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potential value to a hospital purchaser, and, in fact, Hahn has
written extensively about the value of this cost-shifting
attribute. We feel, however, that Wilhoite has included too many
imponderables in his calculation. For example, we do not believe
that the entire value of the Sta-Home tax-exempt entities is
appropriately bound up in the marketability of a single
intangible asset–-the cost gap. Nor do we believe that it is
justified to conclude that the cost gap would produce economic
benefits indefinitely, especially in view of the official
scrutiny it had received before, and during, 1995. Finally, we
observe that Wilhoite has assumed that the cost gap would equal
95 percent of the allowable cost ceiling (i.e., be 5 percent less
than the ceiling). This percentage appears to have been accurate
for earlier years, but the most recent cost gap was only 2.86
percent below the cost ceiling. The way for a potential buyer to
increase the cost-gap percentage would be to reduce costs
further. We do not think, however, that a buyer of the Sta-Home
tax-exempt entities would necessarily decrease expenses to move
the cost gap asset from its most recent 2.86-percent level back
to historic 5-percent level and then continue this cost gap
indefinitely. On balance, we believe that the most weight is
properly given to Wilhoite’s estimate of the MVIC for the Sta-
Home tax-exempt entities, using a price-to-revenue multiple of
.25. This results in an MVIC of $11.3 million.
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