5 Fundamentals for a Physician Practice Valuation

Published by Becker’s Hospital Review

In order to coordinate care, many hospitals and health systems are acquiring physician practices. A key step in the process is the valuation of the practice. The valuation is a conclusion on how much a physician practice is worth. To determine the value, tangible and intangible components are considered. Tangible components are the hard assets of a practice such as working capital, furniture, fixtures and equipment. Examples of the intangible assets are a trained workforce, trademarks, medical records, trade name and contracts.

There are three accepted methodologies for valuing a physician practice: the income approach, the market approach and the cost approach. All three approaches look at the value of intangible and tangible assets. Yet, each approach is distinct and can result in different value conclusions.

“Although not all three approaches are typically utilized in the ultimate value determination of a physician practice, it is fundamentally sound for an appraiser to utilize all three methodologies in the process,” says Clinton Flume, manager at VMG Health. “An appraiser should be able to provide support for the selection and weighting of the methodologies employed.”

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