Valuing a medical or dental practice

A general practice is valued by establishing its maintainable earnings, then capitalising them at a rate that reflects the practice's risks. Normalisation comes first: the owner-doctor's clinical income is restated to market service-fee terms, related-party rent to market rent, and adjustments are made for family wages, incentive timing, payroll tax and superannuation. Where a service entity is being valued, its earnings are the service fees it collects from doctors less its costs, not the doctors' gross billings. A net assets approach may set a floor where transferable goodwill is limited, and a discounted cash flow is used where the practice is changing materially.

Specialist revenue depends on referrals, and the referring relationship usually attaches to the individual specialist rather than to the rooms. Consulting practices with little equipment therefore often have limited transferable goodwill, while procedural practices with rooms, equipment, staff and day-surgery or hospital arrangements have more. Income a specialist earns from a public hospital appointment, including visiting medical officer work, belongs to the doctor and sits outside the practice, so it is excluded from practice earnings. Consistent published fee and gap arrangements, supported by informed financial consent, make private revenue more predictable and are considered in the risk assessment.

Either, depending on what the practice gives up and what it gets back. Network membership can bring member flow and lift chair utilisation, but the practice accepts agreed fees or no-gap examinations that the insurer sets and reviews, and network status can be withdrawn. The valuation records the share of fees earned at agreed rates, the margin on that work after laboratory and clinician costs, and how much new-patient flow depends on fund directories. A practice whose growth rests entirely on one network carries more concentration risk than one where network work complements a private fee-for-service base.

Sometimes, and less often than owners expect. Where the practice consists of one doctor, their patients and a rented room, most of the custom is drawn by that individual and leaves with them. Where there is a stable patient base attached to a location, a second doctor or a nurse, a recall system, a team and a transferable lease, sources of custom remain after the owner goes. The valuation asks which sources survive the sale rather than assuming a busy practice must carry goodwill.

No. Activity and value are different things. Where the practice retains every dollar the owner bills and pays the owner nothing through the payroll, the reported profit is largely a doctor's wage wearing a business label. Charge that consulting out at the service fee the practice already applies to its other doctors, or at what it would cost to employ a replacement, and a busy practice can be left with nothing above the cost of the people producing the revenue. At that point the number rests on the equipment, fitout and collectable debtors rather than on earnings.

On maintainable earnings: the profit the practice can be expected to sustain once one-off items are removed and every doctor, including the owner, is paid market rates for clinical work. Those earnings are capitalised at a multiple reflecting risk, growth and how much earning capacity would survive a change of owner. Medicare provider numbers are issued to individuals, and Services Australia states you cannot use another health professional's provider number, so billings follow the doctor. A medical practice valuation also weighs billing mix, patient retention, the lease, whether a service entity is involved, and payroll tax exposure of the kind described in Revenue NSW ruling PTA 041.

It is worth the maintainable earnings the practice can produce once every doctor, including you, is paid at market rates for their clinical work, capitalised at a rate reflecting the risk of those earnings continuing without you. The starting point is not the profit in your accounts: it is that profit after your clinical work is charged at replacement cost, related-party rent and wages are reset to market and one-off items are removed.

Less than the same billings spread across several doctors, and the gap is often large. Where one practitioner produces the fees, most of the earning capacity is personal goodwill, which cannot be sold. What remains is the site, the lease, the records and recall systems, the staff and whatever share of patients attend the practice rather than you.

Most established dental practices are valued by capitalising maintainable earnings. Reported profit is normalised, the principal's clinical production is costed at the rate an associate would be paid, an allowance for chair and imaging replacement is deducted, and the result is multiplied by a capitalisation multiple reflecting the practice's risk. The multiple is not a fixed industry number. It depends on how much production comes from clinicians other than the principal, the strength of recall and new-patient flow, the share of fees earned at health fund agreed rates, the equipment, the lease and the transition arrangements. Practices whose goodwill is unlikely to transfer are valued on their equipment, fit-out and stock instead.

Their cost is restated on a consistent basis so each clinician's production and remuneration can be compared. Contracts differ in whether the percentage is applied before or after laboratory costs, health fund discounts and bad debts, and some include facility fees or minimum guarantees. The valuation also asks whether the arrangement may attract superannuation guarantee, since section 12(3) of the Superannuation Guarantee (Administration) Act 1992 treats a person working under a contract wholly or principally for their labour as an employee of the other party even where they hold an ABN, and payroll tax under the relevant contract provisions that Victoria and New South Wales apply to dental clinics. How those rules apply to a particular contract should be confirmed with your accountant or lawyer; the valuation reflects the likely cost in earnings or as a contingent liability.

It can, where it is likely to apply and is not already being paid. Victoria's Revenue Ruling PTA-041 on relevant contracts and medical centres, issued 11 August 2023, expressly covers dental clinics, and Revenue NSW treats dental clinics as part of the medical services industry for payroll tax. Exemptions from the relevant contract provisions may be available, and the position should be confirmed with your adviser. The relief Revenue NSW offers is tied to payments to contractor general practitioners meeting bulk billing thresholds, so it does not assist a dental practice. In a valuation, expected payroll tax reduces maintainable earnings and prior-period exposure is disclosed as a contingent liability a buyer will want addressed.

They are analysed as distinct payer segments. Services Australia states that the Child Dental Benefits Schedule covers up to $1,158 for each eligible child across two consecutive calendar years, that the cap is indexed on 1 January, and that orthodontic work, cosmetic work and any dental service in a hospital are excluded. Eligibility runs through Medicare enrolment, age 0 to 17 and receipt of a listed payment such as Family Tax Benefit Part A. Under the DVA fee schedule effective 1 July 2026, Schedule B items including implant prostheses require prior financial authorisation for Gold and White Card holders, and Schedule C items share a biennial monetary limit under which DVA pays up to $5,980.30 every two years. A practice relying heavily on either program is exposed to caps and schedules it does not control.

It reduces the deduction a buyer would otherwise make, which is not the same as adding its purchase price to value. Chairs, imaging and CAD/CAM equipment are dealt with through the sustaining capital expenditure allowance: a practice with current equipment needs a smaller allowance, so its maintainable earnings and value are higher than an otherwise identical practice with ageing chairs. Equipment that also changes the treatment mix, such as a CBCT unit that keeps implant planning in-house, can add earnings as well. Equipment bought on finance is handled by removing the finance costs from EBITDA and deducting the outstanding debt when moving from enterprise value to equity value.

A sale valuation values the whole business as a going concern, usually on a cash-free, debt-free basis with a normal level of working capital. A share valuation values a specific parcel of shares in the owning entity. That requires the equity value of the whole company, an assessment of any shareholder agreement terms that fix or constrain the price, and a decision on whether a minority interest should be discounted for lack of control and marketability. In dental groups, shareholder agreements often contain leaver provisions and pre-emptive rights that govern price, so the valuation must state whether it is applying those terms or assessing market value independently of them.

A broker's appraisal is an estimate of the price the broker expects to achieve, prepared in the course of winning a listing and often expressed as a proportion of turnover or a round multiple. An independent valuation is a reasoned opinion of value at a date and for a stated purpose, with normalised earnings, an explicit treatment of principal dependence, equipment renewal and payer mix, and a method that can be explained to a buyer, a lender, the ATO or a family law adviser. HPNA does not sell practices and has no interest in the outcome. See business valuation versus business appraisal for a fuller comparison.

Patient visit average, usually shortened to PVA, is the average number of visits a patient completes over an episode of care or a defined period. Read with new patients per month, reactivations and retention at set visit milestones, it describes how durable the revenue is. A practice with steady retention and modest reliance on newly acquired patients has more predictable earnings than one whose volume depends on the next advertising campaign. The valuer reads these figures for each practitioner rather than only for the practice, because a strong overall number can conceal that the principal retains patients and the associates do not.

On profit, assessed properly. Turnover is a starting point for testing whether a practice is busy, but it says nothing about who produced the fees or what it cost to produce them. Two practices with identical collections can be worth very different amounts if one owner produces most of the dentistry personally and the other has a stable associate team. A valuation converts collections into maintainable earnings by paying every clinician, including the owner, a market rate for their clinical output, then normalising rent, wages and one-off items before any method is applied.

It usually falls, and how far depends on how much dentistry the principal personally produces and how easily that chair can be refilled. If the owner generates a large share of fee income, a buyer is really acquiring a job plus a patient list, and the earnings that support goodwill disappear with the owner unless a replacement dentist can be recruited at a market commission. Where the principal will stay on for a transition period under a written arrangement, the risk is lower but not removed, so the valuation states the assumption it has adopted.

It affects the fee the practice can realistically charge and the flow of patients, so it affects earnings. Dental sits under general treatment cover, also called extras or ancillary cover, rather than hospital cover. Where a practice participates in an insurer's provider arrangement, benefits to the patient are usually higher and out-of-pocket costs lower, which supports volume but constrains the fee. A valuation examines how much of the fee book depends on those arrangements and what would happen to volume if participation ended.

As a defined and capped revenue stream, not as a growth driver. It pays a capped benefit for basic dental services for children who are eligible for Medicare, aged between 0 and 17 for at least one day in the calendar year, where the child or the family receives a qualifying payment that year, and it excludes orthodontic work, cosmetic work and dental services in a hospital. For practices in areas with a high eligible population it can be a meaningful share of chair time. A valuation isolates that income, tests the caps and eligibility that limit it and considers what happens if the local patient mix changes.

It depends on the basis you have asked for, which is why the scope is agreed before work starts. A going-concern value of the business normally includes the plant, equipment and fit-out required to keep trading, with goodwill being the value above those identifiable net assets. A goodwill-only figure excludes them. Either way the valuation considers the age and condition of chairs, imaging, sterilisation and digital equipment, because deferred renewal is capital a buyer must spend and it reduces what they will pay for the earnings.

Yes, and it is a different exercise from valuing the business. The business is valued first to reach an enterprise value, then debt and surplus assets are adjusted to reach equity value, and only then is the particular parcel of shares considered. A minority parcel that cannot control distributions, remuneration or a sale may be worth less proportionally than the same percentage of the whole. The shareholders agreement, any restraint and any pre-agreed valuation mechanism are read before a conclusion is reached.

The deeming rules generally do. Queensland Revenue Office's ruling on relevant contracts applies to entities conducting a medical centre business including dental clinics, physiotherapy practices, radiology centres and similar healthcare providers, and Revenue NSW describes the medical services industry as including dental clinics, pathology and radiology centres. The relief is where they differ: several of the state measures are confined to general practitioners, so a dental or allied health practice may carry a cost that a general practice next door does not.

It is worth the maintainable earnings the practice can produce once every clinician, including you, is paid at market rates for the dentistry they perform, capitalised at a rate reflecting the risk of those earnings continuing without you. The largest adjustment is almost always replacing your drawings with what an associate producing the same fees would cost, and a sustaining capital allowance for chairs and imaging is deducted as well.

Run the analysis a buyer will run: gross fees by clinician, chair utilisation, active patients, recall compliance and new patient numbers, then normalised earnings after paying every clinician at market. Then settle the structure. An asset sale transfers goodwill, equipment, fit-out and stock; a share sale carries the entity and its history, including any payroll tax exposure.

No, and using turnover as the base is a reliable way to reach a wrong number. Two practices with the same gross fees can carry very different earnings depending on who produced them, what the associates are paid, what share of work an insurer prices and what the laboratory bill looks like. Goodwill is supported by earnings that survive a change of owner, not by revenue.

It can, but only to the extent something draws patients to the practice independently of any one doctor. Goodwill is the attractive force which brings in custom, and it is legally distinct from its sources: site, personality, service, price or habit. Personal skills, reputation and personality are not transferable, but the Australian Taxation Office notes in TR 1999/16 that a purchaser may still pay for goodwill because other sources, including the habit or inertia of customers, keep drawing custom. A medical centre with a stable roster of contractor doctors, an active patient base, nurses, systems, accreditation and a secure lease can have substantial transferable goodwill. A practice whose patients follow a single doctor has little.

In two ways. Ongoing payroll tax on payments to contractor doctors reduces maintainable earnings unless a state exemption or rebate applies, and unpaid payroll tax for prior years is a liability a buyer deducts from the price. The relief differs by state. The Queensland Revenue Office exempts wages paid by a medical practice, other than a hospital, to a contracted or employee general practitioner, with no bulk billing condition. Revenue NSW gives a rebate where the medical centre bulk bills at least 80 per cent of its GP services in metropolitan Sydney, or at least 70 per cent elsewhere. Victoria, South Australia and the ACT exempt GP wages by reference to bulk billed or fully-funded work. Non-GP specialists and allied health contractors are generally not covered. Whether relief applies to your practice should be confirmed with your accountant.

It can, where the exposure is real and the earnings have never carried the cost. Revenue NSW notes that payments to practitioners who are not employees may still be taxable under the relevant contract provisions of the Payroll Tax Act 2007, and points to Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40. The position differs by state: Queensland exempts wages paid by a medical practice other than a hospital to a contracted or employee general practitioner. A valuation reflects the cost the earnings should carry at the valuation date and treats historical exposure as a matter for the contract and your advisers.

Not entirely. The exemptions are defined narrowly. Queensland Revenue Office states its exemption applies to wages paid by a medical practice to a general practitioner and does not extend to other medical centre businesses such as a dental clinic or physiotherapy practice, nor to payments to a dentist or physiotherapist. Victoria and the ACT tie relief to bulk billed or fully funded work, and South Australia calculates the exempt proportion from the practice's bulk billing rate. A practice with private billing, specialists, or allied health practitioners under the same entity can still carry a cost, and the exposure for earlier periods is a separate question again.

As a contingent liability, meaning an obligation that depends on events that have not yet been resolved. Where it is probable and can be estimated, it is usually treated as debt-like in the equity bridge: the step from enterprise value, the value of the business operations, to equity value, what the shareholders receive. Where it cannot be estimated with any confidence, it is disclosed and left to the transaction documents, which commonly deal with it through a specific indemnity, a retention or a price adjustment rather than through the valuation itself.

Not reliably. Payroll tax applies once taxable wages exceed a threshold, so a small practice may have no liability of its own, but Revenue NSW notes that audits often find medical practices have failed to declare that they are part of a group by common control or through the use of common employees, and that grouping errors usually cause significant underpayment because multiple thresholds are claimed. A practice and its service entity under the same control can be grouped. A buyer who already exceeds the threshold in that state also bears the cost from the first dollar, which is one reason the same practice can be worth different amounts to different buyers.

No, but it changes what the valuation shows. Revenue NSW has stated that a payment to a practitioner who is not an employee can still attract payroll tax through the relevant contract rules, and cites Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue as authority that a doctor seeing patients is also supplying a service to the practice. The valuation carries whatever cost the earnings ought to bear as at the valuation date, no more. Whether an unpaid amount is owed for earlier years is a contractual and jurisdictional question for your accountant or lawyer, and because payroll tax is levied by each state and territory the answer differs from one border to the next.

In two ways that are often confused. Ongoing payroll tax on contractor doctor payments, where it applies, is a cost of running the practice and reduces maintainable earnings. Unquantified exposure for past periods is a contingent liability, assessed on its own and deducted from equity value. Relief differs by state, so confirm your position with your accountant.

Yes, mainly through recruitment and incentives. The Distribution Priority Area classification identifies GP catchments with lower access to GP services, and is used under section 19AB of the Health Insurance Act 1973, under which international medical graduates and foreign graduates of accredited medical schools can access Medicare only in areas with GP shortages. A DPA catchment therefore gives the practice a larger pool of doctors. Areas classified MM 2 to MM 7 are automatically DPA and attract rural loadings. Classifications are reassessed each year, so we check the position at the valuation date and consider how stable it is.

They transfer only if the sale is structured to carry the accreditation across. The Workforce Incentive Program Practice Stream guidelines state that where a practice is sold, accreditation must be part of the sale for the accreditation and the historical practice data, including the SWPE value, to transfer. Otherwise the new owner applies as a new practice and establishes a new SWPE value. A valuation prepared for a sale therefore treats incentive income as transferable only where the transaction terms and the accreditation support it, and notes the timing gap around the change of ownership.

It affects recruitment options rather than adding value directly. Distribution Priority Area classification is applied to general practice catchments by the Department of Health, Disability and Ageing, and under section 19AB of the Health Insurance Act 1973 international medical graduates and foreign graduates of accredited medical schools can only access Medicare in areas with general practitioner shortages. A practice inside a classified catchment therefore has a wider recruitment pool. Because catchments are assessed each year and classification can be removed when access improves, a valuer treats it as a condition that may change rather than as a permanent advantage.

They affect both the level and the stability of earnings. The Department of Health, Disability and Ageing states that eligibility for Medicare bulk billing incentives has expanded to all Medicare-eligible patients, and describes the Bulk Billing Practice Incentive Program as an additional quarterly incentive payment on MBS benefits from eligible services that is split evenly between the general practitioner and the practice. Only the practice half reaches the entity being valued, and the payment is conditional on the practice bulk billing every eligible service for every Medicare-eligible patient, so the valuation tests whether that income is sustainable rather than treating it as permanent.

Only where the sale is structured so they can. Participation in the Practice Incentives Program requires the practice to be accredited, or registered for accreditation, against the RACGP Standards for general practices. The Workforce Incentive Program Practice Stream guidelines state that accreditation must be part of the sale for the accreditation and the historical practice data, including the Standardised Whole Patient Equivalent value, to transfer. If it is not, the new owner applies as a new practice and must achieve accreditation again.

No. A Medicare provider number follows the individual practitioner's registration, cannot be used by another health professional, and a doctor needs a further provider number for each location where they deliver services. What a buyer acquires is the practice's capacity to attract and retain doctors who bring their own numbers: the premises, the patient base, the records, the team, the doctors' agreements and, if structured into the sale, the accreditation and SWPE history that carry incentive income. That is why the valuation focuses on transferable sources of custom rather than on billings alone.

Neither model is worth more by default. Since 1 November 2025 a practice that bulk bills all eligible services and meets the other criteria can participate in the Bulk Billing Practice Incentive Program, which Services Australia describes as an additional 12.5 per cent incentive payment on eligible MBS benefits, shared equally between practice and provider and assessed quarterly. Participation is voluntary and revenue then moves with Commonwealth policy. A private billing practice keeps pricing control and gap income but competes with practices that bulk bill. The valuation shows which model the earnings assume and whether it is sustainable in the catchment.

No. Services Australia states that a Medicare provider number is unique to the individual practitioner, requires registration with Ahpra or an approved body, cannot be used by another health professional, and that more than one number is needed where services are delivered in different locations. A buyer therefore acquires the practice's capacity to attract and retain doctors: the premises, the patient records and recall systems, the team, the doctors' agreements and, where the sale is structured for it, the accreditation. Historical billings are evidence of what that capacity has produced, not an asset that changes hands.

No. A provider number is issued to an individual health professional who must first hold registration with Ahpra or an approved body, a practitioner needs more than one number if they deliver services in different locations, and one practitioner cannot use another's number. A purchaser acquires premises, systems, staff, records and the opportunity to bill through the numbers of the practitioners who work there afterwards. This is one reason a valuation looks closely at which practitioners are staying, what their agreements say, and how quickly a departing doctor's sessions could be filled.

The entity that carries on the business, whatever that entity earns. Where a service entity charges practitioners a fee for premises, staff and administration, the business being valued is the service business, and its earnings are the fees less the cost of providing those services. Its goodwill depends on the durability of the arrangements with the practitioners rather than on the practitioners' own patient relationships. Getting that boundary wrong is one of the more common ways a medical practice valuation goes astray.

No. A provider number is issued to the individual practitioner, follows their Ahpra registration and is tied to a location, so it cannot be sold with the business or used by another doctor. What can transfer is the site, the patient records and recall systems, the team, the doctors' agreements and restraints, MyMedicare registrations and, where the sale carries it, accreditation.

A service entity earns service fees from the doctors who use its facilities and does not own their billings, so its value rests on the fee terms, the number and stability of doctors paying them, the cost of the facility and staff, and the payroll tax and superannuation treatment of the arrangements. A doctor-owned practice's earnings include the owner's own clinical work, which must be restated at market terms before any goodwill can be identified. Both are valued on maintainable earnings. The entity boundary determines which earnings and which risks are in scope.

It changes the analysis rather than ending it. In Thomas and Naaz, Revenue NSW records that payments relating to the three practitioners who processed their own Medicare claims were not assessed, and that Leeming JA observed there is a ready mechanism available to avoid the deeming provisions being engaged. For a valuation the questions are practical: how long the new arrangement has operated, whether the documents match the actual flow of money, whether the doctors have accepted the terms, and what the practice still owns once the billings belong to the doctors.