How Much is Your Medical Practice Worth? A Comprehensive Guide to Valuation Methods

As a physician-practice owner, you need to understand your practice’s value to make informed decisions about your future. Whether you’re planning a sale, merger or partnership buy-in (or you’re simply assessing your financial standing), knowing your practice’s value is essential.

In this article, we’ll explore valuation methods for medical practices, explain how the valuation process works, and highlight the factors that influence practice worth.

How the Valuation Process Works

When pursuing a formal practice valuation, there are typically two types of reports:

Conclusion of Value

A comprehensive report that considers all valuation approaches and includes industry, economic and operational analysis. This is suitable for legal, tax or ownership transition purposes.

Calculation of Value

A simplified, lower-cost valuation designed for internal decision-making. It uses agreed-upon assumptions but lacks the rigor of a formal conclusion of value.

Your choice depends on the purpose of the valuation. A conclusion of value is ideal for formal needs, while a calculation of value may be sufficient for strategic planning.

What Are Multiples in Valuation?

Multiples are ratios that express the value of a business relative to a financial metric such as EBITDA. For example, a practice with $400,000 EBITDA and a $2 million valuation has a multiple of 5.

Multiples vary by specialty, market conditions and practice size.

Three Common Valuation Methods for Medical Practices

1. Market Approach

The market-based approach compares your practice to similar ones that have recently sold. Professionals apply multiples to metrics like EBITDA to estimate value.

Example: A practice with $1M EBITDA might apply a 6–8x multiple. If using 7x, the valuation would be $7 million.

Factors influencing the multiple include:

• Practice size and scalability
• Reputation and patient loyalty
• Growth potential and location

2. Income Approach

The income-based approach estimates value based on expected future income, discounted to present value using a risk-adjusted discount rate.

Discount rate determinants include:

• Risk-free base rate (e.g., U.S. Treasury yield)
• Practice-specific risks (payer mix, solo vs. group)

Smaller practices may see discount rates of 20–25%, while larger groups often qualify for lower rates.

3. Asset-Based Approach

This asset-based method values the practice by tallying its tangible and intangible assets, such as:

• Medical equipment and real estate (tangible)
• Patient records, brand reputation and intellectual property (non-tangible)

While straightforward, this approach often undervalues a profitable practice because it ignores earnings potential.

Key Drivers of Medical Practice Valuation

Cash Flow & Profitability: Historical and adjusted EBITDA is a foundational driver. Discretionary or non-operating expenses (e.g., personal travel) must be normalized to reflect true earnings.

Size & Structure: Larger groups typically earn higher valuations due to reduced risk and stronger negotiating leverage with insurers.

Specialty & Market: Specialties with strong demand or high reimbursement rates (e.g., dermatology, orthopedics) may command premium valuations.

Patient Base & Retention: Stable, satisfied patients and a positive online reputation increase value.

Facilities & Location: Practices in urban areas with modern equipment or owned real estate often receive higher valuations.

Operational Efficiency: Use of EHRs, optimized billing and low overhead all increase profitability and buyer appeal.

Strategic Synergies: Buyers may pay a premium if acquiring your practice helps them enter a new market or expand their service line.

Work With Trusted Healthcare Valuation Experts

Medical practice valuation is complex and should be guided by professionals familiar with healthcare-specific challenges.

At James Moore, our healthcare CPAs and advisors specialize in medical practice valuations. We bring:

• Deep knowledge of valuation methods and industry benchmarks
• Strategic insight to help you maximize your practice’s value
• Experience with healthcare transactions and compliance

Contact a James Moore professional to discuss your goals, prepare for future transitions, or simply gain clarity on your practice’s current value.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.