A report from today's ASA Annual meeting in Phoenix confirms that intangibles as a per cent of total purchase price are decreasing for medical industry businesses (those in SIC 80, generally). A possible explanation? As acquisitions start to increase again, there's less and less patient stability. Patients are growing increasingly familiar with changing doctors every time an insurance plan is adjusted. So, overall, less and less value is associated with individual practitioners.
Other trends include:
- a trend toward higher debt to equity ratios
- slower growth
- lower profits (though of course this touches the intangibles impact of physician compensation--and what the practitioners have taken out of the business).
A model presented by Willamette Management Associates at a session this morning showed the huge impact of future compensation demands. The example showed that if expected compensation at a theoretical medical practice goes from the 68th to the 75th per cent, the value of a practice, again theoretically, drops almost 45%. "Of course, when was the last time you saw a group of doctors accept a 45% drop in the value of their practice," said one attendee.