Client’s Challenge:
A hospital system (seller) needed to determine the fair market value of a medical practice being sold to a third-party medical group (buyer). Their goal was to provide an unbiased valuation of each asset, compliant with federal Stark regulations and aligned with current market trends.
The Situation:
HMS Valuation Partners (HMS) performed a site visit to inventory all assets by room. The team collected relevant details such as manufacturer, model, serial number, asset visual and functional condition, quantity, and digital images.
The site visit details, including manufacturer tags, enabled HMS to consult with vendors about each asset’s age, production history, performance, and resale viability. HMS also discussed with client management the overall condition and functionality of key assets. This information, combined with manufacturer data, was analyzed to evaluate each asset’s specifications.
In review of the detailed asset list, the third-party medical group (buyer) provided the hospital system (seller) with some used market hits found on a web-based market seller to challenge the HMS fair market value (FMV) of certain assets, such as endoscopes, power chairs, and autoclaves. The used market hits provided by the third-party medical group (buyer) were much lower than the HMS FMV.
HMS Solution:
Because HMS obtained all equipment specifications and conducted elite detailed research, we successfully defended our FMV. Following, were the third-party medical practice FMV challenges, including our response.
- Challenge: The potential buyer provides three lower market hits found on eBay for the Endoscopes…questioning if HMS FMV is too high.
HMS Response: The subject assets were placed in service in September 2021, and their three eBay hits were all older than 2017 manufacture dates; therefore, they are not age comparables. FMV must consider the age of the market hits when using them as comparables to value the subject asset. If only older market hits are available, appropriate age adjustments should be made or put more emphasis on cost approach. - Challenge: A potential buyer presents two lower market hits found on eBay for Power Tables, questioning if HMS FMV is too high.
HMS Response:The subject Power Table was first produced in 2006 and was still in production as of the valuation date. The Power Table being sold was manufactured in 2017. Care must be taken to consider manufacturing periods when comparing the production dates of both the subject unit and the market units. This is more than a matter of age; manufacturers often keep the same model with several upgraded versions throughout its production period which may influence functional obsolescence. In reviewing the potential buyer’s subject hits, it was determined that the prices were lower because those power tables were one generation behind our subject. - Challenge: A potential buyer provided two lower market hits found on eBay for Autoclaves, questioning whether HMS FMV is too high.
HMS Response: The Autoclave in question was manufactured in October 2017. The production period for this model was from 2002 to April 2018. Given the production timeline, most used market hits will be older, often significantly older than the Autoclave in question, which was the case with the market challenges.
Summary
If the Hospital System (Seller) had addressed the used market challenges from the third-party medical group (Buyer) instead of relying on a certified equipment appraiser, they would have undersold the subject assets by a total of $13,500. With over 28 years of experience in medical equipment appraisals, HMS possesses the in-depth knowledge, expertise, database, and resources needed to understand the key factors influencing Fair Market Value.
