By Joey N. Friedman, CPA, ABV, M.Acc, MIB — President, Joey Friedman, CPA, P.A.
Quick answer: A medical practice is valued primarily on a multiple of its normalized EBITDA — earnings after the physician-owner’s pay is reset to a market level for the clinical work performed. Multiples vary widely by specialty and size: primary care commonly trades around 3 to 6 times EBITDA, while in-demand specialties such as cardiology, dermatology, and orthopedics reach 6 to 11 times or more, and the largest platforms command 10 to 12 times. Because most of a small practice’s earnings are physician compensation, normalization is the decisive step. As with any professional practice, a physician’s personal goodwill is generally not a divisible marital asset in a Florida divorce.
Valuing a medical practice has grown more complex as private equity and health systems have reshaped the market. A solo internist and a private-equity-backed dermatology platform are valued on entirely different scales, and the figure that holds up depends on which buyer is realistic and how the practice’s true profit is measured. A credentialed valuation analyst determines both.
How a medical practice is valued
For institutional buyers — private equity platforms, health systems, and strategic consolidators — the method is a multiple of adjusted EBITDA. The work that makes or breaks the number is normalization: resetting the physician-owner’s compensation to a market rate for the clinical services performed, then removing discretionary personal expenses, family-member salaries above market, and non-recurring items. Because an owner-physician’s pay often absorbs most of the practice’s cash flow, this single adjustment frequently determines whether there is meaningful EBITDA at all.
A revenue rule of thumb — roughly 0.5 to 1.0 times annual revenue for a smaller practice — serves only as a rough check; it ignores profitability and payer mix. The substantive analysis rests on the income, market, and asset approaches described in our overview of business valuation, with the income approach typically leading.
The multiples — by specialty and size
EBITDA multiples for medical practices generally run from about 6 to 12 times or higher, but the range within that band is driven by specialty and scale:
- Primary care: typically the low end, roughly 3 to 6 times.
- In-demand specialties: higher — reported figures place cardiology near 8 to 11 times, with dermatology, orthopedics, gastroenterology, and plastic surgery also commanding premiums.
- By size: smaller practices (about $500,000 to $1 million of EBITDA) commonly see 6 to 8 times, while large platforms ($5 million-plus of EBITDA) reach 10 to 12 times or more.
The pattern mirrors the consolidation reshaping veterinary and dental care: scale, profitability, and strategic demand for a specialty all push the multiple up.
The private-equity and MSO effect
Private equity uses a two-tiered model: it pays a premium multiple to acquire a “platform” practice, then captures arbitrage by adding on smaller practices at lower multiples and revaluing them at the platform level. The earnings rise in value through aggregation itself.
Deal structure is shaped by the corporate practice of medicine doctrine, which varies by state and governs whether non-physicians may own a medical practice. In many transactions, private equity invests through a management services organization (MSO) that owns the practice’s non-clinical assets and provides administrative and financial services, while the physicians retain the professional clinical entity. Understanding the structure matters, because a valuation must be clear about exactly what is being valued — the clinical practice, the MSO, or the combined enterprise.
What drives a medical practice’s value
Beyond size and specialty, an analyst evaluates five forces that move the multiple:
- Quality of earnings — how clean, sustainable, and well-documented the normalized EBITDA is.
- Scale — larger practices are worth more per dollar of earnings.
- Ancillaries — in-house imaging, laboratory, surgical, or infusion services that add high-margin revenue.
- Payer mix — the balance of commercial, Medicare, and Medicaid reimbursement.
- Credible growth — a demonstrable, defensible path to higher earnings.
A practice strong on these forces — and not wholly dependent on one physician — earns a premium; one that is essentially a single doctor earns less, for the reason explained next.
Personal versus enterprise goodwill
When a medical practice is valued for a partner buyout or a divorce rather than a sale, goodwill is the contested issue, and Florida draws a firm line. Under Thompson v. Thompson, 576 So. 2d 267 (Fla. 1991), goodwill is a marital asset only to the extent it exists separate and apart from the reputation and continued presence of the individual professional. A physician’s personal goodwill — value tied to his or her own patients, referral relationships, and reputation — is not a divisible marital asset in Florida; only enterprise goodwill that would survive the physician’s departure is. The more a practice depends on one doctor, the more of its apparent value is personal rather than transferable. We apply the same framework to personal versus enterprise goodwill in a Florida divorce, to other professional-services firms, and to an accounting practice.
A related question arises when a physician leaves and breaches a non-compete: the issue shifts from valuing the practice to measuring the earnings it lost. We address that scenario in physician practice lost profits and non-compete damages.
When a medical practice valuation is needed
A credentialed valuation typically supports a sale to a private-equity platform or health system; a partner buyout or dispute (see partnership buyouts and disputes); a divorce, where Florida’s equitable distribution reaches the marital portion of the practice; and retirement, death, or disability, which usually trigger a buy-sell agreement (see business valuations for buy-sell agreements).
Frequently asked questions
How much is a medical practice worth?
There is no single figure. The defensible value comes from normalizing EBITDA — especially the physician-owner’s compensation — and applying a multiple. Primary care commonly lands near 3 to 6 times EBITDA, while in-demand specialties reach 6 to 11 times or more, and the largest platforms command 10 to 12 times.
Why does normalizing physician compensation matter so much?
Because in many practices the owner’s pay absorbs most of the cash flow. Resetting that compensation to a market rate reveals the practice’s true operating profit — the EBITDA a buyer is actually purchasing — and frequently changes the value dramatically.
Why do specialties sell for more than primary care?
Specialties such as cardiology, dermatology, and orthopedics generate higher margins, ancillary revenue, and strategic demand from consolidators, which supports higher multiples. Primary care typically sits at the lower end of the range.
How does private equity pay more than a local buyer?
Through a two-tiered, platform-and-add-on model: it pays a premium for a platform practice and then acquires smaller practices at lower multiples, revaluing them at the platform level. The value rises through aggregation.
Is a medical practice a marital asset in a Florida divorce?
In part. Under Thompson v. Thompson, the practice’s enterprise goodwill and net assets can be marital property, but the physician’s personal goodwill is not a divisible marital asset. Separating the two is the heart of the analysis.
Working with a credentialed valuation analyst
Joey Friedman, CPA, P.A. prepares business valuations of medical and physician practices and other professional practices for sales, partner buyouts, divorce, and buy-sell matters throughout Florida and nationally. As an Accredited in Business Valuation (ABV) analyst and forensic accountant, Mr. Friedman normalizes the practice’s earnings, determines a supportable conclusion of value under the appropriate standard, and separates personal from enterprise goodwill so the analysis withstands scrutiny in a transaction, mediation, or litigation. To discuss a matter, contact the firm.
This article is general information, not legal or accounting advice for a specific matter. Market multiples are illustrative ranges drawn from published data and vary by practice and specialty; engage a qualified professional to value your situation.