Medical Practice Valuation Calculator
Medical practices have unique value drivers. Calculate practice worth for sale or acquisition.
How the Medical Practice Valuation Calculator works
Value practices using revenue multiples, EBITDA methods, and asset approaches. Consider specialty, payer mix, and provider contracts.
Medical practice valuation is specialized. This calculator applies healthcare-specific methods for accurate valuations.
How it works
Tutorial
Medical practice valuation requires specialized approaches because healthcare businesses have unique characteristics: regulatory considerations, insurance reimbursement dynamics, patient relationship transferability, and provider-dependent revenue. Understanding how to value practices using EBITDA multiples, revenue multiples, and asset-based approaches while accounting for specialty-specific factors ensures accurate valuation for sale, acquisition, or partnership transactions.
You have two options: use the calculator above for comprehensive medical practice valuation with specialty adjustments, or follow this guide to manually value a healthcare practice.
The Formula
| Method | Formula |
|---|---|
| Revenue Multiple | Annual Revenue × Multiple (0.5-1.5x by specialty) |
| EBITDA Multiple | Adjusted EBITDA × Multiple (3-6x) |
| Asset-Based | Equipment + Real Estate + Goodwill |
| Percentage of Collections | Annual Collections × % (varies by specialty) |
Step-by-Step Calculation
Let’s value a primary care medical practice comprehensively.
Step 1: Gather Practice Financial Data
Collect three years of financial statements:
| Financial Metric | Year 3 | Year 2 | Year 1 | Average |
|---|---|---|---|---|
| Gross Revenue | $2,150,000 | $2,280,000 | $2,450,000 | $2,293,333 |
| Adjustments/Writeoffs | -$645,000 | -$684,000 | -$735,000 | -$688,000 |
| Net Collections | $1,505,000 | $1,596,000 | $1,715,000 | $1,605,333 |
Calculation: ($1,505,000 + $1,596,000 + $1,715,000) ÷ 3 = $1,605,333
Step 2: Calculate Adjusted EBITDA
Normalize earnings by adding back owner compensation and discretionary expenses:
| Item | Amount |
|---|---|
| Net Collections | $1,605,333 |
| Less: Operating Expenses | -$802,667 |
| Net Income (as reported) | $802,666 |
| Add: Owner Physician Compensation | +$450,000 |
| Add: Excess Owner Benefits | +$35,000 |
| Add: One-Time Expenses | +$18,000 |
| Add: Interest & Depreciation | +$42,000 |
| Adjusted EBITDA | $545,000 |
Calculation: $802,666 + $450,000 + $35,000 + $18,000 + $42,000 = $1,347,666 owner benefit
Reasoning: Adjusted EBITDA represents cash flow available to owner-operator.
Step 3: Apply EBITDA Multiple Method
Determine appropriate multiple for primary care:
| Factor | Multiple Impact |
|---|---|
| Base Primary Care Multiple | 3.5x |
| Strong Payer Mix (70% commercial) | +0.5x |
| Stable Patient Base (5+ years) | +0.3x |
| EMR System & Technology | +0.2x |
| Single Provider (key person risk) | -0.5x |
| Applied Multiple | 4.0x |
Calculation: 3.5 + 0.5 + 0.3 + 0.2 – 0.5 = 4.0x
Step 4: Calculate EBITDA-Based Valuation
Apply multiple to adjusted earnings:
| Component | Value |
|---|---|
| Adjusted EBITDA | $545,000 |
| EBITDA Multiple | × 4.0 |
| EBITDA Valuation | $2,180,000 |
Calculation: $545,000 × 4.0 = $2,180,000
Step 5: Apply Revenue/Collections Multiple Method
Use specialty-specific revenue multiple:
| Component | Value |
|---|---|
| Average Annual Collections | $1,605,333 |
| Primary Care Revenue Multiple | × 0.85 |
| Revenue-Based Valuation | $1,364,533 |
Calculation: $1,605,333 × 0.85 = $1,364,533
Reasoning: Primary care typically trades at 0.7-1.0x collections depending on factors.
Step 6: Calculate Asset-Based Valuation
Value tangible and intangible assets:
| Asset Category | Value |
|---|---|
| Medical Equipment | $180,000 |
| Furniture & Fixtures | $45,000 |
| Technology/EMR System | $35,000 |
| Leasehold Improvements | $65,000 |
| Supplies Inventory | $18,000 |
| Accounts Receivable (60%) | $90,000 |
| Goodwill/Patient Base | $850,000 |
| Total Asset Value | $1,283,000 |
Calculation: $180K + $45K + $35K + $65K + $18K + $90K + $850K = $1,283,000
Step 7: Adjust for Practice-Specific Factors
Consider unique value drivers and risks:
| Factor | Impact | Adjustment |
|---|---|---|
| Active Patient Count (3,200) | Positive | +$150,000 |
| Lease (2 years remaining) | Negative | -$100,000 |
| Staff Stability (low turnover) | Positive | +$75,000 |
| Transition Risk (single provider) | Negative | -$150,000 |
| Net Adjustments | -$25,000 |
Reasoning: Short lease and key person risk offset positive factors like patient count and staff.
Step 8: Triangulate Final Valuation
Weight different methods for final value:
| Method | Value | Weight | Weighted Value |
|---|---|---|---|
| EBITDA Multiple | $2,180,000 | 40% | $872,000 |
| Revenue Multiple | $1,364,533 | 30% | $409,360 |
| Asset-Based | $1,283,000 | 30% | $384,900 |
| Weighted Average | $1,666,260 | ||
| Practice-Specific Adjustments | -$25,000 | ||
| Final Valuation | $1,641,260 | ||
Calculation: $872,000 + $409,360 + $384,900 – $25,000 = $1,641,260
Step 9: Create Valuation Range
Establish negotiation parameters:
| Valuation Level | Amount | Scenario |
|---|---|---|
| Floor (Asset-based) | $1,283,000 | Liquidation value |
| Conservative | $1,500,000 | Risk-adjusted buyer view |
| Fair Market Value | $1,641,260 | Calculated midpoint |
| Optimistic | $1,850,000 | Strategic buyer premium |
| Negotiation Range | $1.5M – $1.85M |
Final Answer: The medical practice valuation is approximately $1.64 million, with a reasonable negotiation range of $1.5M – $1.85M
What This Means
At $1.64M on $1.6M collections, this practice trades at roughly 1.0x revenue—typical for primary care. The valuation reflects solid financial performance but includes discounts for single-provider risk and short remaining lease term. A buyer assuming the practice should expect to earn approximately $545K annually (adjusted EBITDA) after paying a market-rate physician salary, representing 33% return on the purchase price—attractive for medical practice acquisitions.
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