How to Value a Physician Practice
When valuing a physician practice, key factors are average physician compensation and productivity for a given specialty. One of the best sources for this data is Medical Group Management Association (MGMA). They publish a survey called Physician Compensation and Production Survey.
It’s important to know not only the average compensation of physicians by specialty, but also their average productivity as measured by hours worked. If a medical practice produces a combination of physician compensation and profit that exceeds average compensation, then the practice has value.
Let’s say you have a surgical practice where each doctor makes $500,000 per year in salary and bonus. And let’s say MGMA indicates that the average surgeon in this specialty in this region of the country also makes $500,000 per year. Then, the practice probably has little value.
Now, if you have a surgical practice where each doctor makes $750,000 per year but each doctor works 50% more hours a year than average, then once again, the practice has little value because you have to adjust for productivity.