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Medical Practice Sales, Appraisal and Financing

Medical Practice Sales, Appraisal and Financing

Geographic location is an important consideration in the assessed value of a medical practice.  This is often under-estimated by medical practice appraisers as a relevant practice specific risk factor.  Practice brokers often commit similar errors when developing a selling approach for a medical or optometry practice. Attracting and retaining medical providers and extenders, especially subspecialists in high

demand, is more difficult in certain regions.  While this is often thought to be a solely rural phenomenon there are a number of urban and suburban regions which are subject to similar dynamics.  These affects are only magnified in less populated areas, which are typically smaller and more under-staffed than their urban counterparts.  The ability for healthcare organizations to attract and keep physicians can have an effect on the capacity to deliver care and generate revenue. 

 

Many areas have been traditionally under-served for a variety of reasons.  This may attributable to aspects including lifestyle concerns, medical practice environment, and competition.  A study by Rosenblatt in 2006 indicated that 20% of the US population lives in rural areas but only 9% of physicians practice there.  These types of under-served conditions are also seen urban and suburban areas experiencing shifts in patient demographics, payor reimbursement, and physician supply.  Under-estimation of these types of elements is common in urban and suburban areas, where brokers and appraisers assume that similar locations have largely uniform attributes.  Serious mistakes can be made without considering the related factors which make these markets unique.  These are critical characteristics which can also add to the difficulty in attracting and secure willing buyers as may be anticipated the fair market value standard. 

Keeping up to date on actual provider trends is crucial to practice valuation.  Multiple surveys have documented a lean supply of needed healthcare services in the United States.  Factors contributing to this gap include changes in the physician workforce demographic, increased demand for services, and limited training positions.  Unmet demand for services has brought a substantial influx of physician extenders and other clinicians into different healthcare fields.  These factors must be considered in light of valuing a practice and ultimately bringing it to market.  There are numerous potential effects on future cashflow, production and collections consistency, and the ability to attract willing buyers for a practice.  Not considering these in an appraisal can lead to errors in assessing value and delay the timeliness of a successful practice sale.

Written by Transition Consultants

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