Presented By: Robert James Cimasi, MHA , ASA , CBA , AVA, CM&AA President

1. AICPA/AAML National Divorce Conference Emerging Issues in Healthcare Valuation in Divorce Cases Presented By: Robert James Cimasi, MHA, ASA, CBA, AVA, CM&AA President Health Capital Consultants 1143 Olivette Executive Parkway St. Louis, MO 63132-3205 (800) FYI-VALU • www.healthcapital.com Las Vegas, NV – May 6, 2010 This presentation addresses information and developments in the admittedly broad and rapidly changing regulatory environment as it relates to healthcare assets. Neither the presenters nor the sponsor intend this presentation to render any legal or accounting advice, but rather to provide general information and sources.  Neither the presenter, nor the sponsor, assume any liability with respect to the use of information contained in this presentation. For legal or accounting advice, individuals and their firms are urged to consult their attorney or CPA.

2. PRESENTER BIOGRAPHY Robert James Cimasi, MHA, ASA, CBA, AVA, CM&AAis President of Health Capital Consultants, (HCC), a nationally recognized healthcare financial and economic consulting firm. Mr. Cimasi has over twenty five years experience in serving clients, in forty nine states, with a professional focus on the financial and economic aspects of healthcare service sector entities including: valuation consulting; business intermediary and capital formation services; healthcare industry transactions including joint ventures, sales, mergers, acquisitions, and divestitures; litigation support & expert testimony; and, certificate-of-need and other regulatory and policy planning consulting. Mr. Cimasi holds a Masters in Health Administration from the University of Maryland, the Accredited Senior Appraiser (ASA) designation in Business Valuation, as well as, the Certified Business Appraiser (CBA), Accredited Valuation Analyst (AVA), and the Certified Merger & Acquisition Advisors (CM&AA). He is a nationally known speaker on healthcare industry topics. He has been certified and has served as an expert witness on cases in numerous states, and has provided testimony before federal and state legislative committees. In 2006, Mr. Cimasi was honored with the prestigious Shannon Pratt Award in Business Valuation conferred by the Institute of Business Appraisers and elevated to the IBA College of Fellows.

3. Presentation Overview • FOUR PILLARS OF THE HEALTHCARE INDUSTRY • KEY DRIVERS OF THE CHANGING HEALTHCARE ENVIRONMENT • REIMBURSEMENT • REGULATORY • COMPETITION • TECHNOLOGY • RECENT EVENTS • Valuation in Divorce • Standard of Value FOR PROFESSIONAL practices • Premise of Value FOR PROFESSIONAL PRACTICES • tangible & intangible assets FOR Professional Practices • GOODWILL • CONCLUDING REMARKS

4. I. Four Pillars of the Healthcare Industry • Transactional valuation of healthcare enterprises is impacted by the “Four Pillars” of the healthcare industry: • In this era of healthcare reform, the industry environment, including supply and demand for services, is undergoing constant change, due to several key drivers

5. I. Four Pillars of the Healthcare IndustryA. Key Drivers of the changing Healthcare Environment • Increasing healthcare costs as a percentage of national GDP • Manpower shortage of physicians and other providers • Shortages in Physician Supply • Cap on medical school enrollment • Aging physicians (one-third of all physicians are 55 and older) • Younger physicians are less likely to: • Take call coverage • Work longer hours • Undertake the entrepreneurial challenge of opening private practice vs. collecting a salary

6. I. Four Pillars of the Healthcare IndustryA. Key Drivers of the changing Healthcare Environment 3. Changingpatient demographics • Growth of Aging baby-boomer population • Population of people age 65 and older will double to 71 million by 2030 • People over age 65 utilize twice the amount of medical services of those under 65 • Growth in immigration over several years: • Increase in the total population requiring healthcare • Increase in the overall birth rate and number of newborns

7. I. Four Pillars of the Healthcare IndustryA. Key Drivers of the changing Healthcare Environment 4. Increasing regulatory scrutiny of referrals and employment arrangements by state and federal agencies under Fraud & Abuse regulations • Anti-kickback • Stark • IRS – inurement of benefits 5. Changing reimbursement environment and current downshift in reimbursement yield (discussed in the following section) Due to these drivers, several key issues have emerged as a part of the changing healthcare environment, including debates regarding physician ownership of practices and hospitals

8. I. Four Pillars of the Healthcare IndustryB. Reimbursement • Changes in the reimbursement environment have played a large role in the growth of physician-ownership of healthcare enterprises: Capitated fee system Fee-for-serviceand managed carefacilitated an increase in healthcare spending Current downshift in reimbursement (e.g., via bundled payments) in an effort to decrease healthcare costs • Decreases in the professional physician fee component of reimbursement yield have prompted physicians to look for supplementary sources of income in ancillary services

9. I. Four Pillars of the Healthcare IndustryB. Reimbursement Attack on Niche Providers Reimbursement for healthcare relies on 2 revenue streams: Professional Component (PC) Ancillary Services & Technical Component (ASTC) Medicare reimbursement has been stagnant or decreasing for physician professional fees since the 1990’s Professional practice physician owners looked for supplementary profits via the ASTC revenue stream However, there have been ongoing measures undertaken to restrict physician investmentin ASTC revenue stream enterprises

10. I. Four Pillars of the Healthcare IndustryB. Reimbursement Attack on Physician Ownership of Technical Component (TC) of Revenue Stream • In the face of reimbursement challenges, there have been incessant legislative and regulatory efforts undertaken at the Federal and State levels to restrict physician ownership in/ investment in ASTC revenue stream enterprises, e.g. ambulatory surgery centers (ASCs); independent diagnostic testing facilities (IDTFs), surgical hospitals, etc. • These measures have served to: • Relegate independent physicians in private practice to receiving only professional fee component revenues (to the status of “sharecroppers” or “hired help”); or, • To acquiesce by accepting employee status under the substantial control of hospital systems or large corporate players.

11. I. Four Pillars of the Healthcare IndustryC. Regulatory Attack on Niche Providers: Legislative efforts to restrict physician-owned hospital growth or expansion H.R. 4872 Section 1106 “Health Care and Education Reconciliation Act of 2010” Signed into law by President Barack Obama on March 30, 2010 S.275 “Children’s Health Insurance Program Reauthorization Act of 2009” H.R.3162 Sect. 651 “Children’s Health and Medicare Protection Act of 2007 (CHAMP)” H.R.2 Sect. 623 “Children’s Health Insurance Program Reauthorization Act of 2009” Did NOT contain language restricting physician ownership of hospitals July 24, 2007 January 14, 2009 January 29, 2009 March 30, 2010

12. I. Four Pillars of the Healthcare IndustryC. Regulatory H.R. 4872, Section 1106 Existing hospitals, those in existence as of the date of enactment (March 30, 2010), with Medicare Certification in place by August 1, 2010 and who meet specific requirements within 18 months of the enactment of the legislation, will be grandfathered, but will need to meet specific and stringent requirements for expansion • the aggregate percentage of physician ownership cannot be increased after the date of the passage of the bill • required to meet 4 specific requirements in order to be allowed to apply to HHS to grow a hospital Developing hospitals without a Medicare Provider Number by August 1, 2010, will not be grandfathered.  Whether those hospitals will be able to receive Medicare certification at all is not clear at this time. 

13. I. Four Pillars of the Healthcare IndustryC. Regulatory Increased scrutiny of fraud and abuse compliance at the federal level by the following groups: • Office of the Inspector General (OIG) • Department of Health and Human Services (HHS) • Department of Justice (DOJ) • Internal Revenue Service (IRS)

14. I. Four Pillars of the Healthcare IndustryD. Competition • Increasing regulatory scrutiny, reimbursement pressures, and increasing costs related to mandatory technology advances have contributed to increased consolidation and integration of physician practices and hospitals • This, in addition to proposed restrictions on specialty hospitals, creates potential for hospital and health system monopoliesin certain areas of the country, reducing the beneficial effects of healthcare provider competition

15. I. Four Pillars of the Healthcare IndustryD. Competition Who is buying practices right now? Physician to Physician Acquisition Single- and Multi-Specialty Practice Roll-ups Hospital Acquisition of Physician Practices/ Physician Employment by Hospitals DECREASING INCREASING RAPIDLY INCREASING What is driving these trends? Increasing regulatory scrutiny of referrals (e.g., for physician-owned practices) Increasing costs(e.g., advances in technology) Decrease in reimbursement yield for several specialties Change in lifestyle preference for younger physicians entering market

16. I. Four Pillars of the Healthcare IndustryD. Competition Emerging trends in consolidation, integration, and partnering

17. I. Four Pillars of the Healthcare IndustryD. Competition Medical Practice – Hospital Consolidation and Integration • Rise in physician-owned specialty hospitals allows more physicians to refuse on-call and other traditional medical staff duties • More hospitals are competing for physicians’ time – seek direct employment of physicians as solution • The recent employment trends show a rise in the number of specialists employed by hospitals • Resulting in higher ratio of hospital-based physicians as compared to office-based physicians, especially for more profitable specialties more well-suited for a hospital-based practice setting (e.g., cardiology, orthopedics, radiology, etc.)

18. I. Four Pillars of the Healthcare IndustryE. Technology Nexium - “The Purple Pill” • Increasingly, drugs offer an alternative treatment, and often at a lower cost, reducing hospital stays or need for costly surgeries or procedures • The introduction of the “Purple Pill” revolutionized the treatment of bleeding ulcer patients with a proton pump inhibitor like Prilosec (omeprazole) prior to endoscopy, thereby reducing both the need for surgery as well as the length of hospital stays. With some advances in drugs and technology, the value and necessity of some physicians’ services may be reduced “Prilosec Helps Control Bleeding in Ulcer Patients,” Amanda Gardner, HealthDay Reporter, U.S. Department of Health and Human Services, April 18, 2007, http://www.healthfinder.gov/news/newsstory.asp?docid=603797, (Accessed March 31, 2008); “Omeprazole as Adjuvant Therapy to Endoscopic Combination Injection Sclerotherapy for Treating Bleeding Peptic Ulcer,” Gul Javid et al., The American Journal of Medicine, Vol. 111, no. 4, (September 2001), pp. 280-284.

19. I. Four Pillars of the Healthcare IndustryE. Technology For physicians using primarily outdated techniques and/or lacking sufficient experience in increasingly utilized advanced procedures, the value of their services may be reduced. Examples of increasingly used advanced surgical techniques: • Laparoscopic surgery • Minimally invasive surgery • Robotics (e.g., use of the Davincisystem for cardiac revascularization, prostate cancer, and other surgeries spanning several specialties) Note, however, that advances in pharmaceutical, surgical, and management technology(e.g., EMRs), while contributing to a higher quality of care, can drive up healthcare costs, a key driver of several healthcare reform initiatives

20. II. Recent Events – Healthcare Reform Effects of Regulatory Restrictions regarding Expansion on the Valuation of Physician-owned Hospitals • May alter the valuation standard of Fair Market Value under the valuation premise of value-in-use as a going concern • Results in lower values under the premise of value-in-exchange (i.e., via orderly disposition, forced liquidation) • Disruption in makeup of the market investor pool • may require discount for lack of control • Potential impact on financial valuation as restrictions on capital formation from physician equity investments • may indicate a discount for lack of marketability

21. II. Recent Events – Healthcare Reform As a consequence of current healthcare trends, there are several emerging models of healthcare that serve as a vehicle for healthcare reform: • Medical home model • promotes primary and preventive care services • maximizes efficiency by utilizing manpower resources, • reevaluates the role of and combats overuse of specialty services • Retail clinic model (provides accessible and affordable quality care to the masses) • Bundled payment model (as a means of reducing Medicare costs) • Accountable Care Organization (ACO) model • encourages providers to assume accountability for quality and efficiency • bolsters efforts towards payment reform • contributes to the remediation of the Sustainable Growth Rate (SGR) formula

22. III. Valuation in Divorce • Within the context of the four pillars, and considering changes to the healthcare environment in an era of healthcare reform, valuators must consider several issues in valuing a professional practice in a divorce case, including, but not limited to: • Standard of Value • Premise of Value • Classification and valuation of assets • Tangible assets • Intangible assets(including goodwill)

23. III. Valuation in Divorce • The “Standard of Value” (e.g., fair market value, fair value, intrinsic value, investment value, book value, etc.) defines the type of value to be determined and is often described as answering the question “Value to Whom?” • The “Premise of Value” under which a valuation is conducted, is an assumption further defining the “Standard of Value” to be used. The “Premise of Value” defines the hypothetical terms of the sale and answers the question, “Value under what further defining circumstances?” (e.g., going concern, orderly disposition, forced liquidation, etc.).

24. III. Valuation in DivorceA. Standard of Value for Professional Practices • The Standard of Value applied to the valuation of a medical practice in a divorce case varies by the jurisdiction of the divorce, and may be based on state statute or case law • Standards of value used for divorce purposes may include: • Fair Market Value • Fair Value • Intrinsic Value • Investment Value (divorce value) Note that that the majority of state are “Fair Market Value” states, either explicitly or by application Source: “When the Marriage is Over, What is the Practice Worth?”, Stcey D. Udell in BVR’s Guide to Healthcare Valuation, 2009 ed., Business Valuation Resources, LLC

25. III. Valuation in Divorce A. Standard of Value for Professional Practices The Standard of Value and the Universe of Typical Buyers • The standard of Fair Market Valueis defined as • the most probable pricethat the subject interest should bring if exposed for sale on the open market as of the valuation date exclusive of any element of value arising from the accomplishment or expectation of the sale • This standard of value assumes: • a universe of typical buyers • an anticipated hypothetical transaction • the buyer and seller are each acting prudently, with a reasonable equivalence of knowledge • the price is not affected by any undue stimulus or coercion

26. III. Valuation in Divorce A. Standard of Value for Professional Practices Assumptions of the definition of Fair Market Value, cont. • The hypothetical transaction considered contemplates a universe of typical potential purchasers for the subject entity and not a specific purchaser or specific class of purchaser • Buyer and seller are typically motivated • Both parties are well informed and acting in their respective rational economic self-interests • Both parties are professionally advised and the hypothetical transaction is assumed to be closed with the typical legal protections in place to safeguard the transfer of ownership of the legal bundle of rights which define and encompass the transacted property or interest • A sufficiently reasonable amount of time is allowed for exposure in the open market • Payment is made in cash or its equivalent

27. III. Valuation in Divorce A. Standard of Value for Professional Practices Assumptions of the definition of Fair Market Value, cont. • The anticipated hypothetical transaction would be conducted in compliance with “Stark I & II” legislation prohibiting physicians from making referrals for “designated health services” reimbursable under Medicare or Medicaid to an entity with which the referring physician has a financial relationship. • “Stark II” defines “fair market value” as the “value in arms length transactions, consistent with the general market value.” • The transaction falls within Stark II’s specific exception for “isolated financial transactions” when the amount of the remuneration under the employment: • is consistent with fair market value of the services, • Is not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician, • is provided pursuant to an agreement which would be commercially reasonable even if no referrals were made to the employer, and • the transaction meets such other requirements as the Secretary [of Health and Human Services] may impose by regulation as needed to protect against program or patient abuse. Sources: 42 U.S.C.A. § 1395nn(a); Social Security Act § 1877(a);42 U.S.C.A. § 1395nn(h)(3); Social Security Act § 1877(h)(3);42 U.S.C.A. § 1395nn(e)(6); Social Security Act § 1877(e)(6);Social Security Act §1877(d)(2)(A)

28. III. Valuation in Divorce A. Standard of Value for Professional Practices Assumptions of the definition of Fair Market Value, cont. • The anticipated hypothetical transaction would be conducted in compliance with the Medicare Anti-Kickback Statute making it illegal to knowingly pay or receive any remuneration in return for referrals. The Medicare Anti-Kickback Statute requires the payment of “fair market value in arms-length transactions…[and that any compensation is] not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.” • Related to the above, the following definitions of terms apply. “In an excess benefit transaction, the general rule for the valuation of property, including the right to use property, is fair market value.”“A disqualified person, regarding any transaction, is any person who was in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization at any time during [a five-year period ending on the date of the transaction.]” An “excess benefit transaction” is a “transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of a disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration received by the organization.” Sources: 42 U.S.C.A. § 1320a-7b(b); 42 C; “Intermediate Sanctions – Excess Benefit Transactions,” Internal Revenue Service, www.irs.gov/charities/charitable/article/0,,id=123303,00.html (Accessed 9/2/08); “Disqualified Person,” Internal Revenue Service, www.irs.gov/charities/charitable/article/0,,id=154667,00.html (Accessed 9/2/08); “Lookback Period,” Internal Revenue Service, www.irs.gov/charities/charitable/article/0,,id=154670,00.html (Accessed 9/2/08); C.F.R. 1001.952(d)(5).

29. III. Valuation in Divorce A. Standard of Value for Professional Practices Fair Market Value Defined - Stark Law “The value in arm’s-length transactions, consistent with the General Market Value” General Market Value: “the price that an asset would bring, as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement, as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.” Source: 42 C.F.R § 411.351

30. III. Valuation in DivorceA. Standard of Value for Professional Practices Fair Market Value Defined - Centers for Medicare & Medicaid Services (CMS) • CMS (f/k/a Health Care Financing Administration) made the following statements regarding when a payment for services provided is at FMV: • “[W]e believe the relevant comparison is aggregate compensation paid to physicians practicing in similar academic settings located in similar environments. Relevant factors include geographic location, size of the academic institutions, scope of clinical and academic programs offered, and the nature of the local health care marketplace.” • “. . . . we intend to accept any method [for establishing FMV] that is commercially reasonable and provides us with evidence that the compensation is comparable to what is ordinarily paid for an item or service in the location at issue, by parties in arm's-length transactions who are not in a position to refer to one another. . . . The amount of documentation that will be sufficient to confirm[FMV] . . . will vary depending on the circumstances in any given case; that is, there is no rule of thumb that will suffice for all situations.” [emphasis added] Source: “Stark II, Phase I,” 66 Fed. Reg. 916, 944 (Jan. 4, 2001).

31. III. Valuation in DivorceA. Standard of Value for Professional Practices Fair Market Value Defined - Centers for Medicare & Medicaid Services (CMS) • In Stark II, Phase III, CMS provided the following guidance for valuing administrative positions: • “A fair market value hourly rate may be used to compensate physicians for both administrative and clinical work, provided that the rate paid for clinical work is fair market value for the clinical work performed and the rate paid for administrative work is fair market value for the administrative work performed. We note that the fair market value of administrative services may differ from the fair market value of clinical services.”

32. III. Valuation in DivorceA. Standard of Value for Professional practices Fair Market Value Defined – Case Law • . • FMV is defined as “the price a willing buyer would pay a willing seller . . . when neither is under compulsion to buy or sell.”Providing a discount is not evidence that an agreement is below fair market value if there is no comparison between the original or discounted rates and fair market value. In addition, the Medicare rate is not necessarily equivalent to fair market value.1 • An Illinois district court noted that fair market value may differ from traditional economic valuation formulae, which take into account referrals. Because the Anti-Kickback Statute prohibits any inducement for those referrals, they must be excluded from any calculation of fair market value.2 • Proving that an arrangement is fair market value is imperative in complying with requirements of the Stark law. “Payment exceeding fair market value is in effect deemed payment for referrals.”3 1 Klaczak v. Consolidated MedicalTransport, 458 F.Supp.2d 622 (N.D. Ill. 2006). 2 U.S. ex rel. Obert-Hong v. Advocate Health Care, 211 F.Supp.2d 1045 (N.D. Ill. 2002). 3 Am. Lithotripsy Soc’y v. Thompson, 215 F.Supp.2d 1045 (D. D.C. 2002).

33. III. Valuation in DivorceA. Standard of Value for Professional practices Fair Market Value Defined – Internal Revenue Service (IRS) • 501 (c)(3) enterprises must avoid“excess benefit”transactions • Equates reasonable compensation to the value of services provided • “amount that would ordinarily be paid for like services by the enterprises (whether taxable or tax-exempt) under like circumstances” • Valuation standard (as cited by IRS Regulation) is Fair Market Value • “price at which property or the right to use property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts”

34. III. Valuation in DivorceA. Standard of Value for Professional Practices Fair Value Defined: “…the value of the corporation’s shares determined: • Immediately before the effectuation of the corporate action to which the shareholder objects; • Using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal; and, • Without discounting for lack of marketability or minority status except, if appropriate…”1 • The State of North Dakota utilizes Fair Value, in addition to Fair Market Value as an applicable Standard of Value 2 “Model Business Corporation Act”, by American Bar Association, Section 13.01, p. 13-3, 2005 “When the Marriage is Over, What is the Practice Worth?”, Stcey D. Udell in BVR’s Guide to Healthcare Valuation, 2009 ed., Business Valuation Resources, LLC

35. III. Valuation in DivorceA. Standard of Value for Professional Practices Intrinsic Value Defined “the value that an investor considers, on the basis of an evaluation or available facts, to be the ‘true’ or ‘real’ value that will become the market value when other investors reach the same conclusion. When the term applies to options, it is the difference between the exercise price or strike price of an option and the market value of the underlying security.” 1 Investment Value (“Divorce Value” or “Value to the Owner”)Defined: “the value to a particular investor based on individual investment requirements and expectations.” 1 Ohio uses Intrinsic Value, andCalifornia, Michigan, and New York utilize Investment Value, in addition to Fair Market Value, as an applicable Standard of Value in divorce 2 “Business Valuation Standards: Glossary”, American Society of Appraisers, 2005 Brookhart v. Brookhart, No. 93 CA 1569, 1993 LEXIS 5586, In re Marriage of Hewitson, 142 Cal. App. 3d 874 (Ct. App. 1983), Sutherland v. Sutherland, No. 240158, 2004 LEXIS 174, at 9, O’Brien v. O’Brien, 66 N.Y.2d 576; 489 N.E.2d 712; 498 N.Y.S.2d 743

36. III. Valuation in DivorceB. Premise of Value for Professional Practices The Premise of Valuedefines the hypothetical terms of the sale and answers the question • “Value under what further defining circumstances?” Two (2) general concepts relate to the consideration and selection of the “Premise of Value” • “Value in Use” and “Value in Exchange” The Premise of Value and the Investment Time Horizon

37. III. Valuation in DivorceB. Premise of Value for Professional practices Value in Useis that premise of value which assumes • assets will continue to be used as part of an ongoing business enterprise • producing profits as a benefit of ownership. The Premise of Value and the Investment Time Horizon – Value in Use

38. III. Valuation in DivorceB. Premise of Value for Professional practices The Premise of Value and the Investment Time Horizon – Value in Exchange • Value in Exchangedescribes a sale of the assets of a business enterprise under conditions other than its continued operation as a going concern • The liquidation can be on the basis of: • an orderly dispositionof an assemblage of the assets in place; • an orderly disposition of the assets; or, • on the basis of forced liquidation

39. IV. Valuation in DivorceC. Tangible & Intangible Assets in Professional Practices A practice is often comprised of both tangible and intangible assets: • Tangible assets of a subject enterprise are often defined as those items owned by the subject enterprise that possess a physicality, i.e., they can be seen or touched. • Intangible assets of the subject enterprise are often defined as those non-physical items that grant certain specified property rights and privileges of ownership and that have or promise economic benefits to the owner(s) of the subject enterprise.

40. IV. Valuation in DivorceC. Tangible & Intangible Assets in Professional Practices

41. IV. Valuation in DivorceD. Goodwill Goodwill: One of several intangible assets which is the residual amount of intangible asset value that remains once the identifiable and separately quantifiable intangible assets are valued. Steps to Defining Goodwill in a Valuation Engagement: • Determine the existence of intangible asset value in the subject enterprise; • Determine the existence of goodwill as one of the intangible assets existing; and, • Identify, distinguish, disaggregate, and allocate the relevant potion of the existing goodwill to either professional/personal goodwill or practice/commercial goodwill.

42. IV. Valuation in DivorceD. Goodwill Professional/Personal Goodwill: • Results from the charisma, education, knowledge, skill, board certification, and reputation of a specific physician practitioner • Generated by the reputation and personal attributes of the physician which accrue to that individual physician • Since these attributes “go to the grave” with that specific individual physician and therefore can’t be sold, they have no economic value • Often not considered an applicable or divisible asset in divorce cases Practice/Commercial Goodwill: • The unidentified, unspecified, residual attributes of the practice as an operating enterprise, that contribute to the propensity of patients (and the revenue stream thereof) to return to the practice in the future • Is transferred frequently

43. IV. Valuation in DivorceD. Goodwill Note that the use of Goodwill in divorce proceedings is also subject to legal case precedent based on the jurisdiction in which the divorce case is tried Depending on the state: • In some states ONLY Practice/Commercial Goodwill is a divisible asset (majority of states support) • In some states ALL Goodwill is a divisible asset (Professional/Personal and Practice/Commercial Goodwill) • In some states Goodwill is NEVER a divisible asset Valuation of licenses is a separate and discrete element of value.

44. V. Concluding Remarks In the valuation of medical practices in divorce, don’t forget to: • Consider the valuation within the context of the Four Pillars of the healthcare industry • Determine the effect that key drivers of healthcare reform may have on the value of a practice • Examine jurisdictional case law precedent related to: • The appropriate Standard of Value; and, • The definition and applicability of Professional/Personal Goodwill versus Practice/Commercial Goodwill