Factors affecting the valuation of physician practices

Valuation of physician practices provides physicians with a benchmark of their business success and helps purchasers negotiate a purchase price. The Center for Healthcare Industry Performance Studies (CHIPS) recently conducted a survey of physician practice acquisitions. The survey collected data on salaries and benefits paid to physicians after practice acquisition, historical profitability of the acquired practice, and specific values assigned to both tangible and intangible assets in the practice. Some of the survey's critical conclusions include: hospitals tend to acquire unprofitable practices, value is based on historical revenues rather than historical profits, the importance of valuation methodology and payer mix is underestimated, tangible assets represent a large part of the purchase price, and hospitals tend to pay higher physician compensation than do other purchasers.