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AHLA's Speaking of Health Law
Marketing Arrangements in Health Care: Latest Trends and Developments
Dan Levin, Director, Stout, speaks with Danielle Tangorre, Partner, Robinson & Cole, and Parker Eastin, Partner, Nicholson & Eastin, about the legal and regulatory landscape surrounding marketing arrangements in health care and how they are working with their clients to structure these arrangements. They discuss the types of arrangements they are seeing and the kinds of marketing services commonly covered by these arrangements, recent enforcement activity, and strategies related to fee determination and valuation. Sponsored by HealthCare Appraisers, now part of Stout.
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Support for AHLA comes from Stout, a global advisory firm, specializing in corporate finance, accounting, and transaction advisory, valuation, financial disputes, claims, and investigations. For over 30 years, Stout’s healthcare team has focused exclusively on providing fair market value and commercial reasonableness opinions, litigation support, and strategic advisory services to hospitals, health systems, and providers in support of their regulatory and transactional needs. Its expertise and in-depth transactional insight have been developed through tens of thousands of engagements and the innovation of automated and client-centered evaluation solutions. Learn more at stout.com.
Speaker 2:Hello , uh, my name is Dan Levin and I'm a director at Stout. Uh, stout is a global investment banking advisory firm , uh, and I practice within our healthcare valuation and advisory group. Uh, I spend most of my time providing fair market value, opinions and related consulting and advisory services in connection with various healthcare transactions. Um, I primarily focus on , um, healthcare business transactions on the, on the provider side mostly , um, and providing fair market value and commercial reasonableness opinions in connection with , uh, services arrangements. Um, I'm joined today by , uh, Parker Easton and Danielle Tango , and we will be discussing marketing arrangements within the healthcare space. Um, so I'll turn it over to Danielle and then Parker to introduce themselves , uh, and then we can dive into the conversation.
Speaker 3:Thanks, Dan. And thanks A HLA for having us. I am Danielle Tango , a partner with Robinson and Cole . I am a partner in the healthcare group while Robinson Cole , as a full service law firm. I focus in healthcare , uh, representing , um, various providers, clinical laboratories , uh, DME providers, RPM providers and other ancillary providers in the regulatory space, helping them navigate the maze and myriad regulations, federal and state. Uh, I also , uh, assist and do business transactions and work alongside other colleagues , uh, to do government investigations and litigation.
Speaker 4:Thanks, Danielle. My name is Parker Easton. I am the managing partner here at Nicholson in Easton. We are a Florida based healthcare regulatory compliance and whistleblower firm. And I wanna say thanks to Dan, thanks to ala , and I'm happy to be here today.
Speaker 2:Great . Thanks guys. Um, so I think to get started, like I said, we're gonna be talking about marketing arrangements. Um, and I think it would be helpful if we could just define , um, the types of arrangements that we see and discuss the regulatory landscape impacting these arrangements. Um, I know in my practice, when we are brought in to provide fair market value and commercial reasonableness opinions , uh, we are primarily looking at a marketing arrangement between , um, a healthcare provider. And I , I think we'll get into a little bit more detail on the specific types of providers that are, are frequently involved in these arrangements , um, but arrangement between a healthcare provider and a third party marketing company. Um, so I was, I was gonna kick it over to you , uh, Danielle, and then Parker, to talk about , uh, the different types of arrangements that you see in this space and , um, the different regulatory and compliance issues that you are , um, considering and, and working with your clients when you're structuring these types of arrangements.
Speaker 3:Well, thanks, Dan. I mean , I think , uh, you know, we see a variety of , uh, third party marketing company or MSO type arrangements. Um, I think before we get into the different types, it's useful to start with discussing some of the, the regulations that we have to talk about , um, as that, you know, really sets up, you know, how we, how we view the arrangements and how we analyze them. You know, there's a myriad of regulations in the healthcare space , um, both federal and state. You know, there's a numerous fraud and abuse statutes, including the anti-Kickback statute, which has, you know, the federal statute, but also state counterparts. Uh, the Eliminating Kickbacks in Recovery Act, which is also known as cra , which , um, was passed in 2018 as part of the Support Act. And , uh, is a , a criminal statute that mirrors, for the most part the anti kickback statute with some notable differences. Uh, but you also have, you know, the civil monetary Penalties law , um, and then a variety of , um, fee splitting and other type of , um, corporate practice of medicine statutes , uh, on the state side. And then also the Stark Law. And all of these come into play when we think about the different type of marketing arrangements you can have. Um, and Parker, do you wanna add how , uh, to that as well?
Speaker 4:Well, I think that's a good summary, Danielle . Um, I think one important sort of theme that's important for everybody to, to wrap their head around is that, you know, marketing arrangements that are common sense, perfectly legal, perfectly acceptable , uh, in other industries can be problematic and even potentially criminal in the healthcare space. You know, in , in other industries, marketers can be incentivized with productivity bonuses, percentage based compensation arrangements, things like that. Um, and things like that can just be flatly illegal in the space because of the , the statutes and regulations you were just discussing, Danielle. And , um, it's why it's important to do a , you know, a meaningful compliance analysis when you're betting these relationships. So it , in addition to those statutes you just mentioned, one, I think interesting one we have here in Florida , uh, is the Florida Patient Brokering Act, which is the Florida corollary to the federal Anti-Kickback statute. But it's a bit exotic in that , um, it is a broader anti-kickback statute because it applies to all payers commercial insurance, exclusively cash pay arrangements. It is likewise a felony statute. It has real teeth. You know, a lot of people or businesses will show up from other states with business models and marketing arrangements that pass muster, you know, there somewhere else, Hey, we only build commercial insurance, or , Hey, we we're purely cash pay . We don't have a , an anti-kickback problem. But here you, you very well may , so you know, it , it's an unpleasant surprise for lots of people when they show up in Florida, but it's important for, for people to know. Um, and, and it may be just in addition to that, you know, some of the ones you mentioned, Daniels, the marketing entities themselves need to be , be aware of consumer protection statutes, such as the Telephone Consumer Protection Act, the TCPA, the antis solicitation statute for DM DME suppliers, things like that. You know , I think just the bottom line, there's a lot of potential landmines here with marketing arrangements and the need to vet them with knowledgeable healthcare counsel who are working in conjunction with good f and b firm. Like, like Dan's is really important.
Speaker 2:Yeah, I know. Um, you know, Danielle , you mentioned the , um, you know, within the, within the, the MSO space, you know , a lot of the , um, a lot of the arrangements that we see, depending on the, the state they may be located in , um, you know, physician practice management companies are providing , uh, a a wide range of, of administrative services to their , uh, their PCs. Um, and in certain states they, they may need to carve out those, those marketing related services and have those in a separate arrangement with a separate fee structure , um, in order to stay in compliance with those arrangements or with those regulations. Um, I wanted to ask you, you know, I mentioned that, you know, primarily what we see our third party , uh, marketing companies. Um, can you talk a little bit about the distinction there between, you know, a 10 99 contractor versus a W2 employee and, and what sorts of conversations you have there with your clients?
Speaker 3:Yeah, I mean , that's, I think one of the most common questions that I get, and I'm sure Parker does as well. Uh, you know, these marketing, you know, clients will come to us wanting to do this marketing arrangement. And the first, you know, discussion we have is whether they're gonna be employees or 10 99 contractors, you know, and there's a variety of proposals that come to us of groups , uh, wanting to do the marketing service or individuals. And , uh, we have a long discussion about that, you know, under the anti kickback statute, which is one of the ones that we really have to think about , uh, from a regulatory standpoint is , um, the exceptions or safe harbor saying kickback statute for the referrals that are going on in the marketing. 'cause it's been bit , you know, clearly decided that marketing services trigger analysis under the anti kickback statute for payment for referrals. And so the, where we really have to focus is , uh, there's a safe harbor for bonafide W2 employees , uh, that at least under the anti kit rec statutes allows for variable commission , uh, to be within the safe harbor. Uh , not so true in Ecra if we are talking about clinical labs or sober homes or other behavioral health centers. Um, but then, you know, not everyone wants , uh, to have employees or they wanna hire a group company, things of that nature for marketing. Uh , and then we have to have a discussion about 10 99 contractors. And under that analysis, we have to look at the personal service and management safe harbor under the Kickback statute, which has a variety of factors , um, in a , you know, a term of one year written agreement. But the two ones that are really notable when we're talking about marketing agreements is that the, that the fees have to be set in advance, be fair market value, and the overall arrangement has to be commercially reasonable and not violative of any other , um, law. And it's those discussions around the variable comp , um, you know, that makes it really interesting. Um, falling out of the safe harbor is not per se, illegal 'cause you still have the, in a kickback statute , um, knowing and intent , uh, part of the statute. Uh, so there's plus factors that can create issues. But, you know, the, the government has expressed concern for years about the lack of control, often over 10 99 contractors. So there , you know, those arrangements can be suspect, and you have to really talk to the clients about what type of marketing services they're gonna be doing, what actions they're going to be taking, and also about , uh, the compensation, whether you can have it as a flat fee or whether they're really looking to variable comp. And then you really have to look at , uh, the risk level and whether it makes more sense to be a bonified employee. Parker, you know, do you approach that or have other thoughts on that?
Speaker 4:No, I think that's a good summary, and I , I, I have commonly encountered clients or potential clients who come in excited about the, the news on the street. They heard that say, yeah , well, listen, I heard that , um, if I make my marketing people w twos instead of 10 90 nines, I have a lot more flexibility in how I can compensate them. Right. You know, and the answer to that for all the reasons you were just describing is potentially some more. But, you know, and as , as you pointed out, like a key thing there is slapping labels on people doesn't count if they're, if you're gonna call them a W2 employee, they better actually be a bonafide employee, meet the control test. Are you setting their schedule? Are you telling them what to do and when to do it? Um, because mislabeling mislabeling people can have a lot of potential compliance repercussions. So , um, that is an issue that, that pops up a lot. One thing I did wanna add about the , um, personal services management agreement, safe Harbor, there was a little bit of good news, and I think it was in 2022 when OIG relaxed one of those requirements when it used to be that the aggregate total comp to be paid had to be set in advance, and they switched that out for something arguably more lenient that just said, well, as long as the compensation methodology is set in advance, you know that that's good enough. So if you just, if you look at that in the vacuum , you think, oh, great, now I have a lot of flexibility, but there's a big, but there, the compensation still has to be FMB fair market value. It still has to be a commercially reasonable agreement, and it can't take into account in generational referrals or business covered by federal healthcare programs. So there's a little more perhaps wiggle room there, but I think it even underscores, if you're gonna try to, to fit within that concept, how much or how important and vital it is to get a good FMB commercial reasonableness opinion from someone like Dan Shop .
Speaker 3:That's a great point, Parker. I meant the, you know, we can opine on fair market value. Um, and that's where I, I look to Dan and, and you know, companies like him, you know, Dan's great to work with and, and can give that fair market value, which is equally important because you can have all the, the terms of the agreement, but if a client or anyone just picks a number out of the air and it's not fair market value, you know, it doesn't meet the safe harbor. And so you're back to kind of square one on the arrangement.
Speaker 4:Exactly.
Speaker 2:Yeah. And , and I think you're, you're both touching on one of the main issues that I'm sure we all run into with these types of arrangements is, you know, these are, these are marketing companies, these are salespeople, and they're used to being paid certainly in other industries , um, for, for performance, for, you know, whether it's a percent of revenue or some other volume-based metric. That's, that's typically how , um, how they're, how they're compensated and how they want to be compensated. And there's just a lot of , um, potential roadblocks or issues to navigate , um, when , uh, when you're trying to do that within the healthcare space. Um , I wanted to , uh, also talk about the types of services , um, specifically that are being provided within these arrangements. Um, I know when we're looking at these agreements , um, we're frequently seeing call center services , um, lead generation services , um, certainly some direct sales, whether it's, you know, to a patient or to a potential referral referral source. Um, we see some , uh, referral network services. Um, I wanted to ask you all what, what , uh, services you're commonly seeing in these arrangements, and if you wanted to kind of dig into to any of those specific services that I mentioned in any more detail.
Speaker 3:Yeah, and I think you, you described the ones that we all , that come across our desk. I meant , uh, with the rise of telehealth , um, you know, we're seeing more call centers , um, across the board, not just, you know , on DME. Uh, direct sales are always there. Uh, you know, and there's other considerations as to whether you can go direct to consumer , um, which is one flavor of direct sales, right? Uh, and there's been fraud alerts about health fairs and things of that nature that you also have to dive into , um, on the commercial reasonableness of , um, aspect of these arrangements. But you also have your typical direct sales to providers , um, and, you know, patients depending on, you know, what type of provider we're talking about. Uh, but you are seeing more referral networks and, you know, large MSO arrangements where they're also doing, you know, not only the administrative services, but the marketing services , um, you know, and then various lead generating services that are coupled with , um, call centers. And Parker, what about you? What are you seeing Most of,
Speaker 4:You know , I think that's a very good summary, Danielle. And one thing I think that is worth mentioning on the call center side and lead generation in general, is the distinction between qualified leads and unqualified leads, and the significant compliance gulf that exists between someone who wants to purchase unqualified leads that are also known as raw leads versus someone who's proposing to purchase qualified leads. Um, because the former can be perfectly acceptable and compliant, while the latter , uh, can actually be a criminal offense. And to give a little more granularity to that , uh, an unqualified lead is very basic data. Meaning, for example, someone's name, phone number, maybe an email address. Let's say, for example, a durable medical equipment, A DME company wanted to acquire some leads and approaches a marketing company. I was like, we, you know, we need some customers. And that marketing company designs a website, you know, nu you know, best diabetic testing supplies.com. Are you interested in learning more about diabetic testing supplies? Fill out this online form, put your name in, maybe your email address, perhaps your phone number. And let's say that website generates a thousand , uh, people, like a thousand people have come in there and put their basic information on . And at that point, those are just raw leads because you don't know if the information's actually true. You don't know, you know , if it's particularly valuable, these people may not have insurance. Um , it may be , you know, a bot was filling some of these out, but it's because of , because they're considered raw and unqualified at that point. The concept is, okay, you can bundle those up as a marketing company, take them to someone like a DME flyer and say, listen, I've got a thousand of these raw leads. You wanna buy them , you know, for X. And , um, typically that can be okay, and the devil's in the details, but let's just for , for purpose purposes of conceptualizing this, because there's raw , there's , um, risk on both sides. Maybe there's one good lead in there, maybe there's a thousand good leads, maybe there's zero. And so you , you don't really know what you're getting, and there's risk. On the other hand, sometimes a marketing company might take those unqualified leads and then work them up, call the patients themselves, confirm that they want the , the diabetic testing spies, let's get their Medicare number or confirm that, you know, confirm they're a beneficiary, get , get all their data points, let's talk to the doctor, let's get it ready to go. And then they approach the DE company with that and say , listen, I have got X number of can't miss ready to go , um, leads for you. These are qualified leads. Now you interested in buying them, but they're valuable. You don't have to do anything. It's, you know, all you have to do is fulfill, fulfill the order here. Well, that's purchasing qualified leads. And that is the same thing as purchasing referrals. And that can be a violation of the anti-kickback statute and , um, lead to serious compliance issues. So, you know, I can't tell you, I , I mean, I can, it has been a lot of times we have clients or potential clients come in and say, listen, I have got this can't miss business opportunity. It's fantastic. I'm, I'm gonna open up a DME company. I've already lined up this marketing company that's telling me they've got me, you know , ready to go, ready to fulfill orthotic supplies and d or diabetic testing supplies and, you know , c paps and all that kind of stuff. You can't do it. You know, it's like, eh , sorry, that's, that's gonna be a problem. And , uh, potentially a criminal one.
Speaker 2:Yeah, that's a great point, Parker. And it's certainly one of the, the steps that we take when we're working with these, with these companies is understanding , um, okay, so you're providing, you know, a lead generation service, you know, we need to kind of get into the details of specifically what, what you're doing and, and, and how you're managing that , um, to make sure that , uh, from a valuation standpoint, we're looking at it appropriately, but also from a compliance standpoint that there aren't going to be any issues there. Um, I wanted to switch gears a little bit and ask you where you're seeing the , uh, most enforcement actions , um, if there are any , uh, recent enforcement actions or OIG opinions that you think are particularly , uh, useful or important for, for people to be paying attention to at the moment?
Speaker 3:I mean, I think we're seeing just a ton of enforcement in the healthcare space across the board. Uh, you know, it's one of those top priorities for D-O-J-O-I-G , uh, and , you know, all the government entities , uh, given the money at stake. Uh, there was a big , um, take down earlier the summer in June , uh, that really focused on the, the criminal aspect , um, of, of these. And there's been also a lot of civil settlements that we've seen , um, announced, you know, all year , uh, really interestingly, and , you know , the, the criminal take down the, the fraud national take down , uh, this summer where there was 36 defendants, a bunch of states , um, two over 2 billion in, you know , uh, funds that the government's trying to recover. Um, and, you know, a lot of that was in the telehealth lab space and DME space, and it involved , uh, you know, these marketing companies that were doing full service type things, but the marketing companies were also , uh, getting the patients, connecting them with a telehealth doctor , uh, who may or may not really see the patient or may do a quick, you know, view, or at least this is how all the allegations go. Um, and, you know, write these scripts , uh, and then, you know, those scripts go to DME companies or laboratory services for, you know , more of the more expensive lab services, you know, the genetic testing. Um, and even this week , uh, there was an announcement , um, I think outta mis Michigan or one of the states near there , uh, called Happy Clickers. And it was the same thing that there were these marketing companies with telehealth , uh, connecting telehealth and labs and DME , um, and we're seeing a lot of enforcement in that area. Um, there was also a string of , uh, settlement agreements with pharmacies. Um, we're still seeing, you know, covid testing over the counter covid testing , um, announcements, you know, with marketing issues , uh, in there as well. And then I think the, the really notable one , um, on the civil side that we're seeing several settlements in , uh, was , uh, payment of variable comp to independent contractors. And, you know, there was, there was always an understanding about the risk of that under , um, they had a kickback session as we've talked about, but we didn't see a lot of cases for a number of years. Uh, and then , uh, with the Blue Wave case and HDL, you know, that we saw the plus factors there and the concerns around 10 99 , um, and various actions in the lab space , uh, where there was an enforcement against , um, you know, violations of the anti kickback statute with paying variable comp to 10 99 with all of the other , uh, you know, kickbacks and plus factors they were doing. Um, but that was up on appeal for a while and then got settled in , you know, a few years ago. And then in the last year or so, we've seen a number of settlements , uh, particularly in the lab space about payment of variable comp , uh, to sales and marketing staff. Uh, so it's just a different landscape now where, you know, maybe people were thinking there wasn't, you know, a lot of enforcement action and now, now the calculus is different.
Speaker 4:I , and I think that's an excellent point, and she's exactly right about that, Dan. And, you know, I thought , I thought one notable thing that I have seen recently was an OIG advisory opinion that actually approved , uh, of a per click fee marketing arrangement as opposed to a fixed fee marketing arrangement. You know, historically , uh, fixed fee marketing arrangements were much safer and a sort of say that gold standard of compliance, but in this particular case, the OIG took a look at this , um, proposal and said, okay, we can live with this. It , this had to do, it was, I believe, number 2304 , and it was an online directory. And basically it was a platform where healthcare providers, if you wanted to participate, you could advertise yourself on there and patients could even book an appointment with you directly and you paid per click , um, instead of sort of like a monthly subscription fee or something like that. And surprisingly, somewhat surprising, like you said, you know, based on all the facts and circumstances here, we think this is okay. But I , and I think there's some important , uh, points to OIGs analysis to keep in mind. One was that the, the provider of the platform was not themselves a healthcare provider. They were just an, you know , uh, online directory company and offering this platform. They also didn't steer patients to particular healthcare providers over other ones. And , um, perhaps most importantly, and and relevant to today's discussion, the request or the person who requested the advisory opinion was able to certify that the per click fees were fair market value and, and set in advance based on valuations done by an independent third party valuation firm. So , um, I thought that was notable for purposes of today's discussion. Um, but there are some important caveats, but again, circling back to the importance of the FMV analysis when evaluating marketing arrangements,
Speaker 3:I think that's a great part a point, Parker. And, you know, I think not only is it the, the fair market value opinion, that's really important , um, but we're also seeing a lot more focus in all of these enforcement actions on whether the arrangement itself is commercially reasonable. And I think that's, you know, a dual , um, input from, you know, regulatory healthcare council , but also , um, fair market value firms like Dan's, where they can also , um, help, you know, given their experience and what they're seeing in the marketplace about what's commercial reasonableness, because it's, you know, both a financial component but also an overall structure of what , what makes sense to go in the bucket. Um, and as we look at all the enforcement actions this year, I think there's been a lot more focus too on that, that area of whether it even makes sense, you know, setting aside the fee, does this arrangement make sense? What, what services they're doing? And it's really important to focus on both the fair market value but also the commercial reasonableness.
Speaker 4:And I , that's a very, very important point, and I couldn't agree with you more on that, you know, and to give some, I don't wanna say silly examples, but things I was run across, you know, I've had potential clients say, listen, I've got this FMV report that says I can pay my medical director, you know, 4,000 do $5,000 a month. Okay, great. Well that's, that's nice to have. And then they say, well, but you know, because there's such good referral sources, I'd like to have 15 medical directors, but hey, I'm only paying each of them $5,000 a month. That's not gonna be a problem, is it's like, it probably is gonna be a problem unless it's commercially reasonable and necessary for you to have 15 medical directors. That's just, you know, you're not, it doesn't pass muster. And , and similarly you see things like , um, people proposing to lease more space than they actually need because the owner of the building, well , lessor is a potential referral source. So, hey, you know, I'm gonna do you a favor by renting out more space than is commercially reasonable for me, but 'cause I know I'm gonna make it up on the, the backside with more referrals. So the commercial reasonableness component is crucial.
Speaker 2:Yeah, I think that's , um, that's a really good point. And , um, you know, I think the, kind of the , the last topic we wanted to, to go over is, is related. Um, so we've, we've already talked a lot about , uh, how to structure these arrangements. Um, and certainly from a compensation standpoint , uh, the gold standard or, or what we're, we're always hoping for , um, is, you know, a fixed fee determined in advance . Um, but obviously like we said, there's within this particular space, a lot of a , a lot of companies , um, would like to have some sort of varial variable component , um, because that's just kind of the nature of, of, of marketing and, and sales. Um, are there any other considerations , um, that you all or any other structures that you all like to consider when you're working with clients? Or are we really , um, pretty much always focused on the fixed fee?
Speaker 4:Well, from my perspective , um, you know, best practice is avoiding percentage based , you know, success fee , kind of compensation models, flat rate FMB is safe and you know, the safest place you can be. But of course, you know , um, for some of the reasons we talked about before, sometimes there's a little flexibility there. Uh , but I think that's, you know, that's, that's the safest place for people to be. And so in another place we run into that is, you know, in , for example, C states with a strong corporate practice of medicine, CP om prohibition , um, you're often having to set up an arrangement where you're using maybe a friendly physician management organization model. And, you know, oftentimes that management company wants to be doing all the, all the marketing as well. Um, but they also wanna be paid a percentage of the revenue, and that can be problematic. So a lot of times what we're gonna suggest is let's, you know, cut, carve the marketing out of this management services agreement, then let's do the f and b . Maybe you can get some percentage, but, you know, have the marketing set up to the side in a separate, a separate agreement that has a different compensation, sort of flat rate, fair market value compensation. It's just a lot safer. And we've run in , for Florida purposes of Florida, we actually had the Florida Board of Medicine weigh in on this a little bit. And in Florida, as in with a lot of states, there's a fee splitting prohibition, which, you know, for, to summarize is, you know, you can't pay, doctors can't pay , uh, money for referrals. But , um, the , uh, and so the Florida Board Board of Medicine has weighed in on this a few times looking at management arrangements and , um, and specifically where the management company want to be paid on a percentage basis. And the trend here is, look, if the management company is providing marketing, you're violating fee splitting. So you can't do it. Alternatively, if you're not gonna do the marketing, some sort of percentage base compensation is probably okay as long as it's fair market value.
Speaker 3:I think those are all great points, Parker, I mean, the one thing that I think you also have to be careful about it and you, you stressed it, but , um, is those fixed fees, they do truly have to be fair market value, right? Like trying to backend on , um, picking a number that otherwise would be variable comp or is just, you know, so high that it , um, covers the same grounds is not fair market value. And that's where, you know, it's not just safe to pick a number, right? It still has to be that fair market value. And that's where Dan , um, is really important. Uh, and, you know, there's a variety of structures we have to consider, you know, to achieve business goals of clients, but also think about those through, you know, the regulatory perspective. New York also is one of the CPOM states and has a strong fee splitting statute and profit sharing. Um, and so, you know, depending on the state you're in, you knows , uh, you know, with some of the C-P-O-M-M-S-O, you might be able to do different type of profit sharing that you may not be able to do in some states. Um, and so I think you, you see some cost plus , um, and some other variable variable types, but Dan, that's where I turn to you often , um, to really speak about and give your expertise on those type of approaches. That make sense. So what are you seeing?
Speaker 2:Um, yeah, so we'll, we'll typically consider , uh, two primary approaches to valuation with these arrangements. Um, those would be the cost approach and the market approach. Uh, and, and they can be pretty similar , um, in some respects, but under a cost approach , um, you know, we're gonna be working with the client to , uh, understand at a pretty detailed level the cost that they are incurring , uh, in order to provide these services. So we'll take a look at financial statements and any sort of projections , um, and then, you know, work to kind of classify those, those costs into , um, you know, vari various buckets and then apply different rates of return , uh, potentially different rates of return , uh, to each of those buckets to arrive at an overall , um, uh, conclusion of value where the client is able to earn both a return of cost and also a return on cost , um, so that they're being fairly compensated for the services they're providing. Um, and then in addition, we'll look at a market approach where, you know, once we understand the specific services that are being provided , uh, we do some market research and see, you know, what would , um, this, this, this healthcare provider or whoever, whoever, you know, the marketing company's client is going to be, you know, how much would they reasonably expect to pay if they were to go find , uh, one alternative or, or multiple alternatives to obtain, to obtaining the same level of service , uh, in the marketplace. Um, so we'll typically utilize to the best of our ability, both of those approaches , um, and then either, you know, rely on, on some combination of them , um, or, or if we feel that that one provides a better indication , uh, you know, we may, we may lean one way or the other. Um , yeah , sorry, go ahead.
Speaker 3:Just , uh, one other question for you, like, when you're going through these cost approach and , and market approach , um, do you run into any sort of issues or , uh, is there certain things that you, you really need , um, to be able to make that type of opinion?
Speaker 2:Yeah, I think , um, it, that's a good question. I think the , like I said, understanding the specific services that are being provided and understanding the costs or the resources that are being utilized in providing those services , um, is really important. And I think, you know, in terms of , um, the , the issues that we might run into with that , um, like we mentioned earlier, a lot of times we're dealing with clients that may not be exclusively focused on healthcare . They may not be familiar with , um, the regulatory aspects. They may not be familiar with the fair market value opinion process. Um, and so trying to , uh, help them understand , uh, why we're requesting the information and, and really what, what the end goal is, I think can be very important. Um, and you know, the other issue really is , uh, I know we, you know, we talked about the types of services that are frequently provided under these sorts of arrangements. Um, but at the end of the day, a lot of these arrangements are pretty unique. Um, and so, you know, there might not be , uh, a ton of direct competitors or, you know, comparable companies , uh, or services out there , um, to do , uh, as detailed of a market approach as you might like. Um, and so in some cases, we're having to kind of look at multiple competitors and, and , um, kind of stack different services , uh, to understand what the, you know, what, what is the, what would be the true cost of obtaining these services in the marketplace. Um, so those are probably some of the, the main issues that we run into. Um, I think that does it for today's conversation. Um, thank you Danielle and , and Parker for joining and, and thank you a HLA for, for hosting the podcast. Uh, hopefully everyone found the conversation interesting and, and useful. Um, and , uh, thanks again everybody.
Speaker 4:Thanks for having me.
Speaker 3:Yes, thank you. It's been a delight.
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