In the course of performing several medical practice valuations for both hospitals and physician groups we continue to see medical groups entering negotiations unarmed so to speak and agreeing to a price based primarily, if not solely, by the hospital’s certified valuation. This leaves a medical group at a total disadvantage. Having your own certified valuation is crucial to arguing your case and insuring a fair agreed upon sale price and the ensuing multi-year employment contract with the hospital.
Whether selling your practice or simply just wanting to know if your practice has any intrinsic value (goodwill), it behooves you to have your own certified valuation done. The results of the valuation will clearly impact your future business plan and strategy. If there is intrinsic/goodwill value, how long will it hold up? If there is little to no intrinsic value, what can be done, if anything, to increase the value? In either case, you should know what you can reasonably expect for your practice from an interested hospital before you enter into negotiations. Hospitals are not going to buy every group out there, but most prefer to go after local practices first before going to the expense and hassle of importing unknown and unestablished physicians. When a hospital calls it might be your only opportunity, so make the most of it and be prepared.
Fair market valuations of medical groups are tightly regulated by Stark, anti-kickback and private inurement (benefit) laws. However, there is no perfect, generally accepted valuation methodology. There is art and science to them. So having two valid valuations on the table means there is room for intelligent, informed, rational and professional negotiation between the two parties. There are a lot of business valuators out there, but few have a thorough understanding of how physician practices operate, so they can come up short on price and in negotiations with the hospital. You need someone who has walked the walk on your side of the negotiating table to insure that the price and ensuing employment contract are right.