PYA Principal Jim Lloyd presented as part of a panel discussion on the topic “Valuing Oncology Transactions” during the 2014 Cancer Center Business Summit, November 6 – 7, 2014, at the Fairmont Chicago, Millennium Park in Chicago, IL.

2. Oncology Transactions
Jim Lloyd, CPA/ABV, ASA
Principal | PYA

3. Oncology Transactions – Outright Acquisitions
• Active buyers include national chains, hospitals and
other cancer centers/physician practices.
• Many transactions involving national chains are for
less than 100% interests; however, typically include
long-term management agreements.
• Hospitals often acquire 100% interests due to desire
for more favorable provider-based reimbursement
rates and 340(b) drug pricing (if applicable).
• Motivating factors include increased market share,
competitive positioning, capacity issues and CON
needs among others.

4. Acquisitions – Key Issues
• Valuation – transaction terms must be at FMV
• Deal structure
– Stock vs. asset sale (tax impact to seller)
– Ownership retention by seller and post-transaction
involvement
– All upfront payment vs. opportunity for earn out
• Due diligence (up-coding, over coding, etc.)
• Post transaction compensation arrangements
• Certificate of Need issues
• Exit strategy for minority owner(s)
• Commercial reasonableness of the transaction

5. Joint Ventures and Alliances
• Joint ventures (equity ownership deals) – e.g.
partnerships between large health systems or
academic medical centers and rural hospitals.
• Alliances (non-equity contractual arrangements) –
e.g. agreements between national providers with
strong reputation for quality and/or operating
expertise and smaller facilities with limited
resources.
• Motivating factors include: risk sharing,
management expertise, and capital needs among
others.

6. Joint Ventures and Alliances – Key Issues
• Compensation arrangements (e.g. MSAs, PSAs, etc.)
must be at fair market value and commercially
reasonable.
• Value of existing business/unit – if transitioning into
the JV.
• Reputation risk to all parties if something goes
wrong.
• Value of “brand” and/or other intellectual property
assets contributed to or anticipated to be used by
the JV.

7. Joint Ventures and Alliances – Key Issues
• Compensation arrangements (e.g. MSAs, PSAs, etc.)
must be at fair market value and commercially
reasonable.
• Value of existing business/unit – if transitioning into
the JV.
• Reputation risk to all parties if something goes
wrong.
• Value of “brand” and/or other intellectual property
assets contributed to or anticipated to be used by
the JV.