Medical Practice Appraisal for Buy-in

Medical Practice Appraisal for Buy-in

A viable transition option for a doctor approaching retirement is a buy-in/buy-out arrangement with an associate.

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This can be an excellent way to materialize practice value in conjunction with a phased exit strategy. This arrangement can be equally viable for an associate doctor seeking a path to practice ownership. For many up and coming physicians it marks the next step in career advancement and an opportunity for financial gains beyond what can be attained in an employed position. The staged buy-in approach can be ideal for achieving the objectives of buyer and seller alike. However, these arrangements are hardly perfect and can be hampered by uncertainty about the exact mechanics involved in structuring a practical, harmonious transaction.

Questions about practice value

A number of questions may preoccupy a buyer: How is practice value determined? Will I get a fair deal? How do I negotiate with a practice seller who is currently my employer? Likewise, a seller may have similar internal debate about practice value and how to approach potentially thorny negotiations.

Going into the process, buyer and seller may have completely different concepts of practice value and little anticipation of the steps required to accomplish a deal. Action can be taken to reduce uncertainty for both parties and make progress on key points. One such step is obtaining a medical practice appraisal.

A practice valuation can clarify the realities of the market and recalibrate expectations. A good appraisal can be used to build a foundation for the deal and set the stage in a phased transaction. Structuring a purchase formula based on the valuation may also aide in consensus-building on other topics. A clear understanding of the economic impact of a practice sale helps to build confidence and improves the chance of reaching a successful outcome in a timely manner. Long and drawn-out negotiations with an associate can contribute to discord in the medical practice.

Selecting a medical practice appraiser

The process of selecting an appraiser can get complicated. Both parties may select their own appraisers, a single appraiser, or a panel of experts. Regardless of the selection it is important to get a handle on value from a source of qualified analysis and judgment. When it comes to valuation metrics, a specialized medical appraiser should use approaches and methods appropriate for healthcare practices. Do not hesitate to ask about specific methods used. Your appraiser should be able to translate the technical jargon into plain English. Also establish whether one or more valuations will be made at different phases in the deal and whether the same appraiser will be use throughout.

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Harmony in the practice sale

Passing the torch of practice ownership can be personally rewarding and financially viable for all parties, but the process involved in reaching that point may be challenging. Determine whether the use of a medical practice appraisal in the purchase process is appropriate and suited to your needs. Taking steps to enhance the likelihood of reaching agreement in a timely manner can ensure that a practice transition will be executed in a smooth, streamlined fashion. Also recognize that an appraisal is only as good as its content and application. Know what you’re obtaining and how to use it.

About the Author

Christopher Majdi, MSCHA, CHBC provides transaction advisory and healthcare business appraisal services to physicians, medical groups, hospitals, and equity groups nationwide. He is the lead appraiser at Medical Practice Appraisers, a division of medical practice merger and acquisition firm Transition Consultants.  Mr. Majdi is a Certified Healthcare Business Consultant and a Member of the Institute of Business Appraisers.  He can be reached at 800-416-2055 (x223)