Placing a Value on Your Medical Practice

Placing a value on your medical practice

Physicians often think about selling their practices. Perhaps a local hospital wants to draw some doctors into an ACO. Or the doctor is weary of day-to-day business chores and wants to sell out to another group of physicians. A likely question might be: What my practice worth?

4 Factors

Generally, four factors will be used to estimate the value of a medical practice:

1. Tangible personal property. For most practices, the value of the furniture, equipment and other assets ” minus the amount owed for loans and payroll taxes ”is small and may amount to less than $25,000 per doctor. Supplies inventory may have significant value, and should be valued at the historic cost of each item. Prepaid expenses and security deposits are considered assets, and prepaid malpractice insurance also may be significant.

2. Patient A/R. This is one of the largest assets of a practice, but it often not fully collectible from either insurers or patients. To determine A/R collectible from insurers, multiply the number of services that haven't been paid for patients covered by an insurance plan by the amount to be reimbursed (not necessarily the amount charged).

3. Office building. If the doctors own their office building, it was likely appraised at the time of acquisition. If the appraisal is more than two years old, get a new one, as the value may have changed. Any mortgage balance should be subtracted from the building fair market value to arrive at the physician equity interest.

4. Intangible assets. Practices have many intangible assets, including patient medical records, an established workforce and commercial potential. They're usually referred to as goodwill which is the most subjective element of a valuation. Some factors that influence goodwill include the level of competition, patient types, third-party payer mix and fee schedules, and practice location. Goodwill may be zero or have very little value depending on whom it being sold to.

The purchase or sale of a practice will be one of the largest and most complex transactions a doctor will ever undertake. Understanding the factors that go into pricing a practice can help ease the process, and ensure that both buyers and sellers feel they got a fair deal.

Appraisal and assistance
Valuing a medical practice should be conducted only by a qualified expert. A sale to a hospital will be subject to laws such as Stark, whereas a sale to another physician group may not be subject to the same laws. Engage a professional that has dealt with both types of sales to guide you through the maze of rules and laws.

A true valuation analyst knows that the value of your business goes beyond the financial statements. With professionals certified/accredited in the field of business valuation, hundreds of valuations performed and over 135 years of combined experience, we are able to go beyond the numbers and find out what makes your company tick. Meet our business valuation team.