Earnings Before Physician Compensation (EBPC) is a valuation metric used to determine the total economic profitability of a physician practice. It is calculated by taking a practice’s net income and adding back all compensation for the physicians, including salaries, bonuses, benefits, and related payroll taxes.
Think of your practice’s total earnings as a pie. Before you and any partners decide how to slice it up for yourselves, EBPC measures the size of that whole pie. A potential buyer is interested in the value of the entire pie, not just the way it is currently sliced. This allows them to compare your practice to others on an equal footing, regardless of different physician payment structures.
Why This Matters to Healthcare Providers
EBPC gives you and potential buyers a clear, standardized view of your practice’s core earning power. This becomes the starting point for negotiating a sale price and structuring your future, market-rate compensation as an employed physician.
Example in Healthcare M&A
Scenario: Two senior partners in an orthopedic group are exploring a sale to a private equity firm. Partner A takes an annual salary of $700,000, while Partner B takes a salary of $500,000 and a larger year-end distribution. After all expenses, including their compensation, the practice shows a profit of $300,000.
Application: The buyer calculates the practice’s EBPC to establish a valuation. They add the practice’s profit to the total compensation of both partners.
EBPC = $300,000 (Profit) + $700,000 (Partner A) + $500,000 (Partner B) = $1,500,000
Outcome: The PE firm uses this $1.5M EBPC figure as the basis for its valuation, applying an industry-standard Multiple to arrive at a purchase price. The partners then negotiate new employment agreements with compensation based on Fair Market Value, ensuring the deal structure complies with federal regulations like the Stark Law and Anti-Kickback Statute.
Related Terms
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Frequently Asked Questions
What is Earnings Before Physician Compensation (EBPC)?
Earnings Before Physician Compensation (EBPC) is a valuation metric used to determine the total economic profitability of a physician practice. It calculates the practice’s net income plus all compensation paid to the physicians, including salaries, bonuses, benefits, and payroll taxes.
Why is EBPC important for healthcare providers?
EBPC provides healthcare providers and potential buyers a clear, standardized view of a practice’s core earning power. This helps in negotiating sale prices and structuring future physician compensation based on fair market value.
How is EBPC calculated?
EBPC is calculated by adding the practice’s net income (profit) to the total compensation paid to physicians, including salaries, bonuses, benefits, and payroll taxes.
How is EBPC used in healthcare mergers and acquisitions (M&A)?
In healthcare M&A, EBPC is used by potential buyers to establish the valuation of a practice by assessing the total economic profitability before physician compensation. Buyers apply an industry-standard multiple to the EBPC figure to determine a purchase price and negotiate employment agreements compliant with federal regulations.
What related terms should I know when learning about EBPC?
Related terms include EBITDA, Stark Law, Anti-Kickback Statute, and Physician Compensation Models Post-PE. These terms help provide a fuller understanding of practice valuation, legal compliance, and compensation models in healthcare transactions.