When a physician walks out of a practice in breach of a non-compete and takes patients, referrals, and ancillary revenue with them, the lost profits are measured by tracing the departed doctor’s actual historical production and collections, isolating the revenue that genuinely followed the breach, and subtracting the costs the practice avoided — all while accounting for the patients and payments that would have eroded anyway. That is the short answer. The longer one, which is what most of this article is about, lives in the gap between “the doctor left and our revenue dropped” and “this specific dollar amount is attributable to the breach, with reasonable certainty, after honestly accounting for everything else that was moving at the same time.”
I work as a forensic accountant and economic-damages expert witness, and I am a CPA, Accredited in Business Valuation (ABV). Medical-practice damages are a distinct corner of the broader field of economic damages because a physician practice does not earn money the way a retailer or a manufacturer does. Its revenue runs through a billing-and-collection machine that almost no one outside healthcare fully understands, the rate it gets paid for the identical service swings wildly by who is paying, and the conduct at the center of the dispute is wrapped in regulation that can quietly disqualify a damages theory before the math even starts. This article walks through how I think about these cases.
Why a Medical Practice Earns Money Differently
Before you can quantify what a practice lost, you have to understand what it actually had. A physician practice is not one revenue stream; it is several stacked on top of each other, and they do not all behave the same way when a doctor leaves.
The first layer is professional collections — what the practice keeps after billing for the office visits, procedures, and surgeries the physician personally performs. The second is ancillary revenue, which is the money a practice earns from owning or leasing testing equipment: imaging like MRI, CT, and ultrasound; an in-house laboratory; cardiac stress testing; an attached surgery center. A practice that owns this equipment captures a “technical component” on every test it runs — the payment that compensates the owner of the machine, the supplies, and the technician, separate from the professional fee for reading the result. A practice with no equipment simply cannot lose ancillary revenue, because it never had any. The third layer is leverage over other providers — nurse practitioners, physician assistants, and other non-physician clinicians whose billable work the practice profits from, and whose output can vanish or shift when the supervising physician departs.
On top of all of this sits the single most important variable in medical economics that outsiders miss: payer mix. Two physicians can see the same number of patients, perform the same procedures, and bill identical charges, and still collect wildly different amounts of money — because one of them treats a population weighted toward commercial insurance and the other toward Medicaid. Charges are close to meaningless here. The insurer decides what a service is worth, and it does so according to its own fee schedule, not the practice’s price list. Understanding that distinction is the foundation of everything that follows.
How a Departing Physician Actually Causes a Loss
When a physician breaches a restrictive covenant and sets up or joins a competitor nearby, the harm to the practice they left can show up in several places at once. I think of them as separate buckets because, in a damages analysis, they have to be measured separately.
- Diverted patients. The patients who follow the physician to the new location are charges and collections the old practice will never see again — at least not from those patients.
- Diverted referrals. Specialists in particular live on referral relationships. If the departing physician was a source of, or a destination for, a stream of referrals, that channel can redirect to the new practice or to a competing hospital.
- Lost ancillary pull-through. Every diverted patient who would have gotten an MRI, a lab panel, or an outpatient procedure at the old practice takes that high-margin ancillary work with them. For surgical specialties tied to imaging and surgery-center revenue, this can dwarf the professional fees themselves.
- Stranded overhead. This one is routinely overlooked. A practice signs a lease and hires staff sized for a certain number of physicians. When a doctor leaves, the rent does not shrink. The fixed costs that the departed physician used to help cover now land on the remaining owners, compressing their income beyond the simple loss of that doctor’s collections.
- Replacement costs. Recruiting and training a replacement physician or clinician is real money, and it belongs in the analysis when the facts support it.
The trap in all of this is that the practice’s gross revenue fell, and it is tempting to call the whole decline “the damage.” It almost never is. The work is in separating the part of the drop the breach caused from the part that would have happened regardless.
Measuring the Loss: Three Anchors
I anchor a physician lost-profits analysis on three things, in roughly this order.
1. The Departed Physician’s Historical Production
The most reliable starting point is what the doctor actually did before leaving — not a national survey, not a benchmark, but their own track record. I want the production reports: weeks worked, patient encounters, procedures performed, and the billing codes used. In physician work these are the CPT codes (and their cousins for testing and injectable drugs), and they are the DNA of the revenue. Two physicians seeing the “same” patients can produce very different revenue if one of them codes encounters at a higher level of complexity, or if a chunk of one practice’s revenue comes from in-office infused or injected drugs that a survey benchmark would not even capture.
Tied to production is the relative-value-unit framework, which assigns each service a work component, a practice-expense (overhead) component, and a malpractice component. The work component is what tracks the physician’s personal effort, and it is the piece you generally want when you are isolating one doctor’s contribution. Mixing up total RVUs with work RVUs is a classic error, and it inflates a claim in a way that does not survive a competent cross-examination.
2. Before-and-After on the Practice’s Own Numbers
Once I understand the departed physician’s production, I look at the practice as a whole, before and after the breach, using its own collections data. A before-and-after lost-profits analysis compares what the practice was earning before the event to what it earned after, and treats the gap as the candidate for damages. In a medical practice, this comparison only works if it is done on collections, not charges, and only after you have layered in payer mix — because if the practice’s payer mix shifted during the period for reasons unrelated to the departure, the raw before-and-after number is already contaminated.
3. Attribution — Which Patients and Referrals Actually Followed
This is where most weak claims fall apart. It is not enough to show that revenue left; you have to show it left with the physician. That means tracing specific patients and specific referral relationships from the old practice to the new one. A patient who moved out of the area, switched insurers, or simply chose to stay with the remaining doctors is not a damage caused by the breach. The cleaner the attribution — patient by patient, referral source by referral source — the more defensible the number. When a hospital is the plaintiff, this gets more complex still, because a hospital-employed physician’s economic footprint is spread across many departments: imaging, lab, inpatient admissions, outpatient surgery, therapy. Pulling the orders a single physician generated across all of those service lines, and then measuring the contribution margin lost — revenue minus the variable cost of providing the service, not some fully loaded “profit” figure — is the right way to capture the real economic harm without overstating it. The fixed costs of the hospital do not go away when one cardiologist leaves, so the contribution-margin approach is what tells you what was actually lost.
A Hypothetical Illustration
The following numbers are entirely hypothetical. I invented them to show the mechanics — they are not drawn from any actual engagement, any real practice, or any real party.
Imagine a four-physician orthopedic group. Two of the doctors are owners; two are employed under non-competes. The employed pair leaves and opens a competing practice three miles away, in alleged breach of their covenants.
| Component | Pre-departure (annual) | Attributable to breach |
|---|---|---|
| Professional collections, the two departing MDs | $1,100,000 | $740,000 (after removing patients who left the area or switched plans anyway) |
| Ancillary (in-house MRI + CT pull-through) | $520,000 | $360,000 |
| Stranded fixed overhead now on remaining owners | — | $100,000 ($50,000 lease share each) |
| Variable cost the practice no longer incurs | — | ($210,000) avoided, so subtracted |
| Illustrative annual lost contribution | $990,000 |
Two things in that table are doing the heavy lifting. First, only about two-thirds of the departing physicians’ historical collections are treated as breach-attributable, because some of those patients would have drifted away no matter what — and pretending otherwise is exactly the kind of overreach that gets a damages opinion excluded. Second, the variable costs the practice no longer has to pay are subtracted, because lost profits are about lost profit, not lost revenue. A claim that ignores avoided cost is not a lost-profits claim; it is a wish list.
Causation and Reasonable Certainty in Healthcare
Every lost-profits opinion has to clear two bars: the loss has to be caused by the wrongful act, and it has to be proven to a reasonable certainty rather than left to speculation. Medical practices throw up causation problems that you rarely see in ordinary commercial cases, and an honest expert raises them before opposing counsel does.
- Would the patients have stayed anyway? Patient loyalty in medicine is real but imperfect. Some patients follow a doctor anywhere; many stay with the practice and the staff they know. Assuming 100% of a physician’s panel walks out the door with them is rarely defensible.
- Did the payer mix or fee schedules move? Insurers cut reimbursement, drop out of markets, and renegotiate rates constantly. If a key payer slashed what it pays for the practice’s highest-volume procedure during the loss period, part of the revenue decline belongs to that cut — not to the departing physician.
- Is attrition already baked in? Physicians age, scale back, and retire. A doctor who was already winding down their hours produces a shrinking baseline, and projecting flat or growing revenue off a declining trend is unsupportable.
- Are the growth assumptions realistic? In my experience the most damaging error in physician damages work is an aggressive growth rate. Per-unit reimbursement for physician services has crept up at well under two percent a year over long stretches, and Medicare’s payment formulas have been engineered specifically to suppress increases. A “hockey stick” projection of ever-rising income, or a casual 3% annual escalator borrowed from some other industry, will not hold up. The capacity of a small practice to do more is finite, and the price it gets paid per unit is largely outside its control.
- What else changed? A competing group extending evening and weekend hours, a new physician moving into the service area, a staffing change at the front desk, a botched billing-software conversion, an economic downturn raising bad debt — any of these can drag down practice income independent of the breach. The plaintiff has to prove the defendant’s conduct proximately caused the loss, and that means ruling these out or measuring around them.
The Regulatory Lane — and Why I Stay In My Own
Healthcare is among the most heavily regulated sectors in the economy, and that regulation reaches directly into how damages can be calculated. Federal law prohibits paying for patient referrals and restricts physician self-referral for certain services. The practical consequence for a damages expert is sharp: a theory that effectively values the departed physician’s referrals — as opposed to their competition — can run straight into a legal wall. Likewise, basing a hospital’s loss on the physician’s post-departure utilization at a new practice where they now share in ancillary profits can overstate the claim, because the financial incentive to order tests changes once the doctor owns a piece of the testing.
I flag these issues, and I build the financial analysis so that it does not depend on an assumption the law may not permit. But I want to be precise about where my lane ends. Whether a non-compete is enforceable, how it should be construed, and whether a particular damages theory is legally permissible are questions for counsel and the court, not for the accountant. My job is to quantify the financial loss under the assumptions the lawyers and the court establish, to tell them clearly when an assumption looks regulatorily fragile, and to keep my opinion grounded in numbers I can trace and defend. I do not opine on enforceability, and I am wary of any analysis that quietly smuggles a legal conclusion into a financial one.
Records I Need to Do This Right
A physician lost-profits analysis is only as good as the data behind it, and getting the right data requires being involved early — ideally during discovery, so the document requests actually ask for what the calculation will need. Reviewing the first production almost always surfaces the need for a second. The core materials I look for include:
- Production reports for the departed physician and the practice: weeks worked, patient encounters, procedure and visit volumes, and CPT/coding frequency.
- Billing and collections data — not just charges, but actual collections, ideally broken out by payer and by service line, for several years before and after the event.
- Payer-mix detail, including the percentage of revenue from each major payer and any contract or fee-schedule changes during the loss period.
- Referral data — referral logs, sources, and the patient-level information needed to trace which referrals and patients actually followed the physician.
- Ancillary and equipment records for any imaging, lab, or surgery-center revenue, and the costs tied to it.
- The practice’s expense structure, separated into fixed and variable, so that stranded overhead and avoided costs can both be handled correctly.
- For hospital plaintiffs, department- and service-line-level data capturing the orders the physician generated across imaging, lab, inpatient, outpatient surgery, and therapy.
Where patient-identifying information is involved, it should be redacted before it reaches me; I do not need protected health information to measure economics, and I would rather not receive it.
FAQ
How are lost profits for a physician practice different from an ordinary business?
A typical business loses sales; a physician practice loses collections, and what it collects for the identical service depends almost entirely on the payer. Charges are a poor measure of anything. Layered on top are ancillary testing revenue, leverage over non-physician providers, and a thicket of healthcare regulation that can disqualify a damages theory outright. The analysis has to be built on collections, payer mix, and traceable production — not on gross revenue or list prices.
Can a practice claim everything it lost after the physician left?
No, and claiming so is a fast way to get an opinion excluded. The practice can claim the portion of the loss the breach caused, proven to a reasonable certainty, after subtracting the costs it avoided. Patients who would have left anyway, revenue lost to a reimbursement cut, and attrition the physician was already heading toward are not breach damages. The discipline of the analysis is in the subtraction, not the addition.
Does the accountant decide whether the non-compete is enforceable?
No. Enforceability and how the covenant is interpreted are legal questions for counsel and the court. My role is to quantify the financial loss under the assumptions the lawyers and the court set, and to point out when an assumption looks regulatorily shaky. I stay in the financial lane and leave the law to the lawyers.
What records are most important to get?
Production reports and actual collections data — broken out by payer and service line, for several years before and after the event — sit at the center. Beyond that: payer-mix detail, referral logs, ancillary and equipment records, and a clean split of fixed versus variable expenses. Being retained early matters, because the right document requests in discovery determine whether the data needed for a defensible calculation ever gets produced.
Why do growth-rate assumptions matter so much?
Because an inflated growth rate is the single most common way these claims overstate damages. Per-unit reimbursement for physician services has grown at very low rates over long periods, and Medicare’s payment mechanics are designed to hold increases down. Projecting steady or rising income off an aggressive escalator ignores how this industry is actually paid. A small practice’s capacity is limited and its per-unit price is largely set by others, so the projection has to reflect that reality.
How do I reach you about a physician-practice or non-compete matter?
You can reach me at 954-282-9615 to discuss a medical-practice lost-profits or restrictive-covenant matter. This kind of work is part of my broader expert witness and litigation support practice, and it is typically billed hourly, at approximately $400 per hour, the Florida market average. I am happy to talk through what the case involves and what records the analysis would require before anyone commits to anything.
About the Author
Joey Friedman is a CPA, Accredited in Business Valuation (ABV), and forensic accountant who holds a Master of Accounting and a Master of International Business and is a member of the AICPA and the Association of Certified Fraud Examiners. He also holds a Florida real estate license. Beyond those credentials, he has personally owned and operated more than a dozen of his own businesses across industries including marketing, printing, transportation, restaurants, hospitality and entertainment, and event planning — so he brings both a forensic accountant’s command of practice collections and production data and an owner-operator’s first-hand understanding of how a professional service business actually retains, or loses, its patients, its referral relationships, and its revenue when a key producer walks out the door.