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A theoretical framework for shedding additional light on the determinants of medical practice value.

Abstract：

BACKGROUND:Over the years, business valuation techniques have been widely used to appraise the financial worth of medical practices. However, it has been argued that medical practices are one of the most complex and difficult types of business enterprises to value. PURPOSE:The purpose of the current study is to develop a theoretical framework that sheds additional light on the determinants of a medical practice's value and to provide practitioners with a theory-based model on which to base valuations to avoid "wild west" scenarios where individual valuators use his or her own unique models that can lead to wild variations in the value amount of the same medical practice. APPROACH:The article starts by discussing standard approaches to valuing any business including medical practices. We then develop a theoretical framework that sheds additional light on the determinants of a medical practice's value by showing how strategic choice and environmental determinism affect the value of a medical practice. Once the framework is developed, the practice implications related to the framework are discussed. FINDINGS:In this article, determinants of a medical practice's potential for sustained profitability are identified. Specifically, a framework is presented that shows how the combination of strategic choice and environmental determinism can affect a medical practice's chances of sustained profitability. Developing such a framework is an important contribution to the literature given that one of the most problematic areas of medical practice valuation is determining the factors that a valuator must assess to arrive at an appropriate fair market value for a practice. PRACTICE IMPLICATIONS:The development of a framework that sheds additional light on the determinants of a medical practice's value is important in light of the difficulty of obtaining reliable market data regarding sales of medical practices, which tend to be closely held private entities.

journal_name

Health Care Manage Rev

journal_title

Health care management review

authors

Hoffman JJ,Ewing BT,Hoffman JG

doi

10.1097/HMR.0b013e3181afc0d3

subject

Has Abstract

pub_date

2009-10-01 00:00:00

pages

355-63

issue

eissn

0361-6274

issn

1550-5030

pii

00004010-200910000-00008

journal_volume

pub_type

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A theoretical framework for shedding additional light on the determinants of medical practice value.