Healthcare Facility Appraisal – An Introduction

There are a number of different types of healthcare facilities and each type serves its own sub-market and its own specialized clientele.  Healthcare facility appraisals usually deal with the valuation of; hospitals, urgent care facilities, long-term care / skilled-care (nursing) facilities, assisted-living facilities, medical clinics and doctor’s offices.  Most real property appraisers are retained to form a value opinion of the real property for lenders, partners, for acquisition / disposition, for litigation and / or for tax purposes.  “Going-concern” appraisals of healthcare facilities can also be completed by real property appraisers however significantly more expertise is required to appraise the entire business operation including the real property that for the facility alone.

Most healthcare facilities appraised in Las Vegas are “for profit,” corporately owned assets with a certified or licensed bed count of between about 50 and 300 beds.  The number of certified or licensed beds is often one the important unit of comparison selected by appraisers for analysis within their reports.  Some facilities have beds dedicated to a certain type of service, like acute care, sub-acute, skilled nursing care or Alzheimer’s care.  When the business operation is appraised, these differences are important to the actual and forecasted income and expenses of the facility.

Facilities, like nursing homes, often provide different levels of care.  Basic care includes services required to maintain a resident's activities of daily living.  Basic Care includes personal care, supervision and safety.  Skilled care requires the regular services of a registered nurse for treatments and procedures.  Sub-acute care is comprehensive inpatient care designed for someone who has had an acute illness, injury, or chronic illness.  The level of care provided to patients / residents of the facilities is also an important analytic criteria since compensation from private parties and the government via Medicare / Medicaid is tied to the care provided.
Some Assisted-Living facilities offer residents: meals, housekeeping, transportation, laundry, activities, therapy, pharmacy and speech programs.  Assistance with the Activities of Daily Life (ADL) are also offered to Assisted-Living facility residents including: eating assistance, bathing, grooming, dressing, moving, walking and toileting.  Emergency call and medication management are also often included as part of the monthly residence fee in a long-term care facility.

When appraising healthcare “going-concerns” like Assisted-Living facilities it is important to review actual income but also to analyze potential income based on the facility’s average service rates and compare them to those charged by competitors in the market.  Rates usually include a “package” of services that can typically range from $ 1,600 to $ 4,500 monthly.  Rates are stratified, and increase in relation to the size of the room and generally for the 3-tiered range of services discussed.  Monthly service rates for Alzheimer residents, who need specialized care, can be found in the $ 3,500 to $ 7,500 per month range.  The actual gross income of a facility per bed should mirror the potential income per bed based on market supplied rates. 

An expense analysis can also be completed based on market data, if it is available, with consideration being given to operating ratios provided on similar business operations.  Actual expenses versus those expected for a facility given a review of the market is an analysis that is required since actual expenses can be skewed by accounting practices.

While the appraisal of healthcare facilities is relatively straight forward when the real property is appraised on its own, “going-concern” appraisals of the same healthcare facility can be considerably more complex.
2013 Update:  Don't forget to make sure that you have experience doing properties of this type before you accept an assignment.  This is a specialized area of appraisal and your license and your designation are not going to help you if they get you on the witness stand or in front of a regulatory board and you can't provide information on your actual past appraisal experience in this area.

For more appraisal information contact Glenn Rigdon, MA, MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email or via his business website Horizon Village Appraisal (http://www.horizonvillageappraisal.com), or you can also click on “Contact Us” on the home page of this website.
 

Article source: http://www.appraisalarticles.com/Healthcare-Facility-Appraisal/154-Healthcare-Facility-Appraisal-An-Introduction.html