Determine your practice's value before merging or selling

The rapid pace of physician practice acquisition is showing no signs of slowing down, but that doesn't mean that partnerships are always beneficial to hospitals or physicians.

In particular, physicians are commonly disappointed to learn how much their practices are worth when selling their practices to a hospital or health system, said Jason Ruchaber, partner in the Colorado office of HealthCare Appraisers, Inc., during a webcast sponsored by research and publishing firm Irving Levin Associates, PhysBizTech reported.

"It's hard to convince them that as a two- or three-physician practice in rural Iowa they may not command the same price as a 200-physician-plus group with a national presence," he commented. "It's just not the same metric."

A recent article published in Medical Economics advised on how practices can determine their value. "The combination of art and science in preparing a business valuation for a medical practice is understanding the relative risks which go into the capitalization rate to be used in the economic environment that allows for the determination of the likely cash flow stream," said David H. Glusman, CPA, CFS, partner-in-charge, Philadelphia region for the accounting and consulting firm Marcum LLP. "The seller is looking for the sale price to reflect the past efforts to build the practice, its reputation, and the revenue it will continue to provide to the new owner," he added.

To that end, physicians do bring a lot of value to an organization, and that asset should be factored into a practice's sale price, Ruchaber noted during his presentation.

The significance of goodwill value, however, continues to diminish in the era of accountable care, Medical Economics noted. "While there are numerous factors which could affect it, the value of goodwill is generally dependent upon the ability of the purchaser to be able to earn a superior return from the practice compared with what could normally be expected to be earned by physicians in the specialties represented in the practice," said Donald L. DeMuth of Professional Management Consultants in Pennsylvania.

Finally, physicians should be sure that conversations with hospitals or health systems don't focus on dollars alone, PhysBizTech advised. "I have seen far too many deals that were sloppy not on the pricing side but on the strategic dialogue side because it's a difficult conversation," said Bill Gil, vice president and CEO of Providence Southern California Medical Foundations.

To learn more:
- read the article from PhysBizTech
- see the article from Medical Economics