There are two ways a practice can be sold - as an asset deal (the sale of the all the assets in the business, including equipment, patient lists, leases, third party agreements with insurance carriers and financed equipment), or as a stock deal where you are assuming ownership of the selling entity. While a stock sale is simpler and is easier in transferring contracts and Medicaid and Medicare provider numbers, it can bring with it increased liability issues. More about that below.

In general, the valuation of a medical practice is typically determined on a 12-month trailing revenue basis. For a general practice, the price might be from 0.5 to 0.7 times the 12-month trailing revenues. For specialists, that number could be as high as 0.8 to 1.2 times the 12-month trailing revenue, or even higher. Note that the one constant in healthcare pricing is reimbursement: it always declines. Whatever the practice got in insurance reimbursements in the previous 12 months, it’s almost guaranteed that be reimbursed less for certain items and services in the following year.


What’s included in that price depends on whether the sale is a stock sale or asset sale. But in general, the sale would include patient lists, equipment, lease, staff, contracts/third party agreements with insurance carriers and (in stock sales) licenses, permits and Medicare and Medicaid provider numbers.

Many states require the practice or facility, in addition to the doctors, to be licensed. Some states prohibit anyone other than a doctor from owning a practice. If you are doing a stock sale, and the license and permits are included, you will need the consent to the change of ownership by the agency overseeing the practice of medicine, typically the state’s department of health. In an asset sale, you would normally have to submit an application for new permits and licenses, including Medicaid and Medicare provider numbers as well as U.S. DEA for the prescribing of controlled substances. All states have different requirements, so be sure to seek legal counsel early in the process.

One very important thing to keep in mind about a stock sale. If the seller was engaged in improper sales and marketing, billing and collection or other issues associated with fraud, waste and abuse prior to the sale, upon completion of the sale, the buyer is assuming liability for those acts. This is yet another reason it’s important to have a good lawyer on board early on to do due diligence on a practice you may be seeking to purchase. Check their billing and make sure they are using the correct codes.

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