What is the Physician Business Owners Perspective on Business of Healthcare?

Araliya Valuation Consulting (AVC) surveyed over 1,000 physician business owners to find out their perspective on current healthcare environment, in business context. Based on responses from more than 450 healthcare business owners, about 32 percent of physicians say their overall outlook on healthcare environment in business context is optimistic or somewhat positive, while the majority, approximately 55 percent, have a negative outlook. According to First Research publication (Healthcare Sector, NAICS Code: 62XXX), revenues for the US healthcare are forecasted to grow at an annual compounded rate of 6 percent[1].

[1] Dun & Bradstreet First Research Industry Profile: Healthcare Sector NAICS Code: 62 as of 10.22.2018 (most current data available)

 Business Outlook

Business Outlook

Most survey respondents, 57 percent, indicated they believe their practice significantly outperforms or performs somewhat above average in comparison to other practices within the same specialty. About 26 percent of the participants said they believe their practice is average and 9 percent of practice owners believe their practice is performing below or significantly below average.  

 Industry Comparison

Industry Comparison

On business value, majority physician business owners feel confident they have a good idea what their practice is worth. Also, responders pointed out that the primary value drivers for their practice are the following: strong relationships with their patients and employees, followed by high growth potential and strong financial results.

 Understanding Value

Understanding Value

 Value Drivers

Value Drivers

The most important and primary concerns for physicians as they relate to their practice are: growing their revenues, reducing operating costs and paying down debt. Survey results show that only 2 percent of physician practices focus on investing in new technologies and innovation. Lastly, the survey indicated most physician practices are sole practitioners and do not have a business partner.

 Business Priorities

Business Priorities

 Business Planning

Business Planning

October 2018 AVC Business Valuation Quick Read

Law - Business Valuation Highlight

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  • Alabama divorce court adopts result of calculation engagement (Rohling v. Rohling, 2018 Ala. Civ. App. LEXIS 94) - The parties contested the valuation of the husband’s dental lab. The valuation expert worked pursuant to a calculation engagement. The trial court noted that just because a “more arduous or accurate method (valuation engagement) exists does not preclude the Court’s consideration of [the expert’s] findings.” It adopted the expert’s calculated amount.

Industry Highlight: Restaurants

  • Demand for US eating and drinking places, including restaurants, is forecast to grow at an annual compounded rate of 4% between 2018 and 2022;

  • Food Trucks Gain Popularity - mobile food establishments generate approximately $1 billion in revenues and are among the fastest-growing dining industries in the US, thanks to low overhead, quick service, and the flexibility to adapt to trends;

  • During the past 12 months, average sale price for a restaurant establishment in the U.S.(SIC Code: 5812) was $237,000 (rounded) with valuation multiple multiple of 4.7x Price/ EBITDA and 0.36x Price/ Sales.

AVC - Top Business Leaders Survey Results
Based on our survey results, nearly 40% of business owners indicated that they do not have a buy-sell agreement, or a clearly defined succession / exit strategy (Source: Araliya Valuation Consulting Business Leaders Survey 09.15.2018)

Business Valuation Survey

September 2018 AVC Business Valuation Quick Read

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Law News - Valuation Takeaways

  • WesternGeco LLC v. ION Geophysial Corp. - Supreme Court allows recovery for lost foreign profits. The U.S. Supreme Court recently expanded the scope of damages under certain circumstances. The issue was whether the patent holder, which had proven a domestic act of infringement, was entitled to lost profits related to the use of components of a patented device outside the United States.

  • Athlon Sports Communications, Inc. v. Duggan (Athlon II) - Court overrules precedent requiring exclusive use of Delaware block method to determine fair value in dissenting shareholder cases; trial courts may use other, more “modern” methods, including forward-looking DCF analysis, state high court says and remands for reevaluation of earlier ruling.

  • Zaffarkhan v. Domesek - Appeals court upholds zero damages finding in dispute involving short-lived software startup, where plaintiff’s expert had no experience valuing software companies, misapprehended basic facts, and developed multi-million-dollar valuations for a company with no product, no revenue, and no investors.


The Tax Cuts and Jobs Act Impact

U of Penn Wharton School of Business Study projects that the Tax Cuts and Jobs Act (TCJA) will cause approximately 250,000 or 18.0 percent of U.S. business owners switch from pass-through entity to C-corporations to take advantage of sheltering their income from tax by converting to C-corporations. The biggest switchers are expected to include doctors, lawyers, and investors.


Industry Highlights – Healthcare Sector

  • US consumer prices for medical care commodities, an indicator of healthcare costs, increased 2.4% in June 2018 compared to the same period in 2017

  • US consumer prices for medical care services, an indicator of profitability for healthcare services, rose 2.5% in June 2018 compared to the same month in 2017

  • Revenue (in current dollars) for US health care, a sector that includes physicians, dentists, hospitals, home health care, nursing homes, and daycare services, is forecast to grow at an annual compounded rate of 6% between 2018 and 2022

  • Challenge: Shortage of Sterile Injectable Drugs - An ongoing shortage of sterile injectable drugs -- including opioids -- has left many US health care facilities scrambling to provide uninterrupted patient care. Some health care practitioners are trying alternative pain management products such as laughing gas, nonopioid painkillers, and trigger point injections. In an unprecedented move, the Food and Drug Administration is creating a task force to seek ways to minimize drug shortages

  • Industry opportunities include: Health Information Technology (HIT), personalized medicine, preventative medicine, tele-medicine, handheld technology, growth of non-insurance practices

August 2018 AVC Business Valuation Quick Read

Law News

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  • Lovelass v. Hutchinson, 2018 Fla - the trial court did not err in valuing a husband's pension by using a 2.5 percent multiplier rather than the 3 percent multiplier. Learn More >>

  • Professional goodwill in divorce - in FL, as in most states, enterprise goodwill is treated as marital property; however, personal or professional goodwill is not.

  • Schultz v Sayada, 2018 N.Y. - the trial court did not err in valuing the dissolved joint venture's property. The trial court found the use of two methods by defendant's expert increased the reliability of his valuation. Learn More >>

  • ASA vigorously supports trustee and appraiser, DOL backs judgment against trustee in Brundle v. Wilmington Trust ESOP litigation Learn More >>


Key Economic & Market Indicators

  • The GDP growth rate of 4.1% exhibited the fastest pace in almost four years and the U.S. trade deficit fell to a 19-month low;

  • The U.S. unemployment rate was at 4.0% in June, consumer-confidence measures improved, personal incomes and hourly wages rose and consumer spending increased;

  • Industrial production rebounded and auto sales continued upward;

  • Retail sales were up and inflation was moderate;

  • Gasoline prices slipped back, however, crude oil prices hit a nearly four-year high;

  • Stocks were flat and new- & existing-home sales and starts all fell.


Industry Highlights: Hospitality

  • Revenue for US hotels is projected to grow at an annual compounded rate of 4% between 2018 and 2022.

  • Resort Fees Rising - resort fees increased more than 11% in 2017, and the number of properties charging the fees rose by about 16%.

  • REIT Consolidation - real estate investment trusts (REITs) are driving consolidation of hotel chains in the US and internationally.

  • Corporate Services - providing a wider array of business services including videoconferencing, technical support for meetings, catered functions, rewards programs, and extended-stay facilities for corporate clients.

  • Extended-Stay Hotels - the number of extended-stay rooms has been growing, in part because the properties tend to have lower guest turnover and operating costs.