Valuation

CIG Capital Advisors authored a recent article for Fierce Healthcare where we discuss how physician-owners can assess growth metrics in their medical practice and make adjustments that may affect the practice’s value with an eye toward a future sale: 

“The act of adding medical practice value through an administrator’s eyes”

The average primary care physician sees more than 20 patients a day, according to a 2018 survey of nearly 9,000 doctors by the Physicians Foundation.

That, along with the 11 hours they devote every week, on average, to paperwork, helps explain why 78% of those same physicians told surveyors they feel burned out at least some of the time. 

Oftentimes, this adds up to physicians being too busy with day-to-day responsibilities to have time left over for running the business end of their medical practice, let alone for crafting strategies to drive long-term practice growth, or to consider their legacy as they chart a course toward future retirement.

Ask most physicians about their hopes for the future and they might say that, of course, they want to grow their practice and increase revenue.

It’s one thing to set that as a goal. It’s quite another to determine how and what kind
of growth—and how much—will best suit a particular medical practice and its individual members.

Difficult as it may be, the reality is that growth won’t just result from hard work and hopes. Physicians who are truly serious about strategic growth or maximizing the practice’s value with an eye toward a future sale have
to invest in the process—possibly even setting aside an entire day or more for business building.

Either way, the process always begins with something already familiar to doctors: diagnostics.  

Rather than X-rays or blood tests, doctors who want to grow their practice must begin with a panel of financial indicators: tax returns, productivity reports, an evaluation of their payer mix and more. It’s important to examine outlays, too. If a practice is spending more on equipment or staffing, or real estate, than peers of comparable size, bringing those expenditures in line with benchmarks may be the most effective treatment.

It also helps to examine the market. If your practice is in an area with an aging population, your approach to growth is oftentimes different than it would be in a location teeming with young families.

It sounds obvious, but just having the time to find those sorts of data may be well beyond the reach of the average overworked physician. That also explains why achieving growth by simply adding more patients isn’t practical.

This acknowledgment of limitations leads to questions about how best to grow.  Is it more advantageous to acquire new locations and the physicians that come with them? Or does it better suit your goals to grow organically with more patients and a handpicked crop of new colleagues?

Finding colleagues who share your treatment philosophy and practice goals is vital, whether planning expansion or an exit strategy. As doctors well know, it’s not a given that those goals and philosophies will be shared. Culture fit is far more art than science, so while acquisitions or mergers may seem like an easy shortcut to growth and the added value that comes with it, they also require due diligence that goes well beyond spreadsheets.

For physicians who anticipate handing off their medical practice, the first step is also diagnostic, although in this case it is an honest valuation of the practice. This isn’t just a matter of placing a price tag on equipment or real estate, though that is part of it. Intangibles play a role, too: your reputation, and your practice’s reputation, have value as well. 

For any medical practice contemplating a growth strategy, and for any physician planning a career exit, the most important thing to remember is that, just like patients, no two practices are identical. Consequently, there is no single prescription that will work for every practice.

And that is why a careful, individualized strategy is key to building and maintaining growth, whether for the purposes of seeing a practice through for the next two decades or for the next two years until a buyer arrives.

To schedule an initial complementary consultation to discuss how you can add value to your medical or dental pratice, email Brian Lasher.