Dermatology Practice Valuation: When a Practice Sale Falls Through

As a business valuation professional specializing in healthcare, I often encounter unique and challenging cases. One such case was the valuation of a dermatology practice on the West Coast. This group practice had three physicians and two physician assistants operating out of two locations. The solo physician owner was retiring and had planned to sell the practice to two of his associates, with each location being sold separately. Unfortunately, one of the deals fell through, leading to uncertainty about the future of the practice.

The Challenges

The valuation of this dermatology practice presented several challenges:

1. Intertwined locations: The two practice locations were not far from each other, and both associates were seeing patients at both clinics. While the first clinic was successfully sold to one of the associates, the second deal fell through, and the main provider left with the intent to compete.
2. Referral source retention: Most of the business in the second location came from Mohs surgery. Retaining referral sources was crucial for the practice’s continued success.
3. Equipment updates: The equipment at the second location needed to be updated, which had to be factored into the valuation.

The Valuation Approach

My client, an outside buyer interested in taking over the second clinic, hired me to appraise the business. We considered all three valuation approaches but determined that a discounted future cash flow method under the income approach was the most appropriate.

To conduct the valuation, we:

1. Analyzed historic productivity by provider
2. Examined the practice’s historic income and expenses
3. Performed detailed projections of Work RVUs, revenue, expenses, and necessary capital expenditures to update the equipment

The Outcome

The valuation provided our client with the information needed to make an informed decision about the amount of money they should offer for this opportunity. It also gave them insight into the practice’s profitability, provider productivity, and types of procedures performed.

This case highlights the complexity and nuances involved in valuing medical practices. Each practice has its unique challenges, and it’s essential to consider various factors, such as provider productivity, referral sources, and necessary equipment updates, when conducting a valuation.

At Nechay Appraisals, we specialize in helping healthcare professionals navigate their business dealings. Our expertise in valuing medical practices allows us to provide our clients with the insights they need to make informed decisions, even in the face of unexpected challenges like a failed practice sale.

If you’re a healthcare professional looking to buy or sell a practice, or if you need a valuation for litigation or divorce purposes, we’re here to help. Contact us today to discuss your specific needs and how we can assist you in navigating your business dealings.