Developing a Service Agreement to Meet Fair Market Value Requirements
Client/Profile
Community hospital and joint-ventured limited liability corporation
Challenge/Situation
To provide a fair market value opinion on the terms in a draft management agreement, equipment lease and facility lease to an ambulatory surgery center (ASC) by a limited liability corporation (LLC) comprised of representatives from the hospital and its physicians.
The proposed terms were continually being altered by the LLC and/or the hospital because the draft agreements did not address the needs and cash flow requirements of either party. Magnifying the challenge were the expectations of the physician investors, who had initiated the project as a freestanding ASC only to run afoul of the state’s certificate- of-need requirements. They then pursued the contractual joint venture path despite the lack of adequate planning and structuring of the related agreements.
Process
Veralon analyzed the agreements and proposed a contractual joint venture structure that more fairly addressed the needs and requirements of both the hospital and physician investors. We conducted a fair market value analysis on these revised documents and determined that this structure was supportable on a fair market value basis. In the course of the restructuring effort, Veralon identified significant elements of service provided by the LLC that were not addressed in the prior structure.
Results
The agreements were altered to incorporate Veralon’s suggestions and were signed by all parties.