The Valuation Handbook: Valuation Techniques from Today's Top Practitioners

CHAPTER 16

The Valuation of Health Care Professional Practices

 

Robert James Cimasi

President, Health Capital Consultants

Todd A. Zigrang

Senior Vice President, Health Capital Consultants

 

 

The valuation of professional practices, such as medical practices, requires an understanding of the economic and market forces—that is, the reimbursement and regulatory environment in which the professional practice operates. Specifically, this chapter discusses the selection and application of the methodologies and approaches utilized in the valuation of professional practice enterprises.

The valuation of professional practices can be examined within the framework of the four pillars: regulation, reimbursement, competition, and technology. (See Exhibit 16.1.)

BASIC ECONOMIC VALUATION TENETS

Market perceptions of the value of an enterprise are based on investors’ knowledge of the historical and current status, but more important, the future trends of the industry and transactional/capital marketplace within which the subject professional practice operates. An understanding of the importance of future trends to the valuation process is illustrated by the following basic valuation tenets:

• All value is the expectation of future benefit; therefore, value is forward-looking.

• The best indicator of future performance is usually the performance of the immediate past.

EXHIBIT 16.1 The Four Pillars of Valuing Professional Practice Enterprises

• Historical accounting and other data are useful primarily ...