How Much Is Your Practice Worth?

Neil Chesanow

Disclosures

October 17, 2017

In This Article

Why Get a Practice Valuation?

What is your practice worth? Many physician-owners, partners, and associates who have a financial stake in the practice have no idea, because the practice has never been professionally appraised.

If this sounds like you, it may be time to find out. Certified valuation analysts, who are expert at determining practice value, maintain that there are good reasons for understanding why a practice is worth as much—or as little—as it is.

Say you decide to take on a doctor as an associate. What is a fair buy-in price?

Or a partner feels that she isn't being paid enough. How do you respond—if you don't have the data to prove it—that this doctor's compensation is indeed fair?

Or a partner decides to leave the practice. What should the buy-out price be?

Or you want to sell the practice to a hospital, private equity firm, or another doctor. What is a fair asking price, which may be different in each case?

Says Alex Nechay, CVA, a healthcare business analyst at Transition Consultants, a medical brokerage firm in Los Angeles, California, a practice valuation can serve a variety of purposes. These include the merger, acquisition, or divestiture of an ownership interest; buying or selling the practice; planning or reporting for estate and gift taxes; financial planning; creating or revising a buy/sell agreement; settling a dissolution of marriage; settling partnership disputes; determining the value of a loan; and evaluating practice performance.

The value of a practice isn't a fixed dollar amount. It may vary, "depending on who wants to know what it is and why," says Reed Tinsely, CPA, CVA, who heads his own healthcare consulting firm in Houston, Texas. "Valuation professionals follow different methodologies, depending on whether a practice will be sold to another physician or valued for a divorce proceeding, or if the practice partners just want to go their separate ways."

Consider divorce. "Certain states have laws that say that in a marital estate, personal goodwill is not included as an asset," Tinsley says, "so you would have to back that out of your appraisal number."

A practice valuation can be a boon when negotiating with another doctor, a hospital, or a private equity firm. Hospitals are still buying physician practices, including primary care practices, to shore up their catchment areas, although not as aggressively as in years past, says Mark E. Kropiewnicki, JD, LLM, a principal attorney with and president of Health Care Law Associates, and a principal consultant with and president/treasurer of The Health Care Group in Plymouth Meeting, Pennsylvania. "But large private equity firms are now buying up physician practices. We're seeing quite a bit of that lately."

"Often, when I am retained to appraise a practice, the seller is comparing offers from a hospital and a conventional buyer," Nechay says. "Owing to regulation or aversion, many hospitals simply do not pay for goodwill or other intangibles.

"However, although a hospital may be constrained in this manner, an appraisal showing the fair market value of the practice, including such intangibles as goodwill, can be compelling," Nechay says. "Realizing what another hypothetical buyer may be willing to pay for the practice can be a convincing argument to sweeten the deal."

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