Valuation of a healthcare practice for sale

The valuation of a medical practice (clinic) can be understood as an estimate of its market value, i.e. the amount for which the practice would actually be sold between two independent, informed parties under the given conditions. The price is usually determined on the basis of the actual economic results of the practice and current market conditions (supply and demand). The aim is to find a price that reflects the “fair value” of the practice.

Author of the article: ​ARROWS (Mgr. Dita Zbožínková, LL.M., office@arws.cz, +420 245 007 740)

Factors affecting the value of a medical practice

When valuing a medical practice, a wide range of factors are usually considered, such as:

• Contracts with health insurance companies: the scope and quality of contracted care (number of points/services covered by insurance companies, contract validity, etc.), which determine the basic revenue of the practice. Practices with long-term contracts for attractive services are more valuable.
• Economic indicators: the practice's revenue and profit (e.g., annual payments from insurance companies, net profit, EBITDA). In most cases, the accounts for the last few years are analyzed, and the value is based on the net income of previous periods – the so-called income approach.
• Patient base: number of registered patients in the file and their composition (age, type of insurance, proportion of self-payers). The size and loyalty of the file directly influences expected future revenues. The number of registered patients is therefore one of the most important measures of the “size” of a practice.
• Equipment and real estate: quality and condition of the equipment and furniture in the practice (ultrasound, ECG, special equipment, etc.), as well as the condition and nature of the premises (owned or rented).
• Location and market environment: location of the practice (city vs. countryside, public transport accessibility, parking) and competitive situation in the region. Practices in more lucrative locations or with less competition are more valuable than comparable practices in less desirable locations.
• Staffing: stability of staff (doctor, nurses, other employees) and their level of remuneration. Buyers appreciate it if the practice is well staffed with qualified personnel or if, conversely, the seller can merge management or provide short-term medical support.
• Reputation and goodwill: a subjective factor reflecting how much the practice is liked by its clients and the surrounding community. A strong reputation (e.g., long-term good patient ratings, highly qualified doctor) can increase the value beyond the pure financial indicators.

Valuation methods

Standard business valuation methods are generally used to calculate the value of a medical practice:

• Income method: most commonly the capitalized net income method. It takes into account the historical net income of the practice and adjusts it to a stable (comparable) level. For example, the average after-tax profit for the last five years is calculated and converted into the value of the practice using a capitalization rate. In practice, valuation is often based on past income, as the Czech healthcare system is heavily dependent on regulations and future reimbursement decrees, which cannot be reliably predicted in the long term.
• Discounted cash flow (DCF): a variant of the income approach based on projections of the practice's future cash flows. It is used more for larger or diversified healthcare companies; for small practices, DCF is often replaced by capital income, see above.
• Market comparison method: compares the valued entity with recently sold comparable practices (similar fields and location). The application of this approach is limited in the field of medical practices – transaction data is often not publicly available and the retail market for medical practices is fragmented. If relevant comparable sales are available, the comparative method can provide a rough check.
• Cost (summarized) method: based on the state of the practice's assets (asset method). The replacement cost of the practice's tangible and intangible assets (equipment, furnishings, and, where applicable, the value of know-how) is calculated and depreciation is deducted. This method usually results in a lower value than the income approach and serves more as a supplementary check of the result.

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Summary: The value of a medical practice in the Czech Republic depends on a combination of financial indicators (revenues, EBITDA), contractual arrangements, and operating parameters (number of patients, equipment, location, staff, reputation). Traditional business valuation methods (primarily income-based) are used to determine its value, and the assistance of an expert is often sought. The estimate obtained in this way serves as a basis for negotiations on the sale price of the practice.

Are you planning to sell or buy a medical practice?

At ARROWS, we have experience in valuing healthcare facilities and know what to look out for. We will help you determine the real value of your practice and ensure that the entire transaction is legally and fiscally secure.

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