The word practice in the phrase "medical practice" is a misnomer because physicians, who have trained for many years in college, medical school, internship and specialization, are ill equipped to establish a thriving "medical practice." The practice skills now required are in the areas of business, namely establishing a location, surveying demographics and potential physician competitors, awareness of market trends, finance, computers, risk management and general knowledge on how to run a medical practice. This requires expertise not customarily taught to physicians during their years of formal education. Although, there are limited resources which physicians can rely, it is best delegated to an expert or team of experts who can assist the physician in establishing an efficient and profitable practice.
There is always inherent risk in any professional organization; but, a physician's medical practice involves a number of critical components that must be considered. In addition to the standard measures of valuing a professional organization, such as determining capitalization rates and discount rates applied to projected earnings and "positive" cash flows, normal rule of thumb measures do not apply. Instead, a specific practice evaluation must be tailor-made to factor in not only comparative sales of similar practices, but more importantly, the value of physician goodwill. Physicians may operate under the false assumption that sweat equity coupled with the number of patients established over the years are the only measures when determining medical practice valuations. Oftentimes, unseen costs that new physicians cannot afford are overlooked when determining medical practice valuations.
Before the advent of managed care, patients often remained loyal to one practitioner, even if that physician decided to relocate. In many cases, the practicing physician controlled the patients and their families. In today's complex health environment with The America's Affordable Health Choices Act (H.R. 3200), determining economic valuation of a medical practice for new or retiring physicians has become increasingly difficult. The aspect of patient loyalty must be objectively measured with new physicians considering whether or not to maintain current physician's practice insurance carriers, health maintenance organizations, preferred provider organizations or individual company providers.
Continuity of care and loyalty to a particular physician is unfortunately overstated in most medical practice valuations. Instead of simply selecting an appraiser to measure the worth of a medical practice, patient surveys must be completed, marketability of a particular specialty practice must be established and reasonable multiples applied to determine potential financial success. The old expression, "the physician who treats himself has a fool for a patient," can be applied with valuation and establishment of a medical practice, namely "the physician who values/establishes a medical practice himself, has a fool for a client."
Unfortunately, there are no journals or practice management textbooks that can be easily utilized to value and establish a successful medical practice. A qualified professional with years of comprehensive experience in the critical areas is the only logical solution. Therefore, consulting the right professionals, such as experienced appraisers, practice management specialists, computer experts and health economists, can assist physicians in setting up or evaluating a successful medical practice.
www.bpettingill.com
Contacts:
Bernard Pettingill, Ph.D.Jr., 561-622-0330
biffpett@gate.net
www.bpettingill.com