Practice Appraisal

March 1, 2005

Our senior physician is retiring from our OB/GYN practice and the rest of us want to buy out his share of the practice. No one here wants to do a formal practice appraisal, but would simply be happy with a number we could all agree was reasonably fair. Where do we start?

Question: Our senior physician is retiring from our OB/GYN practice and the rest of us want to buy out his share of the practice. No one here wants to do a formal practice appraisal, but would simply be happy with a number we could all agree was reasonably fair. Where do we start?

Answer: According to valuation expert Keith Borglum with Santa Rosa, Calif.-based Professional Management & Marketing:

"The historic median market value of OB/GYN practices is approximately 28 percent of the previous year's collections for goodwill and intangibles, plus tangible assets (furnishings, equipment, instruments, and supplies); plus accounts receivable discounted to current value (and perhaps adjusted for OB prenatals and deliveries booked but not collected, depending on your global-fee accounting methods).

"This historic figure is usually adjusted for variables of income above/below norm, location, and your state's current malpractice-premium environment for OB/GYN. Appraisers usually look at value using at least three methods, then weigh the results for a final opinion.

"Keep in mind the possible need to recruit a new substitute OB to replace the exiting one. It is currently very hard to recruit OBs, especially in some regions, so goodwill value may be depressed, especially if income is not above what the market compensation is for employed OBs. This needs to be considered if you plan to recover the purchase costs from the recruit's buy-in."

Here are some additional articles on this topic, including some methods: www.medicalpracticeappraisal.com/articles.html.