clinical practice buyer or clinical practice seller to know if the business is distressed, in need of a turnaround and restructuring, or leveraged recapitalization, additional investment capital, financing, undervalued, underperforming,or if just curious at what multiple of earnings the business may sell at or be acquired for in the marketplace. In short this business valuation functionality is designed specifically for healthcare practitioners and clinical management to assess the ongoing concern of the business financially in real time to enable strategic planning in a relatively easy simple to use format. It is an integral tool for a practice to access the financial health of the business in terms of its capacity to continue to be considered marketable as an ongoing concern meaning, if the practice's earning capacity were greater that the value of its assets, tangible or intangible, then the highest and best use of its business model can be assessed accurately. In the context of business valuation, the interest being valued is etighter a going concern or in liquidation, hence the importance of why this functionality is important for clinical practice management. It is a function that is more of a future planning analysis designed for consultive strategy in contrast to the revenue management function which focuses on cash flow trending based on regression. This business valuation function, unlike a generalist approach like many softwares in the marketplace is specifically built for the needs of the clinical practice in healthcare management taking into account Managed Care Contracts, Preferred Provider Organization contracts, Cash payments versus Insurance Payments, patient attrition per clinic versus patient growth, Geographic Practice Cost Index, Healthcare Inflation Index, Relative Value Units for each Common Procedure Terminology Code based on the Resource Based Relative Value Scale adjusted per year, along with Market Approach, Income Approach, Asset Approach, Tangibles, Intangibles, Intrinsic Value and Goodwill. For a business valuation to be effective for a healthcare practice, the management will want particular relevant factors such as forecasting projections of new patient growth per year, again emphasizing new patient growth versus patient mortality and retention. New Patient Forecasted Growth. New Patient Growth Versus Patient Mortality, Morbidity, Retention, and Attrition A ratio to determine a trading pattern but using regression and forecasting of a practices Mortality Rate, Morbidity Rate, Retention Rate, and Attrition Rate is a powerful utility to assess its valuation multiple but also the ongoing concern of the business. The most common productivity indicator used among primary care and internal medicine subspecialties has traditionally been visit volume. Private practice physicians know how many patients they have to see everyday in order to pay their share of overhead. And how many patients they had to see that day to ultimately pay themselves. In recent years, this simple but effective measure has been enhanced by also measuring Work Relative Value Units ( WRVUs) attached to each CPT code, which provide an indication of the intensity of each patient visit. The coding index (WRVUs) divided by the number of office visits) provides justification for those physicians who claim that they see less visit volume because their patients are sicker, an indicator of morbidity or mortality. A family practitioner may have a coding index of 1.0 WRVUs per visit. A General Internist may have a coding index of 1.10 WRVUs per visit, but only see 23 or 24 patients per day. The combination of measures enhances the managers understanding of the patient profile and the physician's coding pattern as compared with others in his or her speciality. While offering appropriate clinical quality is critical, it is not enough in competitive environments. In fact. Clinical quality is assumed in most cases and is, therefore, not a determining factor among most physicians. It is the service experience that makes the difference in patient retention and is somewhat relative to attrition, albeit morbidity and mortality although important have to many variables to predict or assume retention and attrition directly contribute to it, however it is vital to gauge all elements both using regression analyses and projections on trending patterns. As far as the new patient ratio, this ratio is simply the number of new patient visits, and is an indicator of the vitality of the practice. The new Patient ratio for healthy established primary care practices may range between 5 percent and 10 percent depending on the speciality and patient profile. Since every primary care practice experiences attrition, every practice needs to add new patients to remain viable over time. A lower ratio may be an indication of poor customer service, lack of success, or market saturation and should be explored in more depth. The Business Valuation of A Healthcare Practice takes into account more variables that are used by traditional valuation approaches. The fundamentals such as market approach, income approach, asset approach, tangibles, intangibles, intrinsic value and goodwill still are relevant determinant factors, however many other attributes are weighted such as doctor subscription fees, patient referral fees, cash payments versus insurance payments, percentage of revenue from insurance carriers and type of contract reimbursement structure such as type of contract including prefered provider organization, exclusive provider organization, managed care contracts, independent practice associations, all contribute to a key determinant in compensation and so the mixture of compensation relevant to calculations based on contractual arrangements and patient demographics or for medical practices, relationships with patients, referral sources, practice location, favorable payor arrangements, payer mix, infrastructure and workforce in place are components of the valuation as well. What makes the Datamed Business Valuation functionality more applicable to a healthcare practitioner is although the basics such as capitalization of earnings, net present value, discretionary earnings versus EBITDA, equity risk free premium, discount for lack of marketability, and all components the subjectively compute a multiple of earnings is necessary for determining the ongoing concern of the practice whether management decides to use this function to plan capital investment, shareholder agreements, financing, or buying or selling among many other reasons, the software functionality is built to provide informal subjective conclusions to determine a planning tool built specifically for the needs of the healthcare practitioner in determining for example a medical practice financed with a combination of debt and equity. The cost of debt is determined by using the interest rate applicable to the practice's borrowing capacity. The cost of equity is the sum of the following : (a) the current risk-free rate of return ( for example, the Treasury bond rate; (b) the equity risk premium multiplied by the Beta ( volatility); and(c) the small stock risk premium. Suppose the risk free rate of return is 7% percent; the market risk, which is approximately 8% percent times a Beta 9 between 1.1 and 1.4 for investment in the healthcare segment); plus small stock premium (between 4 percent and 8 percent). Hence, a medical practice;s cost of equity might be: 7% + (8% x 1.2) + 6%= 22.6%. If the medical practice's debt comprise 12% of its asset value, after adjustment for accounts receivable, the calculation would be as follows: .07 x 12%=.84%; .226 x 88% + 19.88% = 20.3% What this means from a valuation perspective is that the new owner should expect a 20 percent rate of return to invest in this medical practice, which also means that earnings should be capitalized approximately 5 times to determine value. The most critical and unique component to the Datamed Business Valuation software functionality is not only its ability to provide a valuation specifically designed for the a healthcare practice using the market approach, income approach, asset approach, tangibles, intangibles, intrinsic value, and goodwill, it is its ability to assess all relevant factors described above and configuring its compensation accordingly to maximize company profitability by adjusting its fee creation of the Relative Value Units. Relative Value Units were developed to provide a basis for equity among different physician services. There are three different RVUs that are included in the Total RVUs associated with any particular code. Work RVU, or WRVU. The WRVU is indicative of the amount of work, time, and complexity involved by the physician or other healthcare provider in the service. Practice Expense or PE RVU. The PE RVU is indicative of the amount of practice expense resources needed to perform the procedure. These resources include rent, utilities, supplies, and other items associated with running a practice. Malpractice Expense WRVU. This component accounts for the cost of malpractice insurance for the individual code. In addition to the RVUs. there are three other terms in the formula: Geographic Price Cost Index ( GCPI). The GCPI is used to provide a market-based index to Medicare fees. GCPIs have been established for every potential area within the United States. In addition to the GCPI for an individual state, there are also often times GCPIs established for the major metropolitan regions within a state. These tables also can be accessed at www.Medicare.gov. Budget Neutrality Factor. The Budget Neutrality Factor is a multiplier established to ensure that Medicare expenditures fall within the budget requirements established by Medicare. This factor changes on at least an annual basis and the software functionality may allow management to adjust it accordingly in past years for a regression analysis or adjusted in future years priced to the healthcare inflation index to provide a strategic planning tool for future pricing. Conversion Factor. The Conversion Factor provides the actual amount of revenue for a given code. This factor also changes on at least an annual basis. This software functionality is very useful for a practice to adjust pricing fees marginally upwards according to this formula to increase profitability. All of these factors can be computed for each service by management reviewing the components of a CPT Code and adjusting its price upwards accordingly by referring to the softwares code matrix below. Therefore, based on the above example the practice must charge a minimum of $57.45 to receive the fully allowed payment from Medicare. As most insurance contracts are established as a percentage of Medicare for allowed payments, it is highly recommended that the price adopt a pricing strategy that assures fees are consistently set higher than the fullest allowable. Therefore, if the managed care contract pays 118 percent of Medicare, it is recommended that the practice utilize an additional factor of at least 118 percent of the above calculated amount ($57.45 x 1.18 = $67.79) to determine the fee. Oftentimes, rates are rounded to the nearest dollar amount close to the fee to make loading the fee schedules easier. Therefore, a computed fee of $67.79 would be raised to $68.00 or $70.00
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