How to Value a Medical Practice in Australia

Start with the purpose, the subject and the valuation date

Three decisions come before any figure, and each changes the answer.

The purpose sets the basis of value and the assumptions. A valuation for a sale asks what a buyer at arm's length would pay. One for a partner buying in, a restructure, a family law property settlement or a shareholder dispute may instead be governed by an agreement, a statutory test or instructions from lawyers. Most commercial valuations of a medical practice are on a market value basis: what a willing but not anxious buyer and a willing but not anxious seller, both informed and at arm's length, would agree.

The same practice can support more than one defensible figure at the same date if the purposes differ, so the purpose is recorded in the instructions.

Price and value differ. Price is what one buyer and seller agreed, including whatever urgency, synergy or vendor finance was in the room; value is a conclusion reached on stated assumptions. Observed prices are evidence, not the answer.

The subject is either the business as a going concern or an interest in the entity that owns it. Valuing the business gives an enterprise value, the whole operating business before borrowings. Valuing shares or units gives an equity value: enterprise value less debt, plus surplus assets not needed to run the practice. For a part interest, the shareholders agreement matters and so does control, because a controlling holder can set doctor remuneration, distributions and the timing of a sale where a minority holder cannot, and a minority interest is generally worth less per share than a proportionate share of the whole. See share and equity valuations.

The valuation date fixes the information set. Medical practices move: a doctor resigns, a lease reaches its final option, a catchment loses a workforce classification, or incentive settings change. A conclusion is stated as at a date and rests on what was known or knowable then.

Assemble the information the analysis depends on

The information request is longer than for a general trading business, because the earnings are produced by people who are often not employees, under funding arrangements set outside it.

Beyond the financial statements, tax returns, management accounts and asset register, the analysis needs billing data by doctor, by item and by billing type, which separates Medicare benefits, bulk billing incentives, patient out-of-pocket fees, Department of Veterans' Affairs services, workers compensation and other third-party work from non-clinical income such as room rent, together with the doctor service agreements, lease, accreditation certificate and incentive program statements. See what information is needed for a business valuation.

Normalise the earnings

Normalisation is the restatement of reported profit so it shows what the practice earns under ordinary, ongoing, arm's length operation, whatever the current owner chooses to do. In a medical practice the adjustments are substantial.

Doctor remuneration at market service fee terms

In a doctor-owned practice the owner's clinical billings and drawings are mixed into the practice result, so a reported profit that keeps all of the owner's billings while paying the owner nothing is not earnings the business can sustain once they leave. The valuer restates that work on the terms an incoming doctor would accept: the service fee percentage the practice charges its other doctors, or a market salary with on-costs for the sessions worked. Where the owner is paid above market, the adjustment runs the other way. It is often the difference between a practice that appears highly profitable and one that earns little beyond the cost of replacing its principal.

Related party rent and premises

Premises are frequently owned by the practice owner, a family trust or a self managed superannuation fund, and the rent may sit above or below market. Earnings are restated at market rent for comparable rooms, and security of tenure is noted separately, because a practice whose lease is near expiry carries a different risk from one with long options. See premises and lease terms in healthcare valuations.

Incentive and program income

Incentive income is identified, tested for transferability and timed correctly. Participation in the Practice Incentives Program requires the practice to be accredited, or registered for accreditation, against the RACGP Standards for general practices, and to hold specified insurances. The Workforce Incentive Program Practice Stream guidelines, effective 1 July 2026, state that where a practice is sold, accreditation must be part of the sale for the accreditation and the historical practice data to transfer, including the Standardised Whole Patient Equivalent value, the measure of practice size that drives the payment. If it is not, the new owner applies as a new practice.

The Department of Health, Disability and Ageing describes the Bulk Billing Practice Incentive Program as an additional quarterly incentive payment of 12.5 per cent on MBS benefits paid from eligible services, split evenly between the general practitioner and the practice, available to practices that bulk bill every eligible service for every Medicare-eligible patient, are registered in MyMedicare and meet the program's other requirements. Only the practice share reaches the entity being valued, and the payment depends on continuing to bulk bill every eligible service, so a part year in the accounts can mislead and the income is not treated as fixed.

One-off and owner-specific items

Legal costs of a partnership dispute, a practice management system migration, motor vehicles, wages paid to family members for work not performed and the effect of a doctor who left mid-year are removed or restated. The test is whether the next owner would incur the item in the ordinary course.

Settle future maintainable earnings

Future maintainable earnings is the level of earnings the practice can reasonably be expected to sustain, drawn from the normalised results. It is usually expressed as EBITDA, earnings before interest, tax, depreciation and amortisation, or as EBIT, earnings before interest and tax. Whichever is chosen has to be the measure the multiple was drawn against, because EBIT and EBITDA multiples are not interchangeable. EBITDA also ignores what it costs to keep the practice equipped: consulting room fitout, sterilising and diagnostic equipment, vaccine refrigeration and clinical software. Where that spending is significant or overdue, EBIT or an explicit capital replacement allowance gives the fairer picture.

It is a judgement, not a mechanical average. Recent periods carry more weight, a doctor who started last quarter is included at their run rate, and one who has given notice is taken out. A practice with unfilled sessions and no doctors to fill them cannot maintain earnings that assume otherwise. See what is maintainable earnings.

Choose a method that fits the practice

Capitalisation of future maintainable earnings

For an established practice with a settled group of doctors and a stable earnings pattern, maintainable earnings are capitalised by applying a multiple, which is the inverse of a capitalisation rate and reflects the risk attached to those earnings and their growth prospects. HPNA does not publish a standard multiple for medical practices, because what sets it is practice-specific: how many doctors there are and how long they have been there, the enforceability of their agreements, whether custom attaches to the practice or the individuals, security of tenure, the revenue mix and the depth of the management team. See EBITDA multiples for healthcare businesses.

The capitalised figure is an enterprise value, and it assumes the practice changes hands with a normal level of working capital: the debtors, consumables and prepayments needed to run it, less creditors and accruals. That is usually modest in general practice, because bulk billed claims are settled by Medicare rather than carried as patient debtors, but significant Department of Veterans' Affairs, workers compensation or third-party billing, accrued doctor service fees and staff leave need measuring rather than assuming. Equity value follows by deducting borrowings and adding surplus assets, including practice-owned premises held outside the business.

Discounted cash flow

Where the future will differ materially from the past, capitalising a historical result misleads. A practice fitting out extra rooms, recruiting into unfilled sessions, absorbing a known departure or changing billing model is better analysed by discounted cash flow, which projects expected cash flows and discounts them to present value at a rate reflecting risk and the time value of money. Much of the answer usually sits in the terminal value, the assumed value at the end of the forecast period, so that assumption deserves the same scrutiny as the forecast itself.

Net assets

Where goodwill cannot be demonstrated, the practice is valued on its net assets: the fair value of the identifiable assets, including equipment, fitout and debtors, less liabilities. Assets are taken at value in continued use where the practice keeps trading and at orderly realisation where it is closing, different figures for the same fitout. This suits a practice whose earnings disappear with its principal, one earning no more than the cost of replacing its doctors, or one winding down. A busy practice can still fall here. See healthcare business valuation methods.

Market evidence

Market evidence is what comparable businesses have changed hands for. It tests a conclusion rather than producing one, because medical practice evidence is thin and awkward to use: most transactions are private, a reported figure often bundles equipment, fitout and a restraint with the goodwill, and structures differ, some including the freehold, some transferring a service entity, many conditional on the vendor doctor staying on. An arm's length partner buy-in at the practice itself is often better evidence than a headline figure from elsewhere.

Test whether the goodwill transfers

Goodwill is the amount a buyer pays over the identifiable assets net of liabilities, and in general practice it stands for one expectation: that the patients keep coming. In Australian law it is a single asset. Taxation Ruling TR 1999/16, which reflects the High Court's decision in Federal Commissioner of Taxation v Murry [1998] HCA 42, describes goodwill as a composite thing that attaches to a business, is inseparable from its conduct and cannot be dealt with separately from it, and says it is more accurate to speak of goodwill as having sources than as being composed of elements: site, personality, service, price or habit.

The Ruling draws the distinction that decides most medical practice valuations. What decided cases call personal goodwill is the source of goodwill made up of the personal skills, reputation, character and personality of the people working in the business: attributes inseparably attached to the individual and not capable of transfer or assignment. A purchaser may still pay for goodwill built up from them, the Ruling adds, because other sources, including the habit or inertia of customers, keep drawing custom after the individual has gone.

Applied to a medical practice, that means asking which sources of custom survive the doctors, because only those support transferable goodwill, sometimes called commercial or practice goodwill. Patients often follow their general practitioner, and specialist referrals go to a named person rather than a business. What can remain is the location and catchment, the patient records and recall systems, the practice name, the reception and nursing team, the doctors' agreements and restraints, and the accreditation where the transaction carries it. See what is goodwill in a medical practice and does a medical practice have transferable goodwill.

One constraint is absolute. Services Australia states that a Medicare provider number is unique to the practitioner, is issued only where they hold Ahpra registration or registration with an approved body, and cannot be used by another health professional. Billings cannot be sold. What is sold is the practice's capacity to attract and keep doctors who bring their own numbers.

Price the risks that are specific to a medical practice

Billing profile and funding exposure. The split between bulk billed Medicare services, privately billed services carrying a patient gap, Department of Veterans' Affairs services, workers compensation and other third-party work sets how much of the practice's pricing is under its own control. At the time of writing, eligibility for Medicare bulk billing incentives has expanded to all Medicare-eligible patients, and the Department of Health, Disability and Ageing states that their value depends on the service and the location, classified under the Modified Monash Model. Revenue set by policy can be changed by policy. See government funding exposure and business value.

Contractor arrangements and payroll tax. Revenue NSW states that where practitioners are not engaged as employees, payments to them may still be subject to payroll tax under the relevant contract provisions in Division 7 of Part 3 of the Payroll Tax Act 2007, citing Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40. State positions differ: Queensland exempts wages paid by a medical practice other than a hospital to a contracted or employee general practitioner, defined in section 14(9) of the Payroll Tax Act 1971, while New South Wales offers a rebate to medical centres paying contractor general practitioners that meet bulk billing thresholds under its Bulk Billing Support Initiative. The valuation reflects the cost the earnings should carry at the valuation date, and historical exposure is a contractual matter to confirm with your accountant or lawyer. See payroll tax, contractor arrangements and medical practice value.

Workforce and location classifications. The Department of Health, Disability and Ageing classifies catchments with lower access to general practitioner services as Distribution Priority Areas, and international medical graduates must work in one to access Medicare under section 19AB of the Health Insurance Act 1973. Areas classified MM 2 to MM 7 under the Modified Monash Model are automatically Distribution Priority Areas, as are the Northern Territory and Tasmania. Access is assessed each year and a catchment can lose the classification, although doctors with an existing section 19AB exception may stay. A practice inside one recruits from a wider pool, a real driver of maintainable earnings. See how the clinical workforce affects healthcare business value.

Concentration, premises and compliance. Earnings concentrated in one doctor, one referrer or one funder carry key-person risk, the exposure of a business to the continued involvement of a particular individual, and are worth less than the same earnings spread across many. A purpose-built consulting fitout with no remaining lease options is a risk the buyer carries, and open regulatory or billing compliance matters are noted and, where quantifiable, reflected.

Cross-check the conclusion

A single method applied once is not a valuation, so the conclusion is tested from several directions. Would a buyer paying that amount still earn a reasonable return after paying every doctor, including the owner, at market terms and servicing the purchase debt? Does a second method land in a similar region, and if not, is the difference understood? Is the implied goodwill plausible against net assets, given the sources of custom that actually transfer, and is there a buyer pool that would pay it?

Common mistakes

• Valuing billings instead of earnings. Gross billings say nothing about what is left once the doctors are paid.
• Leaving the owner's clinical work unpriced. Without it, the buyer pays for profit that is really the owner's wage.
• Treating incentive income as transferable. It transfers only where accreditation forms part of the transaction and program requirements keep being met.
• Ignoring related party rent. Below market rent inflates earnings and, once capitalised, inflates the value many times over.
• Confusing an appraisal with a valuation. The two are prepared for different purposes. See valuation versus appraisal.
• Getting the entity boundary wrong. A service entity charging doctors a fee owns different earnings and risks from a practice that owns the billings.

This is general information rather than advice on your own position. See medical practice valuations for how HPNA approaches the sector, or request a valuation to discuss the purpose and scope.