Determining the FMV of an MSO fee in the telehealth space is proving to be challenging for a number of reasons. First, a thorough and defensible FMV should consider the perspective of both the MSO and the friendly PC. In so doing, it’s important to keep in mind the fair market value standard – “..hypothetical willing buyer, willing seller..” which also implies a prudent and knowledgeable buyer and seller. For example, an owner of a physician-owned PC is probably not going to pay an MSO fee that causes the PC to lose money. If the MSO fee is too high, there won’t be a “willing buyer,” and the fee won’t be FMV. In many cases, the most appropriate valuation method is a cost-plus markup approach. In this approach, the analyst takes the costs incurred by the MSO and applies a fair and reasonable markup on the expenses. However, not all of the expenses on the books of the MSO are directly attributable to providing services to a particular PC. It’s important for the MSO to clearly identify the expenses that are directly attributable to providing service to the PC and exclude other costs such as legal fees, accounting, consulting, program development, etc. Admittedly, this is not an easy task. Virtual care companies are start-ups which normally have extraordinary expenses in the early years to grow and develop their platform.
When an appraiser applies the cost plus markup approach, they observe the profit margins earned by companies in a particular industry to ascertain the “fair and customary” markup on expenses. However, many of the publicly traded virtual care companies are still reporting a loss, making this exercise even more difficult. But, based on some very recent research, the analysts at HVG identified a few telehealth companies that are now reporting a positive EBITDA and a few that have projected a positive EBITDA. See the table below. As always, each FMV assessment should be based on the specific facts and circumstance of the subject companies.