Gas Stations, Accounting Firms and Medical Practices

March 20th, 2008 | Income Approach & Methods | Regulatory Matters

I continue to encounter resistance to the idea that a coding analysis is necessary to value a physician practice when you can get the data; codes indicate not only the source of revenue in the practice, e.g., office encounters versus tests, but also the character of services being provided and the underlying illness of the patient base.  A subspecialist who relies on referrals and therefore the consult codes for his or her income is in a very different position than a primary care physician who relies on codes 99212, 99213 and 99214 for his or her income.  Incorrect use of a higher level code can dramatically overstate the revenue in the practice while a lower level code can understate the revenue. Further, a Payor Analysis is necessary to see how much revenue comes from Medicare, Blue Cross, Medicaid and so on, and how much of each of those revenue sources is actually collected.

I recently analogized this to trying to value a gas station without knowing how much of the sales were for gas, how much for candy, soda, sandwiches and/or groceries, and how much for renting space to the Dunkin Donuts!  Similarly, I have never heard anyone suggest that you can value an accounting practice without knowing how much revenue came from accounting, bookkeeping, tax and consulting – and what the billing rates were for each staff member providing services in those areas and what portion of the billing was realized in cash collections!

Nuff said.

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