EQUITABLE DISTRIBUTION OF A MEDICAL PRACTICE: VALUATION VERSUS MARKETABILITY
I was recently retained by a medical doctor in a divorce case. When I began discussing the topic of the valuation and distribution of the client’s medical practice, my client told me it had no value because there were no buyers anymore for that type of practice.
On the way home from our meeting, I began to think some more about the interplay between the classic valuation of a medical practice we have all come to know and love and the real world value a real buyer would place on the practice.
To my mind, truly interesting conflict in a valuation proceeding is the discount to be applied to the capitalized earnings of the practice. Debating the actual income of the practice has its place, as does proving or disproving the validity of the capitalization rate adopted by the valuator. But the most fertile ground for increasing or decreasing the value assigned to the practice is in the area of the discount to full value which should be given for the presence or absence of a meaningful market for the practice.
The reason this line of attack (or defense) is so interesting is because of the numerous real world facts and circumstances which are required to properly determine the discount. It is where attorneys earn their fees: knowing and preparing for the Court all of the facts which actually determine what a willing buyer is prepared to pay for the medical practice at issue.
These facts can range from the sublime (what is the measure of patient loyalty at this particular practice over the past 5 years) to the ridiculous (what does the patient waiting room look like compared to other practices in the area and how that affects patients).
Because of the intensely fact sensitive nature of a medical valuation in a divorce, it is important for the doctor’s attorney to work closely with the appraiser and the doctor. Equally important, in my view, is for the attorney to be able to present credible testimony from an experienced and reputable medical practice broker.