Chapter 30: Practice Value-Worth

The Science and Art of Medical Practice Valuation

[Fair Market Value Appraisal Considerations]

When one cannot appraise out of one’s own experience, the temptation to blunder is minimized, but even when one can, appraisal seems chiefly useful as appraisal of the appraiser – Marianne Moore  

By David Edward Marcinko 


The health care industry continues to undergo major systemic and political revisions in its form of health care delivery.  Market evolution has been described as revolutionary, fraught with continual organizational changes. Recent years have been marked by significant and increasing politically sensitive industry consolidations, although the frenzied rate of the previous merger and acquisitions activity last decade has abated.

Today, the major industry segments grabbing the headlines are physician-to-physician consolidations and retirement successions.  

The Urge to Merge

And so, why is there this urge to buy, sell or merge in the private clinical and micro-economic practice arena? Medical practice consolidation is being fueled by the uncertainty over healthcare reform measures and the continuing squeeze on the health care dollar, due to rising costs. Aging physicians are retiring, mid-life doctors are getting divorced, and newly minted physicians are desperately seeking to retain one last vestige of business autonomy.

The Market

The health care market is approximately 2.56 trillion dollars, with physician and clinical services accounting for 20.8% of total healthcare spending.  Direct spending on physicians has grown from $5.3 billion in 1960 to $527.6 billion in 2009, and is projected to exceed 800 billion dollars by 2018. The following chart illustrates this explosive growth trend in physician spending. 

Strong Impetus to Consolidate

The federal government is the largest single payer in the U.S., accounting for approximately one-half of all of health care expenditures.  With the aging population, legislative efforts to control health care spending can only escalate. Further accelerating the urge to merge, many insurers are increasingly basing provider payments on some level of Medicare reimbursement.  Medical practices are continually attempting to offset declining revenues by controlling costs and offering broader services.  With market forces squeezing the health care dollar, continual change and industry consolidation is eminent, and is the reason for many public and private political debates.

The Regulatory Climate

Federal and state fraud and abuse laws, self-referral laws, tax-exempt entities prohibitions on inurement and private benefit, and a host of other federal and state laws and regulations have significant impact on what medical practices can acquire and how those acquisitions are structured. 

The IRS and the Office of the Inspector General (“OIG”), Department of Health and Human Services are scrutinizing the formation of integrated delivery systems (“IDS”), with major focus on physician transactions.  The impact to the health care industry has been:

  • Increased scrutiny by regulators
  • Need for greater understanding of regulations and their impact on determining value
  • Need for greater documentation in rationale and support of underlying value conclusions. 

Current health care policy issues are likely to address four broad areas: Medicare, Medicaid, access to care, and public or managed care.  With Medicare and Medicaid taking up significant portions of the federal budget, efforts to bring revenues in line with spending will require painful reductions of provider payments.  Under previously enacted Medicare reform legislation, provider-sponsored organizations (“PSOs”), that are groups of hospitals, physicians, and other providers, are allowed to contract directly for Medicare capitation.  This legislation also has significant negative impact to physician payments, and in particular specialty practices.  Medicare, Medicaid, access to care, and anti-managed-care legislation will continue to be hotly debated topics.

The Economic Climate

Other legislative risks negatively impacting traditional physician economics and independence include: 

  • Health Insurance Portability and Accountability (HIPAA), risks
  • Balanced Budget Amendment, risks
  • Deficit Reduction Act, risks
  • Anti-Trust, risks
  • Federal False Claims Act, risks
  • Civil Asset Forfeiture, risks
  • OSHA and CLIA, risks
  • Drug Enforcement Agency, risks
  • Environmental Protection Agency, risks
  • Managed Care Contractual risks
  • ERISA, risks
  • Business and employee, risks
  • Systemic economic, risks
  • Workplace Violence and Terrorism, risks
  • Political reform, risks.

More here: ORDER:

Plastic Surgeons:

Dictionary of Health Economics and Finance:


6 thoughts on “Chapter 30: Practice Value-Worth

  1. Medical Practice Valuation

    There are many reasons for a medical practice valuation, or businss appraisal determination; for example:

    * Purchase or sale of closely held business or business interests
    * Management buyouts
    * Leveraged buyout transactions
    * Bank financing
    * Financial restructuring and recapitalization
    * Employee stock ownership plans (ESOP’s)
    * Analysis and advice concerning pending offers to purchase
    * Valuation of subsidiaries, divisions and joint ventures for spin-off to shareholders and/or sale
    * Physician buy-in to medical practices
    * Court appointed valuations in disputes
    * Minority shareholder disputes and litigation
    * Divorce (equitable distribution)
    * Business damage assessment and determination
    * Bankruptcy
    * Solvency analysis and fraudulent conveyance
    * Reasonable officer compensation determination in disputes with the IRS
    * Mediation and Binding arbitration
    * Litigation consulting services provided to trial counsel in preparing to depose and cross-examine valuation experts

    Now, what did I miss?

    If you’d like to know how much your medical practice is really worth, study this chapter carefully.

    Dr. Gary L. Bode; CPA, MSA, CMP™

  2. Do Not Overpay for Physician Compensation

    Recent industry surveys have reported that more than 75% of acquired medical practices fall short of projected productivity used in the financial valuation.

    This fact, coupled with exposure to IRS audit and intermediate sanctions, has increased the need to value practices based on reasonable appropriate projections of practice collections and market rates for physician compensation.

    So, beware and do not overypay!

    Dr. David E. Marcinko MBA, CMP™

  3. Comparable Healthcare Valuation Transactions Data Sources

    a. “Bizcomps.” (annual) Jack R. Sanders. Asset Business Appraisal. P.O. Box 711777, San Diego, CA, 92171.
    b. Cleverly, William O., PhD, CPA, et al. “Physician Acquisition Resource Book.” (annual) The Center for Health Care Industry Performance Studies and Findley, Davies and Company. 1550 Old Henderson Road, Suite S277, Columbus, OH 43220-3626; (800) 859-2447.
    c. DIALOG OneSearch “Mergers & Acquisitions.” (This searches all mergers and acquisitions databases available through DIALOG). The Dialog Corporation, A Thomson Company, 11000 Regency Parkway, Suite 10, Cary, NC 27511; (800) 334-2564;
    d. “Done Deals Data.” (Database with quarterly updates) NVST. 14450 NE 29th Place, Suite 108, Bellevue, WA 98007; (800) 809-0666.
    e. EDGAR. Securities and Exchange Commission Filings Online. ( 8K Reports may contain transactions data for specific companies.
    f. “The Goodwill Registry.” (annual) The Health Care Group, Inc. Meetinghouse Business Center, 140 West Germantown Pike, Suite 200, Plymouth Meeting, PA, 19462; (610) 828-3888.
    g. “The Health Care M&A Report.” (quarterly) Irving Levin Associates, Inc. 237 Elm Street 2nd Floor, New Canaan, CT, 06840. (203) 966-4343.
    h. “Health Services Mercury.” (monthly) The Sherlock Company. P.O. Box 413, Gwynedd, PA 19436 (215) 628-2289.
    i. “The Institute of Business Appraisers — Market Data Resources Database.” (Search results available to members). The Institute of Business Appraisers. P.O. Box 1447, Boynton Beach, FL, 33425. (407) 732-3202.
    j. “Jenks Healthcare Business Report.” (semi-monthly) Irving Levin Associates, Inc. 237 Elm Street 2nd Floor, New Canaan, CT, 06840. (203) 966-4343.
    k. “The M&A Source.” International Business Brokers Association. Box 704, Concord, MA, 01742. (508) 369-2490.
    l. “Mergers & Acquisitions: The Deal-maker’s Journal.” (bimonthly) Investment Dealers Digest. 2 World Trade Center, 18th Floor, New York, NY, 10048; (212) 227-1200.
    m. “Mergers & Acquisitions Report.” (weekly) Investment Dealers’ Digest. 2 World Trade Center, 18th Floor, New York, NY, 10048; (212) 432-0045.
    n. “Mergerstat Healthcare Review.” (quarterly) Houlihan Lokey Howard & Zukin. 1933 Century Park West, Los Angeles, CA, 90067-6802; (800) 455-8871. [discontinued].
    o. “Mergerstat Review.” (annual with quarterly updates) Applied Financial Information L.P. 1933 Pontius Avenue, Los Angeles, CA, 90025; (800) 455-8871.
    p. “Mergerstat Transactions Roster.” (annual) Applied Financial Information L.P. 1933 Pontius Avenue, Los Angeles, CA, 90025; (800) 455-8871.
    q. “Pratt’s Stats.” Business Valuation Resources. 7412 SW Beaverton-Hillsdale Hwy., Suite 106, Portland, OR 97225; (888) BUS-VALU.
    r. “Worldwide Merger & Acquisitions” database (SDC Platinum). Thomson Financial Securities Data. 40 West 57th Street, Suite 1000, New York, NY 10019; (888) 989-8373.

    The glossary of business valuation terminology developed by the following organizations is available at:

    American Institute of Certified Public Accountants
    American Society of Appraisers
    Canadian Institute of Chartered Business Valuators
    National Association of Certified Valuation Analysts
    The Institute of Business Appraisers
    iMBA, Inc

    The End

  4. While you may buy and sell anything to anyone at any time in America, the IRS may re-structure the sale if the price isn’t derived using the DCF method. This could mean additional tax consequences.

    Gary Bode CPA

  5. On Medical Practice Brokers

    It may be helpful to use a medical business broker to find your dream practice but it’s important to remember that unless you’ve hired the broker, s/he represents the seller of the practice. So, as the potential practice owner, you too require a financial or management consultant to represent your own interests. Of course, brokers are also a great source of information on current market conditions, issues related to pricing and financing, and many other facets of the practice buying process.

    So, if you’re selling a practice, a broker may bring more prospects to your practice than you might on your own. They’ll also separate the buyers from the lookers, and usually get you a better price justifying their commission fee. Brokers who work with appraisers can help you price your business properly [beware of self-dealings], tell you how you can make it more saleable, and serve as a resource throughout the sale [Michael Cargile MD, personal communication].

    Dr. David Edward Marcinko MBA

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