How to Value a Primary Care Practice: A Guide for Physician Owners

As a physician owner, you have likely heard old rules of thumb for valuing a practice, such as applying a simple percentage to your annual collections. Today, the buyers for primary care practices—from private equity groups to large health systems—use a much more detailed approach. With growing interest from private equity, the market for primary care practices is more active than ever, demanding a greater understanding of value from sellers. They look past simple revenue figures to understand the true, ongoing profitability of your practice.This guide will detail the modern valuation process. We will explain the financial metrics that buyers focus on, the factors that determine your practice’s worth, and the common mistakes to avoid. Our goal is to give you a clear understanding of how your practice’s value is calculated in today’s market.

The Core Metric: Understanding Adjusted EBITDA

The most important figure in any practice valuation is Adjusted EBITDA. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It offers a clean look at your practice’s operating cash flow.

However, buyers are most interested in Adjusted EBITDA. This figure takes your standard EBITDA and “normalizes” it by adding back or subtracting expenses that are not part of the core, repeatable operations of the business. Think of it as the profit your practice would generate under a new owner. An experienced advisor helps identify these adjustments to show a buyer the full earning potential of your practice.

For a primary care practice, common adjustments include:

• Owner’s Salary: If you pay yourself an above-market salary of $450,000, but a new medical director could be hired for $275,000, a buyer will add the $175,000 difference back to your earnings.
• One-Time Major Expenses: Did you spend $50,000 on a new EMR system implementation this year? Since this is not a recurring annual cost, it can be added back to your profit.
• Discretionary Spending: Expenses that are for your personal benefit rather than the business, like a vehicle lease or personal travel, are also added back.
• Below-Market Rent: If you own the building and rent it to your practice at a rate lower than the market average, a buyer will adjust for this by subtracting the difference to reflect a true market-rate rent expense.

Getting this number right is the foundation of your entire valuation. To learn more about this core concept, you can read our detailed articles EBITDA Explained for Physicians and our EBITDA Normalization Guide.

Establishing Your Practice’s Valuation Multiple

Once you have a clear Adjusted EBITDA figure, that number is multiplied by a valuation “multiple” to determine your practice’s Enterprise Value. For primary care practices, this multiple typically falls in the 3.0x to 8.0x range. The reason for such a wide range is that multiples have expanded as strategic acquirers seek scalable platforms, a shift from traditional hospital-based valuations.

Where your practice falls in this range is not arbitrary. It depends on a specific set of factors that buyers use to assess risk and growth potential.

• Scale and Stability: A larger group practice with multiple providers and a seven-figure EBITDA will receive a higher multiple than a solo practice. Larger operations have more diversified revenue streams and are less dependent on a single physician, making them a less risky acquisition.
• Payer Mix: The breakdown of your revenue from commercial insurance, Medicare, and Medicaid has a direct effect on your valuation. A higher percentage of reimbursement from stable, higher-paying commercial plans is attractive to buyers. You can learn more about the Impact of Payor Mix on Valuation.
• Growth Profile: Is your patient panel expanding? Have you successfully integrated ancillary services? A practice that can show a clear history of growth and a plan for future expansion will command a higher multiple.
• Provider Reliance: A practice where the patient relationships and operational knowledge rest heavily with you, the owner, presents a transition risk for a buyer. Practices with a strong team of associate physicians or mid-level providers who will remain after the sale are seen as more valuable.

Putting It Together: A Valuation Example

Let’s see how these pieces fit together with a hypothetical primary care practice.

Imagine “Main Street Family Medicine,” a practice with two physicians and one nurse practitioner.

1. Calculate Adjusted EBITDA

   • Annual Revenue: $3,500,000
   • Reported Pre-Tax Profit: $500,000
   • Adjustments:
     • Owner’s excess salary and distributions: +$150,000
     • One-time legal fees from a retired partner’s exit: +$30,000
     • Personal auto expenses run through the business: +$12,000
   • Adjusted EBITDA: $500,000 + $150,000 + $30,000 + $12,000 = $692,000

2. Apply the Multiple

   • The practice has a strong team, a stable patient base, and a good local reputation. Based on these factors, an advisor determines a 5.5x multiple is appropriate.

3. Determine Enterprise Value

   • Enterprise Value: $692,000 (Adjusted EBITDA) x 5.5 = $3,806,000

This Enterprise Value is the headline valuation. To determine your final take-home proceeds, you would subtract any practice-related debt (like an equipment loan) and transaction fees.

Beyond the Multiple: Strategic Value & Deal Structure

Your practice’s value is not just a mathematical formula. The story you tell—your reputation, your operational efficiency, and your position in the community—adds real value that does not appear on a financial statement. These are intangible assets like patient loyalty, a strong referral network, or a highly trained and tenured staff. An effective M&A process frames this narrative to show a buyer that they are not just buying cash flow but a thriving clinical asset.

Deal structure also plays a huge role. For example, some owners choose to take “rollover equity.” This means you reinvest a portion of your sale proceeds into the buyer’s larger company. This allows you to get a second financial benefit when that larger entity is sold in the future. An advisor helps you understand and negotiate these structures to align with your personal financial goals.

Common Missteps in Primary Care Valuations

Many physician owners make avoidable errors when they begin to think about their practice’s value. Being aware of these can help you better prepare for a successful outcome.

• Using Outdated Formulas: Relying on a simple percentage of collections or revenue is a thing of the past. Sophisticated buyers do not use these methods, and they will not value your practice that way.
• Failing to Prepare Your Financials: Just as you would stage a home before selling it, you need to prepare your financial records for a buyer’s review. Messy or unclear bookkeeping can lower a buyer’s confidence and their offer.
• Ignoring Key Value Drivers: Many owners are not aware of how factors like provider contracts, payer mix, and operational workflow affect their multiple. Addressing any weaknesses in these areas before a sale can increase your final price.
• Not Running a Competitive Process: Accepting the first offer you receive seldom results in the best price or terms. A professionally managed process creates a competitive environment where multiple buyers bid for your practice, giving you the leverage to achieve your goals.

Your primary care practice is likely your most significant financial asset. Trying to manage the complexities of a sale alone can risk undervaluation. Partnering with specialists helps ensure your lifetime of work receives the full market recognition it deserves.

Curious about what your practice might be worth in today’s market? Request a Complimentary Value Estimate →