Calculating Buy-In

February 1, 2008

We are gathering financial data for our accountant so that he can determine the buy-in for an associate on a partnership track. He’s asking for an aged report for January 2007 through October 2007. We still have A/R from 2006 that we’re working on - some of it, of course, will be uncollectible, but the rest might be, even if at a lower rate than normal. Shouldn’t that be considered into the value as well? Is there a “formula” to take older A/R into consideration?

Question: We are gathering financial data for our accountant so that he can determine the buy-in for an associate on a partnership track. He’s asking for an aged report for January 2007 through October 2007. We still have A/R from 2006 that we’re working on - some of it, of course, will be uncollectible, but the rest might be, even if at a lower rate than normal. Shouldn’t that be considered into the value as well? Is there a “formula” to take older A/R into consideration?

Answer: Well, if I were the physician about to buy in, I’d sure balk at having A/R that old pulled into the equation at full value.

That said, I have seen practices count it at a reduced percentage. For example, say there is $10,000 outstanding. Only 5 percent of anything older than 120 days would be counted. This might be a good opportunity to clean up that backlog. Anything older than 14 months and owned by a payer should really be written off. Go ahead and tackle some of the more recent and bigger patient accounts and see what happens. That'll give you a sense of how realistic it is to include this as A/R.

You also might consider setting a policy for how long accounts stay on the books.