When you need to assess a medical practice financial return for a buy-in, it is important to know what to look for.

No matter how much or a personal or cultural fit the practice may be, the financial health of the practice will typically dictate whether or not a doctor chooses to buy-in to the practice or not.

When assessing a medical practice financial return, you must be crystal clear on what exactly ownership in the partnership interest entitles you to.

Know the Compensation Model

This is why it is crucially important to understand the physician compensation model that the practice uses. Many of these models are largely based on individual productivity.

Some groups maintain a tier-based system where a smaller portion of the practice net income is distributed according to productivity and some equally.

Without this understanding, a physician can’t possibly evaluate the buy-in offer without knowledge of the return.

Know the Overheads

Before you can assess the medical practice financial return you must also know how much the practice is costing to run. Once you know the overhead percentage of the practice, you can compare it with the median levels reported by peer practices in your specialty. For example, the Medical Group Management Association (MGMA) Cost Surveys is a great source specialty-specific overhead rates.

Know the Accounts Receivable

Medical practices do not collect every dollar they charge. Medicare and other insurance payers can often discount physician charges and some patient charges are simply never collected (these are typically called bad debts.) Moreover, as it will generally take anywhere from 60 to 90 days to collect most of the receivables, which means the owners may not get paid immediately.

Depending upon the specialty of the medical practice, the receivables can constitute between 8% to 15% of a practice’s annual gross revenues. Consider this as a cost of business, and factor it into the decision of buying-in to any specific practice you might assess.

Accordingly, the valuation of accounts receivable can be very important in determining a buy-in purchase price.

Upon closer inspection, the medical practice financial return may not be all that much in terms of actual dollars. A proper understanding of these factors and financials of the business will be helpful in making a wise decision.