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JOURNAL OF INTERDISCIPLINARY RESEARCH

DETERMINING THE MARKET RENT OF A MEDICAL FACILITY ON A SPECIFIC EXAMPLE

JAROMÍR VRBKA,

VERONIKA MACHOVÁ,

JAN

MAREČEK,

JAKUB HORÁK

Institute of Technology and Business in České Budějovice,
School of Expertness and Valuation, Okružní 517/10, 37001

České Budějovice, Czech Republic
email:

vrbka@mail.vstecb.cz,

machova@mail.vstecb.cz,

marecek@mail.vstecb.cz,

horak@mail.vstecb.cz

Abstract: The aim of this paper is to determine the value of market rent and to assess
the differences in valuation of the healthcare business just mentioned. For the purposes
of this paper, a gynecological clinic is used as a medical facility, using the complete
documentation of the facility. The property method is used for valuation purposes.
However, given that the method chosen does not take sufficient account of the benefits
of the reputatation of the gynecological clinic, goodwill, the intangible asset
component, is valued at the interest rate level of the average profit corrected for past
periods. Corrected earnings are expressed for all available periods. Thus, the monthly
rent is fixed, the value of the goodwill is determined separately. A generally applicable
methodology for the valuation of intangible assets for any medical facility is
presented.

Keywords: company valuation, goodwill, market rent, medical facility

1 Introduction

Healthcare facilities can be considered a so-called specific
economy. It is an enterprise that differs, for example, from an
industrial, construction or transport enterprise. In addition to the
legal form of a trading company, it can also be operated by a
natural person doing business on a non-trade license basis.
Medicine is often not regarded as a profession but rather as a
mission. This is logically related to the specific behavior of the
healthcare provider and the customers, patients. Equally specific
is the determination of the value of such an enterprise. Its
tangible assets are not large (Shalowitz, 2017). However, the
business is built on patient confidence. The key asset will be
intangible assets in the form of goodwill, medical facilities,
physicians (Hourd and Williams, 2008).

A general prerequisite for determining the value of an evaluated
ambulance is the assessment of the assumption of continued
continuity of practice.

Krejčíř and Bradáč (2004) states that it is

in essence that, in the current setting of the business model, the
practice is in the long term able to meet its obligations. In the
long run, the practice must be able not only to maintain solvency
but also to cover its opportunity costs for its operator, which is
the cost of missed opportunities that the operator sacrifices by
undertaking ambulance operations instead of other actions.

If the asset is actively and regularly traded, there are no more
serious problems determining its value. Current transactions
provide a clear indication of its value (Machová and Rowland,
2018). However, if there is no stabilized market where the asset
is traded on a regular basis, the following methodological
procedures or a combination thereof are used to determine the
value estimate (Machová and Vrbka, 2018). It is always
necessary to assess the applicability of the relevant method
depending on the purpose of the valuation and the nature of the
subject being assessed (Vochozka et al., 2016).

Due to the underdeveloped market in leases of medical facilities
with a similar property structure, it is not possible to use the
market comparison method.

In order to assess the amount of rent for the gynecological clinic
and its equipment it is possible to use essentially two basic
methods: economic rent based on yield methods and economic
rent on the basis of an estimate of the value of individual
property components of the subject of the lease relationship.

1.1 Economic rent based on revenue methods

Using this method, future cash flows from the operation of a
gynecological clinic are estimated. Subsequently, these cash
flows are translated to their present value and the reasonable

rates of earnings of the lessor are set in the form of interest rates.
The rate is derived using the Capital Asset Pricing Model
(CAPM), i.e. the risk free value (i.e. interest on 10-year
government bonds) and the proportional rate of systematic risk
and risk premium (Krulický and Horák, 2019). Alternatively, an
analogy method can be used in the knowledge of a similar
situation. This method estimates the potential of the whole
subject of the lease relationship (Klieštik et al., 2014).

The value of the gynecological clinic does not depend on the
number of cards in the card index but on the so-called free cash
flow that results from the activity of the ambulance to its owner
or operator. This variable has to be calculated on the basis of a
professional financial plan, its volatility, riskiness and, last but
not least, the timewill of goodwill (Rowland and Vrbka, 2016)
must be analysed.

1.2 Economic rent on the basis of an estimate of the value of
the individual property components of the subject of the
rental relationship

This method estimates the approximate value of individual asset
components of the leased property, its useful life and its ability
to perform its function in the future (Kislingerová, 1999). Even
when applying this property method, it is necessary to set a
reasonable rate of earnings of the lessor in the form of an interest
rate. The rate is derived using the Capital Asset Pricing Model
(CAPM), i.e. the risk free value (i.e. interest on 10-year
government bonds) and the proportional rate of systematic risk
and risk premium. Alternatively, an analogy method can be used
in the knowledge of a similar situation

(Mařík, 2011).

The aim of this paper is to determine the value of market rent
and to assess the differences in the valuation of a healthcare
company.

2 Data and methods

2.1 Data

Within this paper a health facility will be evaluated, specifically
a gynecological clinic. It is an enterprise of a natural person
doing business on a non-business license in Sokolov in the
Czech Republic. The decisive date for the award is December
31, 2015.

The gynecological clinic equipment will be evaluated according
to Table 1.

Tab. 1. Gymnastic outpatient equipment

Ultrasound Philips HD7 L CORE, VASCULAR SW
APPLICATOIN, GENERAL IMAGING
APPLICATION, OB/GYN APPLICATION, C5-2
TRANSDUCER, L12-3 TRANSDUCER, C8-4V
TRANSDUCER, CARTRIDGE CONNECTOR,
BLANKING PANEL, CZECH MANUAL, B/W
PRINTER

Colposcope BTL-KAPS model KP 3000

Adjustable examination bed BTL incl. accessories

Examination gynecological chair GRACIE + tool table

PC setup + printer

Furniture in the surgery

Source: Authors.

The vehicle fleet will also be listed in Table 2.

Tab. 2. Vehicle fleet

Car

Subaru LEGACY

OUTBACK 2.5 I

Subaru

OUTBACK 3.6

Registration
number

XXXX

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