Three terms are most frequently used when talking about hospital values:
Valuation: A complex and often lengthy calculation that analyzes the past, current and future worth of a hospital or hospital system. A hospital valuation report can fill up a binder and may not necessarily be definitive because it could calculate different values based on different scenarios. Investment bankers, accounting firms, merger and acquisition consulting firms and appraisal firms do valuations. Both buyers and sellers may contract for a valuation study of a hospital that's for sale. Most valuation firms also will provide the fairness opinion. The cost can vary widely from several hundred thousand dollars to several million dollars.
Appraisal: Usually involves the tangible assets of a hospital and is the domain of a handful of appraisal companies. Well-known in the industry are Valuation Counselors and American Appraisal Associates. Some appraisal firms claim they do valuations as well. However, most of the advisers who conduct valuations and fairness opinions say they don't do appraisals. The cost of an appraisal can vary widely. William Golz Jr., vice president of American Appraisal, said his firm has done hospital and hospital system appraisals that cost from $5,000 to more than $1 million, depending on the size of the facility and on how much time the appraisal takes. For example, appraising a hospital with complex Medicare recapture issues is going to take more time, he noted.
Fairness opinion: A short but crucial document that typically runs just two pages long. It's an insurance policy in case the deal is legally challenged. Investment banking firms that provide fairness opinions stress that their multimillion-dollar capitalization bases give them the financial strength to stand behind a fairness opinion if it's challenged later in the courts. However, smaller firms that specialize in hospital deals contend that their expertise means the valuation is less likely to be challenged. The opinion won't include details of the transaction except to say that the consideration to be paid is fair to the hospital's owners.