Buying a medical practice can be one of the most rewarding and complex decisions of your career. Whether you’re looking to take over a retiring physician’s practice or buy into an existing partnership, understanding the financial, legal, and operational steps is essential. Here’s what physicians should know before making the move to ownership.
Why Would a Doctor Sell Their Practice?
There are several reasons a physician may decide to sell, and understanding these motivations can help you evaluate the opportunity more clearly.
Rising business expenses
Running a private practice has become significantly more expensive. Becker’s Healthcare reports that the cost of running a medical office has risen nearly 40% since 2001. Staffing, rent, technology, and compliance costs continue to pressure margins, pushing some doctors to sell earlier than planned.
Declining insurance reimbursements
Private practices often face lower reimbursements from Medicare, Medicaid, and commercial payers than hospital-employed physicians. According to the American Medical Association (AMA), independent doctors are typically paid less for identical services compared to those in large health systems. This payment gap makes sustainability difficult for solo and small-group practices.
Administrative burnout
The paperwork burden is enormous. In a recent AMA survey, 31% of physicians cited administrative overload as a top reason for burnout, especially among primary care doctors. Many choose to sell their practices to reduce that stress and focus solely on patient care.
Retirement and Succession
Older physicians are still the most likely to own private practices, and many plan to retire in the next five to ten years. This demographic shift creates opportunities for younger doctors to purchase established offices with existing patient bases.
Income Volatility
While practice owners often earn more than employed doctors, earnings can fluctuate year to year. COVID-19 highlighted these risks, as patient volumes and revenues dropped sharply for many independent offices.
How To Value a Medical Practice
Valuing a medical practice involves more than just looking at annual revenue. You’ll need to understand both tangible and intangible assets, as well as liabilities.
Common valuation factors include:
- Accounts receivable: Outstanding payments owed to the practice.
- Assets: Includes equipment, technology, office furniture, and the electronic health records (EHR) system.
- Cash flow: Total revenue minus expenses, adjusted for non-cash items like depreciation.
Most primary care practices sell for 25% to 40% of annual gross revenue, while specialty practices may command higher multiples. Always verify any financials provided by the seller and consider hiring a professional appraiser. The Uniform Standards of Professional Appraisal Practice (USPAP) provides guidelines for fair medical business valuations.
Calculating the ROI When Buying a Medical Practice
Before buying, ask yourself: How long will it take to earn back your investment?
Most practice buyers aim for a five-year or shorter payback period. For example, if you purchase a $2 million practice with a loan, your annual net profit should ideally allow you to recover that cost within five years.
Your ROI will depend on:
- Overhead costs (such as staff wages, rent, and technology upgrades)
- How much you pay yourself as the owner
- Local patient demographics and referral networks
It’s smart to connect early with practice finance lenders who specialize in medical acquisitions. They can share what typical loan structures and repayment timelines look like for your specialty.
Is Buying a Medical Practice Tax Deductible?
Certain aspects of your purchase can qualify for tax deductions. Assets such as equipment and technology may be depreciated or expensed under IRS Section 179, allowing large upfront write-offs.
Because every purchase structure is different, consult with an accountant experienced in medical practice acquisitions. The way you allocate your purchase price between assets and goodwill can significantly affect your tax burden and future deductions.
Buying a Medical Practice: 101
Buying or buying into a medical practice is a long process, often taking 12 to 24 months from research to closing. These steps can help you approach it strategically.
1. Identify red flags early
Investigate existing debt, accounts receivable, and reputation. Review online feedback, ask about staff turnover, and verify whether key employees intend to stay after the sale. A practice with recurring turnover or poor community perception may require costly rebuilding.
2. Find a mentor
Connect with another physician who has gone through the ownership transition. A peer mentor can offer real-world insight into cash flow management, staff retention, and what to expect in the first year post-purchase.
3. Hire the right attorney
Work with a healthcare attorney who regularly handles practice acquisitions and buy-ins. They’ll help draft or review contracts, ensure compliance with state medical board rules, and establish your new entity properly. The right lawyer can prevent expensive mistakes and keep your deal on track.
Key Takeaways
Buying a medical practice can be a smart path to independence and long-term wealth, but it requires careful due diligence. Understand why the seller is exiting, confirm the true value of the business, and model your expected ROI before signing. Align yourself with trusted professionals – including lenders, accountants, and healthcare attorneys to protect your investment and set your new practice up for success.
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