Valuation Approaches and Methods

8.1 Valuation Methodology

8.1.1 Income Approach

8.1.2 Market Approaches

8.1.3 Asset/Cost Approach-Based Methods

8.2 Alternative Valuation Techniques

8.2.1 Certainty Equivalent Valuation

8.2.2 Monte Carlo Simulation Analysis

8.2.3 Economic Value-Added Analysis

8.2.4 Real Option Analysis

8.2.5 Net Present Value Analysis

8.2.6 With and Without Analysis

8.3 Risk Assessment

8.3.1 Financial and Operational Benchmarking

8.3.2 Regulatory Risk

8.3.3 Reimbursement Risk

8.3.4 Competitive Risk

8.3.5 Technological Risk

8.4 Discounts and Premiums

8.4.1 Discount for Lack of Marketability

8.4.2 Control Premium/Discount for Lack of Control

8.4.3 SEAM Equation

8.4.4 Blockage Discounts

8.4.5 Key Person Discounts

8.5 Related Valuation Assignments

8.5.1 Commercial Reasonableness

8.5.2 Purchase Price Allocation

8.6 Conclusion

8.7 Key Sources

8.8 Acronyms

At the outset, it should be noted that financial appraisal, and healthcare valuation in particular, is not a Zen exercise—the journey is not the destination. The explicit, specific definition of the twigs in the legal bundle of rights that make up the property interest(s) to be appraised is a sine qua non requirement. This first step and the subsequent steps in the appraisal assignment planning and development process are addressed in Chapter 10, “Planning and Process for Healthcare Valuation Engagements.” However, even the most carefully planned and flawlessly executed valuation engagement process will fail ...

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