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Valuation Trends: Healthcare Services Valuation Multiples

One of the questions we get asked a lot is how valuations have changed over time. While we usually answer this question with only anecdotal evidence, here we’ve tried to answer it with data. There are a couple of issues with doing this type of analysis: Finding a large enough sample for each year Ensuring the relative comparability of the sample used from year to year Where possible, adjusting for other key factors that influence the valuation multiples, such as size In order to address issues 1 and 2, we put together a broad sample of transactions involving capital-light outpatient healthcare service providers. These consist of providers of home-based services (home health and hospice), off

Which Healthcare Services Segments Have the Highest Margins?

One of the many benefits of tracking healthcare transactions closely and maintaining a very large database of deals where we can get reliable price to EBITDA and revenue multiples is that it provides insight into profit margins for segments where other financial benchmarking information is sparse. Starting with this sample of healthcare transactions where financial terms were disclosed publicly, we eliminated general acute care hospitals and physician practices since they typically generate low or negative margins, at least once compensation is normalized. We then narrowed the list further to only include segments where the data is robust enough to be reliable. It’s important to note that th

Valuing ACOs: Weighing the Probability of Shared Savings

The most important component of a valuation of an accountable care organization (or other multi-provider network that relies on risk-based shared savings models) is the revenue forecast, which involves “probability-adjusting” future shared savings payments in some manner. Under the Medicare Shared Savings Program (MSSP), an ACO that meets its minimum savings rate (MSR) is entitled to a percentage of the total savings below its financial benchmark, which typically amounts to millions of dollars annually. Meanwhile, an ACO that misses its MSR by $1 gets nothing. Some ACO’s assume downside risk, meaning they have accepted the very real possibility of generating negative revenue in any given yea

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