By Jason Ruchaber, CFA, ASA

In my opinion, the demonization of private equity in healthcare services is misguided and largely fails to recognize this simple truth, the reimbursement policies and extraordinary compliance costs superimposed by the government are the primary reasons physicians do not remain in private practice. Declining reimbursement and increasing costs continue to erode physician practice profitability (and yes, outside of government businesses must actually be profitable to stay in business….)

When it is no longer financially viable to stay in private practice, physicians are faced with four choices 1) Close their doors (retire/leave medicine), 2) leave the community and practice elsewhere with better reimbursement, 3) become an employee of a hospital or health system, or 4) partner with private equity (and remain in private practice). Both #1 and #2 are generally bad for the communities they serve, and #3 immediately increases the cost of care (and limits choices) by forcing reimbursement under the hospital fee schedule – which can be several times higher for the same exact same services. #4 can provide an alternative that is beneficial to the public and helps drive cost efficiencies to healthcare.

When the government discusses private equity, however, it is almost always with disdain. “When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out,” said Chair Lina M. Khan of the FTC. “Through this inquiry, the FTC will continue scrutinizing private equity roll-ups, strip-and-flip tactics and other financial plays that can enrich executives but leave the American public worse off.”

PE is undoubtedly focused on generating a return on its investment, but that return most commonly comes from temporary reductions in physician compensation and cost efficiencies related to non-clinical functions – not a reduction in the quality of care. In fact, under many value-based reimbursement models, PE returns are enhanced only with reduced cost of care and improvements to the quality of care.

To paraphrase Mark Twain, ““It ain’t what [the government] doesn’t know that gets [us] into trouble. It’s what [they] know for sure that just ain’t so.”

by Gabriel Andrada, MHA, CSAF, CHBC, CVA

market approach

When it comes to valuing a healthcare business, the market approach is an important valuation method to consider. This method involves analyzing public company data and/or completed transactions of businesses that are comparable to the subject business. From this data one can calculate valuation multiples that can then be applied to the subject entity to arrive at an indication of value. 

While the market approach should be considered in valuing healthcare businesses, this approach comes with various challenges and limitations that one should be aware of, including the following: 

Lack of Available Data

Compared to other industries, healthcare transaction data is not as readily available. Despite the large volume of healthcare transactions that occur each year, many of these involve privately held businesses for which little or no public financial disclosure is required.  This scarcity makes it challenging to find sufficient data to use. 

Limited Details in Available Transaction Data

Even when comparable healthcare transactions are available, they often lack essential details necessary for accurate comparisons. For example, a reported transaction may omit the purchase price, or it may include no (or limited) financial information such as reported revenue, earnings, assets, etc.  Moreover, while a transaction may report the price and associated multiples, the data may not specify whether the transaction price represents asset value, enterprise value, or equity value, or whether the price includes non-cash considerations, earnouts, contingent payments, etc. This missing information can significantly impact the appraiser’s ability to properly interpret and apply the data in the valuation process. 

Lack of Standardization in Reported Transactions

 Valuing healthcare businesses using a market approach becomes more complex due to the lack of standardization in reported transaction information across different sources. For instance, one database may exclusively report enterprise values, while another may focus on equity values. This lack of consistency makes it difficult to ensure accurate comparisons between transactions reported in differing transaction databases. 

Variances in Data over Time

Like the stock market, values of businesses will change over time due to economic, industry, regulatory and other forces that come to prevail on the business.  In addition to the limitations noted above, it may be difficult to directly compare pricing multiples from one time period to the next due to differences in these market forces.  This is acutely problematic with transactions occurring during and immediately after the COVID-19 pandemic, which was marked by significant business disruption, population shifts, and massive amounts of government stimulus.   

When valuing a healthcare business using the market approach, it is important to carefully evaluate both the benefits and the unique challenges that could arise. The limited availability of healthcare transaction data, lack of detailed information, and absence of standardization require cautious and meticulous attention to detail when processing a valuation. Finding comparable transactions that closely resemble the subject business is going to be essential. By being aware of these challenges and conducting thorough research, healthcare professionals can overcome the complexities of the market approach and arrive at more accurate valuations for their businesses. 

At Root Valuation, we help physician leaders successfully navigate business and employment transactions to that their value is fully realized. Have a question about your physician practice valuation, contact us at


by Jason Ruchaber, CFA, ASA

Price and value are two interconnected yet distinct concepts when it comes to evaluating transactions in physician practices. While price refers to the amount paid in a transaction, value represents a measure of the perceived worth of the item being exchanged. Warren Buffet succinctly captured this relationship when he stated, “Price is what you pay, value is what you get.”price vs value

Price is a tangible, objective measure often expressed in monetary terms. It provides a clear indication of the financial commitment required to consummate a transaction. On the other hand, value is a subjective concept that can vary among individuals and circumstances. In essence, value is derived from the utility or usefulness of the item in satisfying a particular want or need.

In a free and open market, the forces of supply and demand initially determine prices based on the overall perception of utility. However, prices are not static and can fluctuate based on factors such as marginal utility. The concept of marginal utility suggests that as individuals consume additional units of a good or service, the satisfaction derived from each additional unit tends to decline.

When it comes to appraising healthcare entities and services, the definition of value becomes crucial in answering the question, “Value to whom, and under what transactional circumstances?” An appraisal will include reference to a specific “standards of value”, which will be defined by appraisal literature or specific regulatory guidelines. These standards of value may include fair market value, fair value, investment value, intrinsic value, liquidation value, and more. Each standard has its own distinct definition and application.

Fair market value, for instance, is typically defined as the price at which an asset would change hands between a willing buyer and a willing seller in an open market setting. It considers the hypothetical nature of the transaction and assumes both parties have reasonable knowledge of the relevant facts.

Fair value, on the other hand, may be defined by specific legal or regulatory requirements and is often used in the context of accounting or financial reporting.

Investment value reflects the worth of an asset to a particular individual or entity based on their specific investment objectives and circumstances. Intrinsic value represents the underlying fundamental worth of an asset, considering its cash flows, growth potential, and risk factors. Liquidation value, as the name suggests, refers to the estimated amount that could be realized if assets were sold under forced or expedited conditions.

In the context of healthcare transactions, fair market value is defined1[1] generally as “the value in arm’s-length transactions, consistent with the general market value of the subject transaction.” General market value means:

(1) Assets. With respect to the purchase of an asset, the price that an asset would bring on the date of acquisition of the asset as the result of bona fide bargaining between a well-informed buyer and seller that are not otherwise in a position to generate business for each other.

(2) Compensation. With respect to compensation for services, the compensation that would be paid at the time the parties enter into the service arrangement as the result of bona fide bargaining between well informed parties that are not otherwise in a position to generate business for each other.

(3) Rental of equipment or office space. With respect to the rental of equipment or the rental of office space, the price that rental property would bring at the time the parties enter into the rental arrangement as the result of bona fide bargaining between a well-informed lessor and lessee that are not otherwise in a position to generate business for each other.

Buyers and sellers in this market need an objective assessment that aligns with market conditions and takes into account not only the specific attributes and financial performance of the practice but also the regulatory framework for assessing FMV.

price v valueHealthcare entities, like any other business, must navigate the delicate equilibrium between price and value, however, due to the extra regulatory burden associated with healthcare transactions, certain attributes that may be of strategic value to individual investors may be prohibited remuneration. Assessing the fair market value of a healthcare entity requires a comprehensive analysis of financials, patient outcomes, operational efficiency, market trends, and other relevant factors, but should generally exclude consideration of synergistic benefits, particularly those associated with the value or volume of referrals.

When seeking reliable and comprehensive valuation services for healthcare transactions, we are here to help. With our expertise and commitment to providing tailored and insightful evaluations, Root Valuation offers a trusted solution for all of your valuation needs. If your organization needs help conducting a valuation for your physician practice contact us at

by Gabriel Andrada, MHA, CSAF, CHBC, CVA

Physician practice questions

As a physician, have you ever wondered about the true value of your practice? Whether you’re considering buying or selling a business, planning for taxes, or simply curious about your practice’s worth, a physician practice valuation can provide you with invaluable insights.

Physicians can derive a wealth of information from receiving a valuation. These analyses will not only establish a value, but may also help identify improvements that could lead to a more efficient (and valuable) practice going forward.

Let’s dive into the importance of seeking out a valuation of your physician practice, the various reasons to obtain an appraisal, the potential benefits beyond transactional purposes, and the value of engaging your own appraiser for regulatory compliance.

Comprehensive Insight into Your Practice

Valuing your physician practice goes beyond determining its monetary worth. It offers a holistic understanding of the financial, operational, and market trends that impact your day-to-day business. Even when you’re not actively seeking a transaction, the appraisal process itself reveals vital information. By examining key metrics, such as revenue, expenses, patient demographics, and operational efficiencies, you gain valuable insights that can help you make informed decisions about your practice’s future.

Transactional Considerations

When buying or selling a practice, a valuation becomes crucial. It provides an objective assessment of fair market value (FMV), ensuring that both parties reach a fair agreement. Having an independent appraisal helps you negotiate from a position of strength, whether you’re the buyer or the seller. By understanding the true worth of your practice, you can confidently navigate the transactional landscape and make well-informed decisions.

Regulatory Compliance and Due Diligence

In healthcare transactions, acquiring entities often perform their own appraisals for regulatory compliance. However, as a physician, it is wise to engage your own appraiser to ensure your interests are protected. Your appraiser can provide valuable guidance during the diligence process, perform an independent appraisal, and advocate for necessary changes. This proactive approach safeguards your financial well-being and helps you understand the nuances of the valuation process.

Tax Planning and Marital Dissolution

Practice valuation plays a crucial role in tax planning strategies. Understanding the value of your practice allows you to make informed decisions regarding estate planning, gifting, and succession. Additionally, in cases of marital dissolution, a practice valuation is essential for equitable division of assets. By obtaining an accurate appraisal, you can navigate complex tax implications and ensure fair distribution.

Strategic Planning and Practice Enhancement

Beyond transactional and compliance purposes, practice valuations enable strategic planning. By identifying strengths, weaknesses, and areas for improvement, you can develop an effective roadmap for growth and increased efficiency. An appraisal uncovers operational inefficiencies, market trends, and competitive positioning, empowering you to optimize your practice and enhance its long-term value.

A practice valuation is a powerful tool that provides physicians with comprehensive insights. Engaging your own appraiser is crucial to protect your interests and ensure a fair assessment. This work can take several forms, and may include preparation of a separate independent appraisal, assisting with the diligence process, and/or working with the physicians to understand the work performed by the other appraiser and advocate for any changes that may be warranted.

So, whether you’re exploring a potential sale, planning for taxes, or seeking to enhance your practice’s value, you should consider obtaining a practice valuation. This will help you unleash the true potential of your business by harnessing the knowledge and opportunities it provides.

At Root Valuation, we help physician leaders successfully navigate business and employment transactions to that their value is fully realized. Have a question about your physician practice valuation, contact us at

by Jason Ruchaber, CFA, ASA

Physician practices are typically appraised using one of two methods, the discounted cash flow (DCF) method of the income approach, or the adjusted net assets method of the cost approach.

Under the DCF Method, value is measured as the amount of income that is expected to be earned through ownership of the practice after paying all expenses, including a market level of physician compensation. In developing the DCF models, key assumptions that drive value typically include (but are not limited to):

  • Overall revenue and profitability trends
  • Diversification of physicians, medical specialties, and/or service lines
  • Presence and utilization of midlevel providers (NP, PA)
  • Existence and profitability of ancillary services (e.g., imaging, lab, etc.)
  • Payor mix and reimbursement rates
  • Staffing levels and retention rates
  • Revenue model (e.g., FFS, managed care, concierge, etc.)
  • Expected continuity of providers and staff
  • Physician compensation model

Under the Adjusted Net Assets Method, all of the assets and liabilities held within the practice are restated to market values. Therefore, key value drivers under this approach include:

  • Age and composition of tangible assets (equipment, buildings, furniture, etc.)
  • Existence and value of identifiable intangible assets (e.g., trade name, favorable contracts, assembled workforce, etc.)
  • Expected continuity of providers and staff
  • Amount of debt and other contractual liabilities (if debt are to be assumed)

Practice valuation involves a myriad of variables and can often result in a wide range of opinions on value based on the models used. Ultimately, the most important factor to consider is selecting the right source to successfully appraise your practice so that you arrive at an accurate fair market value.

At Root Valuation we specialize in helping physician leaders successfully navigate business and employment transactions to that their value is fully realized. If your organization needs help conducting a valuation for your physician practice contact us at

by Gabriel Andrada, MHA, CSAF, CHBC, CVA

Normalization adjustments in valuations

In valuation, “discount rates” refer to the investment rate of return used to convert the future anticipated cash flows of a business to their present value equivalent.  The term “discount rate” is synonymous with “cost of capital” or “required rate of return,” which is essentially the rate of return needed for a potential investment to be considered worthwhile based upon its risk profile.

Simply put, the cost of capital represents the interest rate that must be paid to investors to attract their capital. The cost of capital varies from entity to entity based upon the overall risk of the investment.  Factors that influence perceptions of risk may include:

  • Historical financial performance
  • Leverage (debt)
  • Age and size of the business
  • Sensitivity to industry or economic forces
  • Geo-political risk
  • Population demographics
  • Technology, etc.

As noted above, a discount rate represents a rate of return used to convert a series of future cashflows into a present value. This effectively considers the concept of the time value of money, where cashflows in the present are more valuable than expected cashflows from the future. There is an inverse relationship between present value and risk, whereby expected future cashflows that are less certain (riskier) are discounted more heavily than cashflows that are more certain.  In short, the more “risky” the future cashflows of a business is, the higher the discount rate will be, and thus the lower the present value of such cashflows.

At Root Valuation, we help physician leaders successfully navigate business and employment transactions to that their value is fully realized. Have a question about your business valuation, contact us at or speak with Gabriel Andrada at 720.634.7025.

goodwill in physician practice

by Jason Ruchaber, CFA, ASA

The International Glossary of Business Valuation Terms defines goodwill as “that intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.” Similarly, the IRS defines goodwill as “the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.”

Mathematically, goodwill is simply that portion of the overall business value in excess of the identified assets held within the business. Most often, goodwill value is created when the profits generated by the business exceed the rates of return that would normally be earned on the assets utilized by the business.

For physician practices, payment for “goodwill” was a bit of a regulatory boogeyman due to the infamous 1992 “Thornton letter”, where Assistant General Counsel to the Office of Inspector (OIG), D. McCarty Thornton, reasoned that “any amount paid in excess of the fair market value of the hard assets of a physician practice would be open to question”, and further citing goodwill as a specific item of concern as a potential payment for a referral stream.

As a matter of practical consideration, a profitable going concern business will almost always have some level of goodwill value, and the seller of that business – whether it be a healthcare business or otherwise – would not be willing to simply give up value associated with that income stream absent purchase consideration. Since the issuance of the Thornton letter, there has been significant clarification on the issue of how fair market value and the “value or volume of referrals” is defined for healthcare regulatory purposes. These clarifications have alleviated most of the concerns related to the payment of goodwill in physician practice transactions, however, there are still some important considerations that should be followed.

Because goodwill is simply the difference between the overall value and the sum of its identified assets, the determination of overall value must be specified in a manner that is consistent with the regulatory definition of fair market value and not in a manner that takes into account the value or volume of referrals. Though not an exhaustive list, things that should not be included in the valuation model include:

  • Enhancements to value that result from buyer specific synergies such as favorable payor contracts, increased utilization, or reduced overhead costs.
  • Consideration of any extraneous or downstream revenue sources related to the existing patient base, but not currently billed in the practice. This may include as surgical facility fees, diagnostic imaging, pathology, etc.
  • Inclusion of personal goodwill that is retained by the selling physicians. Often this can be accounted for by properly modeling the post transaction compensation model, but there may be other carve-outs or exceptions that impact the economic value transferred beyond the comp model.

Physician practice valuation has numerous complexity and regulatory restrictions not found in other industries, but when properly fair market value is properly specified, goodwill value can (and should) be paid for in physician practice transactions.

At Root Valuation we help physician leaders successfully navigate business and employment transactions to that their value is fully realized. If your organization needs help navigating your goodwill within your physician practice contact us at

by Gabriel Andrada, MHA, CSAF, CHBC, CVA

Normalization adjustments in valuations

In valuation, “normalization adjustments” are the adjustments made to reported financial statements to better understand the true financial and operating performance of a business for investment purposes.

Normalization adjustments may include the elimination of non-recurring or non-operating income or expense items, the removal or normalization of owner discretionary items (including officer compensation and related party transactions), or adjustments to accounting entries (such as accelerated depreciation, prior period adjustments, journal entries, etc.).

In some instances, it may also be appropriate to make run-rate adjustments to reflect the anticipated full year impact of mid-year changes. For example, if a new physician is hired mid-year, that physician’s patient volumes and revenues will be understated for that year and should be annualized to reflect the anticipated full-year volumes. Similarly, that physician’s compensation will also be understated and should be adjusted to reflect the full year cost of salary and benefits.

In larger, more complex transactions, the normalization process may be conducted as a more rigorous, standalone process. This process, referred to as a Quality of Earnings (QofE) analysis, is a detailed analysis of a company’s financial and operational data that provides additional assurance that the EBITDA is sustainable. Procedures performed in connection with a QofE analysis may include:

  • Revenue Testing
  • Revenue to cash reconciliations / comparison of financial reports (e.g., internal financials, tax returns, etc.)
  • Review of charges and collections trends by payor class, identification of trends, review/discuss historical and pending contractual agreements
  • Preparation of cash waterfall schedules by payor class / presentation of accrual revenue estimates
  • Normalization of non-recurring events / go-forward changes
  • Expense Testing and Normalization
  • Review and discuss expense policy, discussion of use of estimates/allocations
  • Trend analysis (% of revenue, $/unit)
  • Comparison of reported expenses to key contracts (e.g., rent, equipment leases, service contracts, etc)
  • Cash to accrual estimates
  • Normalization of non-recuring items / go-forward changes
  • Working Capital Analysis
  • Review of accounts receivable aging by payor class over time
  • Analysis of collection ratios and bad debt policy
  • Review of reported current liabilities
  • Prepare estimate of required working capital
  • EBITDA Run Rate analysis
  • Testing of Balance Sheet items

In short, normalization adjustments allow the appraiser (and investor) to better understand and measure the true financial position of a business. Normalized earnings are the measure that should be used for valuation purposes including the application of a valuation multiple or as the base year in a financial forecast.

At Root Valuation, we help physician leaders successfully navigate business and employment transactions to that their value is fully realized. Have a question about your business valuation, contact us at or speak with Gabriel Andrada at 720.634.7025.

how to select an appraiser


by Jason Ruchaber, CFA, ASA

We suggest considering three primary criteria – Credentials, Experience, and Fit


Professionals who hold themselves out as appraisers should hold a professional certification in an appraisal discipline from one or more credentialing organizations. Though not an exhaustive list, the following are some of the more widely recognized designations for business valuation ·


When selecting an appraiser it is important that the appraiser have direct, meaningful experience valuing the subject Appraisers work in a vast number of subspecializations, including: ·

  • Appraisal Discipline – Business valuation, compensation valuation, machinery and equipment, real estate, intellectual property, gems and jewelry, fine art, etc.
  • Organization Type – Public company, private company, start-ups, tax exempt organizations, etc.
  • Asset Category – Equity, stock options, ESOPs, warrants, derivatives, debt instruments, etc.
  • Industry or Sector – Healthcare providers, life sciences, healthcare entities, Health information technology, etc.
  • Intended Use – Mergers and Acquisitions, financial reporting, tax reporting, regulatory compliance, bankruptcy, dispute resolution, etc.

Due to the significant body of knowledge, regulation, and practical nuances associated with each of these areas, it is no longer adequate to be a valuation generalist and remain proficient in rendering a credible opinion of value.


When selecting an appraiser it is also important that they are a good fit for your organization. Just as a physician’s “bedside manner” can impact the patient’s

understanding, acceptance, and attitude toward their diagnosis, so too can an appraiser’s approach to the valuation assignment impact the understanding, acceptance, and attitude toward their findings. Some characteristics to consider include:

  • Accessibility –work hours, response time, preferred channel- email, phone, text;
  • Professionalism – knowledgeable and relatable to internal and external stakeholders
  • Emotional intelligence – ability to navigate egos, personalities, and stresses of process
  • Openness to Input – ability to listen and adapt as they navigate the appraisal
  • Attention to detail – ability to identify trends, issues, and nuances of from the data
  • Manner of speech – ability to communicate complex financial topics in a manner that is easy to understand
  • Integrity – are they willing to do what’s right even if it’s not the desired outcome

Different circumstances may call for different characteristics in an appraiser, but the best appraiser for your organization will be one that mirrors your culture and values and can present a compelling and defensible valuation opinion.

At Root Valuation we help physician leaders successfully navigate business and employment transactions to that their value is fully realized. If your organization needs help navigating your appraisal process, contact us at