< PreviousA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 30 SEPTEMBER | OCTOBER 2019 t h e v a l u e e x a m i n e r IMPLIED MULTIPLES FOR CANADA'S TOP 20 LARGEST CANNABIS COMPANIESA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2019 31 They note that market multiples varied significantly across these companies as Enterprise Value3 to EBITDA4 (EV/ EBITDA) ranged from -469 times to 716 times, and Enterprise Value to Revenue (EV/Revenue) ranged from twelve times to 657 times. 3. Enterprise value equals total business value including both interest- bearing debt and stockholders’ equity. 4. Earnings before interest, income taxes, depreciation, and amortization expense is often used to measure operating profitability. MQ&H next propose that older industries (such as tobacco and alcohol) where these markets are correspondingly regulated to the cannabis trade could be employed as a potential standard to use to establish the expected value of a company in a mature cannabis market. The table presented below provides the EV/LTM5 EBITDA and EV/LTM Revenue multiples in these two industries. 5. Where LTM stands for “last twelve months”. When you compare the forecasted (i.e., 2022 values for the top twenty cannabis companies in the table above) revenues and EBITDA multiples for cannabis to those for tobacco and alcohol, there is a significant difference. The average EV/forecasted EBITDA for the cannabis industry equals approximately sixteen times, while the average EV/ LTM EBITDA for tobacco equals approximately eleven times, and the average for EV/LTM EBITDA alcohol equals approximately twelve times. MQ&H next examine the Canadian Cannabis Industry’s Precedent Transactions, or, more commonly referred to as The Comparable Transaction Method under the Market Approach from the beginning of 2018. They note that there has been a great deal of merger and acquisition (M&A) activity over this period (January 1, 2018, to the date of the article, June 2019) with 167 deals having closed and forty- three more being announced. The authors next present the following table showing implied multiples based on the largest Canadian M&A transactions. MULTIPLES FOR TOBACCO AND ALCOHOL INDUSTRIESA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 32 SEPTEMBER | OCTOBER 2019 t h e v a l u e e x a m i n e r IMPLIED MULTIPLES FOR CANADA'S LARGEST M&A TRANSACTIONS AND INVESTMENTS IN THE CANNABIS INDUSTYA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2019 33 MQ&H highlight the fact that analogous challenges exist when using comparables’ transaction multiples to obtain valuations in the Canadian Cannabis Industry; which are similar to the challenges discussed in this article when using comparable company multiples. Specifically, most of the target companies are still in the early growth stage, and thereby possess little or negative profitability, which produces overpriced multiples, or worse, unmeaningful multiples. Finally, MQ&H suggest that the discounted cash flow (DCF) method under the Income Approach presents a third and final way that can be used to value a company in the Canadian cannabis industry. They present the illustration (on page 34), which highlights specific factors that should be considered when applying this valuation method. The authors complete the article by reminding readers that conventional valuation measures are frequently undependable due to the present condition of the Canadian cannabis industry. Company valuations can be unduly high, but MQ&H believes this could be deceptive. They believe that long-term potential for the industry is the key value driver, with business valuation experts placing greater reliance on forward-looking financial measures. At present, Canadian cannabis valuations appear to be based mostly on market opinions and prospects for future growth. Peter L. Lohrey, PhD, CVA, CDBV, is an assistant accounting professor at Montclair State University. He is also the director of the Forensic and Valuation Services Department for Prager Metis CPA’s, LLC, an accounting firm located in Hackensack, NJ. Dr. Lohrey specializes in commercial damage calculations and business valuation for tax, litigation, forensic, and financial reporting purposes. E-mail: lohreyp@ montclair.edu The Value Examiner®—May/June 2016 CPE Exam Office Use Only: Invoice #: Examiner CPE Rev 7/14/16–Page 1 Earn five hours of NACVA CPE*by reading The Value Examiner and For CPE credit, scan and e-mail to: (801) 486-7500, or mail to: 5217 South , UT 84107 Member cost: $76.50 (Non-Member cost: $85.00) Name: Designations: NACVA Member #: Firm Name: IBA Member #: Address: City: State: ZIP: Tel: Fax: E-mail: Check #: (payable to: NACVA) or VISA MasterCard AMEX Discover Diners Club Credit/Debit Card #: Expiration Date: Credit card billing address: Same, or Address: City: State: ZIP: Authorized Signature‡ Date: ‡By signing, you authorize the National Association of Certified Valuators and Analysts (NACVA) to charge your account for the amount indicated. NACVA can also initiate in the event a credit or correction is due. Your signature authorizes NACVA to confirm the use either for future communication. NACVA will not disclose or share this information * This exam does not qualify for NASBA QAS CPE credit. Important note: Although this exam qualifies for NACVA CPE, it may not be accepted by all state boards or accrediting organizations. Therefore, individuals should contact their state board or accrediting to determine if passing an exam after reading a book/magazine meets their CPE State CPE Sponsor #:_______________. Does the IPCPL Make Sense (Part II) By Richard R. Conn, CMA, MBA, CPA, ABV, ERP 1. The IPCPL methodology is founded upon the premise that there is a direct inverse relationship between the firm size (i.e., Enterprise Value) and cost of capital—the smaller the firm, the higher its risk rate. In Part II of his continuing argument against IPCPL, Conn takes the position that:a. He agrees with the premise b. He disagrees with the premise c. He offers no comments either in support of or against the concept 2. BB&D and Gorshunov are really saying both that smaller EV firms have higher costs of capital and that there is a direct correlation between firm EV and its revenues (e.g., smaller firms have lower revenues). However, Conn’s regressions of the actual IPCPL data has led him to conclude that: a. There is a very strong inverse correlation between firm EV and its cost of capital (i.e., smaller EV firms have higher risk rates) b. There is a very strong direct correlation between firm revenues and EV size (i.e., firms with higher revenues have greater EV’s than firms with lower revenues) c. There is no correlation between firm EV and its cost of capital and, at best, only very weak correlation between firm revenues and EV size d. High degrees of correlation is not necessarily an indication of causality The Value Examiner ®—March/April 2016 CPE Exam Office Use Only: Invoice #: Examiner CPE Rev 5/4/16–Page 1 Earn five hours of NACVA CPE* by reading The and completing this exam. For CPE credit, scan and e-mail to: (801) 486-7500, or mail to: 5217 South State Street, Suite 400, 84107 Member cost: $76.50 (Non-Member cost: $85.00) Name: Designations: NACVA Member #: Firm Name: IBA Member #: Address: City: State: ZIP: Tel: Fax: E-mail: Check #: (payable to: NACVA) or VISA MasterCard AMEX Discover Diners Club Credit/Debit Card #: Expiration Date: Credit card billing address: Same, or Address: City: State: ZIP: Authorized Signature‡ Date: ‡By signing, you authorize the National Association of Certified Valuators and Analysts (NACVA) to charge your account for the amount indicated. NACVA can also initiate credit entries to your account in the event a credit or correction is due. Your signature authorizes NACVA to confirm the above information via e-mail and/or fax and to use either for future communication. NACVA will not disclose or share this information with third parties. * This exam does not qualify for NASBA QAS CPE credit. Important note: Although this exam qualifies for NACVA CPE, it may not be accepted by all state boards or accrediting organizations. Therefore, individuals should contact their state board or accrediting organization to determine if passing an exam after reading a book/magazine meets their CPE requirements. State CPE Sponsor #:______________ _. A New Era for Fair Market Value Physician Compensation By Mark O. Dietrich, CPA, ABV 1. Appraisal practice and government enforcement surveys have been employed as a “gold standard” in measuring fair market value for physician compensation for many years. In this article, the author makes the case that this measurement: a. Is the most efficient and accurate way to measure FMV for physician compensation b. Is based on a series of critically flawed beliefs amongst many regulators and appraisers c. Is flawed, but still useful d. None of the above 2. Regarding the question whether or not all physicians will soon be employed by hospitals, the author suggests: to single specialty physicians in private practice considering are the chief employer of specialty physicians in private practice c. Survey data does not exist to support either conclusion d. More research needs to be done to establish specialty physicians considering private practice The Value Examiner ®—July/August 2016 CPE Exam Office Use Only: Invoice #: Examiner CPE Rev 8/31/16–Page 1 Earn five hours of NACVA CPE* by reading The Value Examiner and completing this exam. For CPE credit, scan and e-mail to: fax to: (801) 486-7500; or mail to: 5217 South State Street, Suite 400, Salt Lake City, UT 84107 Member cost: $76.50 (Non-Member cost: $85.00) Announcing—The Value Examiner CPE exam can now be taken online! Visit the exam. There, you will be able to purchase, complete, and earn five hours of NACVA CPE*. You will instantly receive a certificate of completion for each exam you pass. Name: Designations: NACVA Member #: Firm Name: IBA Member #: Address: City: State: ZIP: Tel: Fax: E-mail: Check #: (payable to: NACVA) or VISA MasterCard AMEX Discover Credit/Debit Card #: Expiration Date: Credit card billing address: Same, or Address: City: State: ZIP: Authorized Signature‡ Date: ‡By signing, you authorize the National Association of Certified Valuators and Analysts (NACVA) to charge your account for the amount indicated. NACVA can also initiate credit entries to your account in the event a credit or correction is due. Your signature authorizes NACVA to confirm the above information via e-mail and/or fax and to use either for future communication. NACVA will not disclose or share this information with third parties. * This exam does not qualify for NASBA QAS CPE credit. Important note: Although this exam qualifies for NACVA CPE, it may not be accepted by all state boards or accrediting organizations. Therefore, individuals should contact their state board or accrediting organization to determine if passing an exam after reading a book/magazine meets their CPE requirements. State CPE Sponsor #:_______________. How the New Leases Standard May Impact Business Valuations By Judith H. O’Dell, CPA, CVA 1. The new leases standard will be effective for private companies in: a. Fiscal years beginning after December 15, 2018 b. It is in effect now c.Fiscal years beginning after December 15, 2019 d. December 15, 2019 2. A lease is classified as a finance lease if: a.It transfers ownership of the underlying asset to the lessee by the end of the lease term b. The lease term is for the major part of the remaining economic life of the underlying asset c. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term d. All of the above 3. After the effective date of the standard, the initial accounting by a lessee for a new lease is: a. Recognition of a lease liability at the present value of the lease payments discounted using the LIBOR rate and a right of use asset equal to lease liability b. Recognition of the right of use asset as the total cost of the lease and a lease liability in the same amount. c. Recognition of a lease liability at the present value of the lease payments discounted using the discount rate for the lease and a right of use asset equal to the lease liability d. Recognition of an asset equal to the value of item leased and a like liability and log in to access an exam. Online exams are available for The Value Examiner issues from 2014 to current. You will be able to purchase, complete, and earn five hours of NACVA CPE* for each exam. You will instantly receive a certificate of completion for each exam you pass. Earn CPE Online by Reading The Value Examiner®! * This exam does not qualify for NASBA QAS CPE credit. Individuals should contact their state board or accrediting organization to determine requirements for acceptance of CPE credit. To learn more, please visit The Value Examiner CPE exam can now be taken online! CPEexamVEad.indd 110/11/16 1:01 PM VEA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 34 SEPTEMBER | OCTOBER 2019 t h e v a l u e e x a m i n e r DCF APPROACH AND KEY FACTORS TO CONSIDERA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2019 35 Until approximately forty years ago, virtually all surgery was performed in hospitals.1 Since the 1970s, however, the outpatient services industry has grown at a steady pace, precipitated in part by the American Medical Association’s (AMA) 1971 adoption of a resolution endorsing the concept of outpatient surgery under general and local anesthesia for selected procedures and patients.2 The resulting shift to outpatient care has led to a growing number of diverse outpatient office-based facilities tailored to meet the accelerated growth in demand for healthcare services, leading to the establishment of, among other enterprises, ambulatory surgery centers (ASCs), and, more recently, office-based laboratories (OBLs). Currently, there are over 9,280 ASCs,3 and approximately 700 OBLs4 in the U.S. At the same time, this rapid increase has resulted in increased regulatory scrutiny of the formation, ownership, alignment, and transactions related to these outpatient entities. Consequently, those involved in any prospective transaction (or formation) need to understand the differences between these two types of outpatient facilities and the implications thereof. This article is the first in a two-part series and will define ASCs and OBLs, and discuss their distinctions (regulatory and otherwise). Part II will identify valuation considerations 1. “History of ASCs,” Ambulatory Surgery Center Association, 9/16/19). 2. Ibid. 3. “How Many Ambulatory Surgery Centers Are In The US?” By Alanna Moriarty, Definitive Healthcare, April 10, how-many-ascs-are-in-the-us (Accessed 9/18/19). 4. “Outpatient Endovascular and Interventional Society,” com/ (Accessed 9/18/19). emanating from those distinctions. DEFINITIONS ASCs ASCs are distinct, Medicare-certified outpatient healthcare facilities that provide services to patients who do not require inpatient hospital admission and a stay lasting more than twenty-four hours.5 ASCs may be classified as single-specialty or multi-specialty and may be owned by hospitals, physicians, or other healthcare enterprises. Medicare reimburses these enterprises under their own separate prospective payment system.6 Since their inception more than four decades ago, ASCs have played an increasingly crucial role in the medical community.7 Physicians are attracted to ASCs due to the ability to set and maintain their schedule, customize their surgical environments, and use specialized staff, which minimizes turnaround time and maximizes the number of procedures efficiently and conveniently performed.8 In short, physicians typically find greater professional autonomy over their work environment and the quality of care provided in ASCs.9 As noted above, ASCs have increased in number over recent years, due in part to the potential for a heightened quality 5. “Ambulatory Surgical Center Payment System, Centers for Medicare & Medicaid Services, MLN Fact Sheet, January, Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/ Downloads/AmbSurgCtrFeepymtfctsht508-09.pdf (Accessed 9/18/19). 6. Ibid. 7. “Ambulatory Surgery Centers: A Positive Trend in Health Care,” Ambulatory Surgery Center Association, s3.amazonaws.com/ASCACONNECT/142533d1-73af-4211-9238- 7f136c02de93/UploadedImages/About%20Us/ASCs%20-%20A%20Positive%20 Trend%20in%20Health%20Care.pdf (Accessed 9/18/19). 8. Ibid. 9. Ibid. By Todd A. Zigrang, MBA, MHA, FACHE, CVA, ASA and Jessica L. Bailey-Wheaton, Esq. ASCs and Office-Based Laboratories: Valuation Distinctions and Considerations Part I: Distinctions /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// HEALTHCARE INSIGHTSA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 36 SEPTEMBER | OCTOBER 2019 t h e v a l u e e x a m i n e r of care and efficiencies provided at these facilities, derived from technological and surgical procedure innovations.10 In particular, improved anesthesia and utilization of safe, minimally invasive techniques have driven this migration toward ASCs.11 Patients report a preference for ASCs due to their lower copays, convenient locations, short wait times, and ease of scheduling.12 OBLs OBLs, also known as office-based endovascular centers, access centers, or interventional office suites, are physician offices wherein several services are offered. Similar to ASCs, OBLs can be single or multi-specialty and can have many ownership structures. However, unlike ASCs, OBL procedures (because they are located in a physician’s office) are reimbursed under the Medicare Physician Fee Schedule.13 OBLs are typically operated and utilized by vascular surgeons, interventional radiologists, cardiologists, or other specialists, and services provided include: cardiovascular, endovascular, venous, and non-vascular services; cardiac procedures, such as diagnostic coronary angiograms, coronary stenting, and electrophysiology services; device implants, including pacemakers, defibrillators, loop recorders, and biventricular pacers; lower extremity endovascular revascularizations, such as chronic total occlusion and complex limb salvage procedures; renal and mesenteric revascularizations; and, subclavian stenting.14 While slower to materialize than ASCs, OBLs have increased rapidly over the past few years, for reasons similar to ASCs, e.g., opportunities for physician ownership, the “expedient 10. “Chapter 5 Ambulatory Surgical Center Services” In “Report to the Congress: Medicare Payment Policy” Medicare Payment Advisory Commission, March 2019, mar19_medpac_ch5_sec.pdf?sfvrsn=0 (Accessed 9/18/19), p. 134. 11. “Ambulatory Surgery Centers: A Positive Trend in Health Care,” Ambulatory Surgery Center Association, s3.amazonaws.com/ASCACONNECT/142533d1-73af-4211-9238- 7f136c02de93/UploadedImages/About%20Us/ASCs%20-%20A%20Positive%20 Trend%20in%20Health%20Care.pdf (Accessed 9/18/19), p. 5. 12 “Ambulatory Surgery Centers: A Positive Trend in Health Care,” Ambulatory Surgery Center Association, s3.amazonaws.com/ASCACONNECT/142533d1-73af-4211-9238- 7f136c02de93/UploadedImages/About%20Us/ASCs%20-%20A%20Positive%20 Trend%20in%20Health%20Care.pdf (Accessed 9/18/19); “Chapter 5 Ambulatory Surgical Center Services” In “Report to the Congress: Medicare Payment Policy” Medicare Payment Advisory Commission, March 2019, pdf?sfvrsn=0 (Accessed 9/18/19), p. 134. 13. See, e.g., “Future of vascular surgery is in the office,” By Krishna M. Jain, MD, et al., Journal of Vascular Surgery, Vol. 51 (February 2010), pp. 509–514. 14. “Office-Based Labs: AN Evolving Healthcare Model,” By Jeffrey G. Carr, Cath Lab Digest, Vol. 25, Issue 11 (November 2017), cathlabdigest.com/article/Office-Based-Labs-Evolving-Healthcare-Model (Accessed 9/17/19). patient experience,”15 and “favorable outpatient procedural reimbursement.”16 REGULATORY CONSIDERATIONS17 It should be noted that, in some cases, outpatient facilities are operated as a hybrid, wherein the facility is utilized for ASC procedures on some days, and for OBL procedures on other days. In these situations, the (more stringent) regulations related to ASCs would control processes. Stark Law The Stark Law governs those physicians (or their immediate family members) who have a financial relationship (i.e., an ownership investment interest or a compensation arrangement) with an entity, and prohibits those individuals from making Medicare referrals to those entities for the furnishing of designated health services (DHS).18 DHS encompasses the following items and services: 1. Clinical laboratory services 2. Physical therapy services 3. Occupational therapy services 4. Radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services 5. Radiation therapy services and supplies 6. Durable medical equipment and supplies 7. Parenteral and enteral nutrients, equipment, and supplies 8. Prosthetics, orthotics, and prosthetic devices and supplies 9. Home health services 10. Outpatient prescription drugs 11. Inpatient and outpatient hospital services 12. Outpatient speech-language pathology services19 15. “Treatment outcomes and lessons learned from 5134 cases of outpatient office-based endovascular procedures in a vascular surgical practice,” By PH Lin, et al., Vascular, Vol. 25, No. 2 (April 2017), available at: nlm.nih.gov/pubmed/27381926 (Accessed 9/18/19), pp. 115–22. 16. The Need for Accreditation of Office-Based Interventional Vascular Centers,” By Peter H. Lin, et al., Annals of Vascular Surgery, Vol. 38 (January 2017), available S0890509616306689 (Accessed 9/18/19), pp. 332–338. 17. Please note that the information provided in this article does not, and is not intended to, constitute legal advice; instead, all information and content are for general informational purposes only. 18. “Limitation on Certain Physician Referrals,” 42 U.S.C. § 1395nn(a). 19. “Limitation on Certain Physician Referrals,” 42 U.S.C. § 1395nn(h)(6)(A).A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2019 37 OBLs and ASCs are generally not subject to Stark Law restrictions, because they typically do not furnish DHS. However, in the event that the ASC/OBL is performing DHS (e.g., radiology services), and that Medicare does not reimburse DHS as part of a composite rate,20 then any financial relationship between the physicians and the hospital, and their connection to the ASC/OBL, may be subject to Stark, the application of which regulations (and any appropriate exceptions) would be determined by the structure of the financial relationship between the parties (e.g., direct/indirect, compensation/ownership investment). Anti-Kickback Statute The Anti-Kickback Statute (AKS) makes it a felony for any person to “knowingly and willfully” solicit or receive, or to offer or pay, any “remuneration,” directly or indirectly, in exchange for the referral of a patient for a healthcare service paid for by a federal healthcare program.21 Of note, interpretation and application of the AKS under case law has created a precedent for a regulatory hurdle known as the one purpose test, under which healthcare providers violate the AKS if even one purpose of the arrangement in question is to offer remuneration deemed illegal under the AKS.22 Due to the broad nature of the AKS, legitimate business arrangements may appear to be prohibited.23 In response to these concerns, Congress created a number of statutory exceptions and delegated authority to the HHS to protect certain business arrangements by means of promulgating several safe harbors,24 which set forth regulatory criteria that, if met, shield an arrangement from regulatory liability, and are meant to protect transactional arrangements unlikely to result in fraud or abuse.25 Failure to meet all of the 20. The regulations specifically note that “DHS do not include services that are reimbursed by Medicare as part of a composite rate (for example, SNF Part A payments or ASC services identified at §416.164(a)), except to the extent that services listed in paragraphs (1)(i) through (1)(x) of this definition are themselves payable through a composite rate (for example, all services provided as home health services or inpatient and outpatient hospital services are DHS).” “Definitions” 42 C.F.R. § 411.351. 21. “Criminal Penalties for Acts Involving Federal Health Care Programs,” 42 U.S.C. § 1320a-7b(b)(1). 22. “Re: OIG Advisory Opinion No. 15-10,” By Gregory E. Demske, Chief Counsel to the Inspector General, Letter to [Name Redacted], July 28, 2015, (Accessed 9/18/19), pp. 4–5; “U.S. v. Greber” 760 F.2d 68, 69 (3d Cir. 1985). 23. “Re: OIG Advisory Opinion No. 15-10,” By Gregory E. Demske, Chief counsel to the Inspector General, Letter to [Name Redacted], July 28, 2015, (Accessed 9/18/19), p. 5. 24. Ibid. 25. “Medicare and State Health Care Programs: Fraud and Abuse; requirements of a safe harbor does not necessarily render an arrangement illegal.26 Under the AKS, ASCs and OBLs are treated differently. Specifically, ASCs meet AKS safe harbor provisions, which state that “‘remuneration’ does not include any payment that is a return on investment interest, such as a dividend or interest income, made to an investor,” under certain circumstances. For example, the operating and recovery room space must be exclusively dedicated to the ASC, all patients referred to the entity by an investor must be fully informed of the investor’s ownership interest, and all of the following applicable standards must be met within one of the categories outlined in Table 1. Clarification of the Initial OIG Safe Harbor Provisions and Establishment of Additional Safe Harbor Provisions Under the Anti-Kickback Statute; Final Rule,” Federal Register, Vol. 64, No. 223 (November 19, 1999), pp. 63518– 63520. 26. “Re: Malpractice Insurance Assistance,” By Lewis Morris, Chief Counsel to the Inspector General, United States Department of Health and Human Services, Letter to [Name redacted], January 15, 2003, docs/alertsandbulletins/MalpracticeProgram.pdf (Accessed 9/18/19), p. 1.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 38 SEPTEMBER | OCTOBER 2019 t h e v a l u e e x a m i n e r TABLE 1: ASC EXCEPTIONS TO THE AKS ABCDE CategorySurgeon-Owned ASC Single-Specialty ASC Multi-Specialty ASCHospital/Physician ASC 1InvestorGeneral surgeons or surgeons engaged in the same surgical specialty, who are in a position to refer patients directly to the ASC and perform surgery on such referred patients; Physicians engaged in the same medical practice specialty who are in a position to refer patients directly to the entity and perform procedures on such referred patients; Physicians who are in a position to refer patients directly to the entity and perform procedures on such referred patients; A hospital; and, 2Surgical group practices comprised exclusively of such surgeons; or, Group medical practices composed exclusively of such physicians; or, Group medical practices composed exclusively of such physicians; or, General surgeons or surgeons engaged in the same surgical specialty, who are in a position to refer patients directly to the ASC and perform surgery on such referred patients; 3Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors; Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors; Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors; Physicians engaged in the same medical practice specialty who are in a position to refer patients directly to the entity and perform procedures on such referred patients; 4Physicians who are in a position to refer patients directly to the entity and perform procedures on such referred patients; 5Surgical group practices comprised exclusively of such surgeons; 6Group medical practices composed exclusively of such physicians; or, 7Individuals not employed by the ASC or any other investor, not in a position to provide items or services to the entity or any other investors, and not in a position to make or influence referrals directly or indirectly to the ASC or any other investors; 27. “Exceptions: Ambulatory Surgery Centers,” 42 C.F.R. § 1001.952(r) (2015). 27A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2019 39 ABCDE CategorySurgeon-Owned ASC Single-Specialty ASC Multi-Specialty ASCHospital/Physician ASC 8StandardsThe investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor; The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor; The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor; The investment terms offered to an investor may not be tied to the previous or expected number of referrals, services furnished, or the amount of business for the entity otherwise generated by the investor; 9At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior twelve-month period must come from the surgeon’s performance of procedures; At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior twelve-month period must come from the surgeon’s performance of procedures; At least one-third of the surgeon investor’s practice income for the prior fiscal year or the prior twelve-month period must come from the surgeon’s performance of procedures; Neither the entity nor any investor can loan funds or guarantee a loan for an investor if the investor uses any portion of the loan to acquire the investment interest; 10Neither the entity nor any investor can loan funds or guarantee a loan for an investor if the investor uses any portion of the loan to acquire the investment interest; Neither the entity nor any investor can loan funds or guarantee a loan for an investor if the investor uses any portion of the loan to acquire the investment interest; At least one-third of the procedures performed by each physician investor must be performed at the investment entity; An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested; 11An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested; An investor’s payment in return for their investment must be directly proportional to the amount of capital they invested; Neither the entity nor any investor can loan funds or guarantee a loan for an investor if the investor uses any portion of the loan to acquire the investment interest; The ASC, the hospital and any physician investors, must treat patients receiving medical benefits or assistance under any healthcare program in a nondiscriminatory manner;Next >