We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Involved in Medical Practice Valuation?

By Toni Henthorn
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Medical practice valuation is the determination of the market value of a medical practice by a variety of methods. Valuations may be conducted for a variety of reasons, including mergers, partnership buy-ins and buy-outs, litigation, divorce, and death of the owner. Medical practice valuation is an imprecise endeavor, and appraisers use several methods to arrive at a reasonable estimate of an ongoing practice’s worth. The most common techniques by which medical appraisers value a practice are the income approach, the market approach, and the asset approach. Additionally, appraisers offer three levels of scrutiny and analysis from which a value may be derived, with each successive level of detailed examination demanding a higher fee.

The most common method of medical practice valuation is the income method, in which projected future cash flows of a practice are converted to a current value. In the asset approach, appraisers adjust the book value of the business assets minus its liabilities to a fair market value. This method works best for practices with a lot of tangible assets, such as expensive imaging equipment. The market approach uses benchmarking to compare the company to other practices that have been sold.

Determination of the value of the intangible assets constitutes the most difficult and controversial area of the medical practice valuation. The intangible value, or goodwill, may include an agreement not to compete, patient lists and referral patterns, health care contracts, a favorable location, and use of the seller’s name. Since the income method incorporates income that results from both the intangibles and the tangible assets, goodwill is not valued separately. The other two methods do break the assets into tangibles and intangibles, but there is no consensus for valuation of goodwill.

In addition to cash flows and assets, other factors that primarily influence the medical practice valuation include the local competition, real estate, and the presence of partners and key employees. Other considerations include the age and usability of the medical equipment and any anticipated purchases of new equipment, furniture, software, or fixtures. Payer mix can be a significant factor, since a high degree of dependence on one or more third-party contracts, such as Medicare, Medicaid, or a single private insurance, may disrupt the income of the practice if arbitrary insurance company decisions or government regulations reduce reimbursement rates or change provider arrangements. For example, if 75 percent of the practice’s patients are covered with Medicare, then a 10-percent cut in Medicare reimbursements will reduce the overall practice revenue by 7.5 percent.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.