Is There Value in the Intangibles in a Physician Practice?

Here is an excerpt from an article in ASC Review, written by Jason Ruchaber, CFA, ASA of HealthCare Advisors.

"Perhaps the most highly contested issue in physician practice valuation is whether or not intangible value can exist in the absence of an income stream which fully supports the intangible value. The most conservative valuation practitioners argue 'no income stream, no intangible value,' while the most aggressive practitioners argue that significant intangible value can, and does, exist regardless of the level of projected income (or loss) of the practice. We believe that the 'truth' lies somewhere in between, and that in an 'arm's-length' negotiation, physicians would generally be unwilling to sell their practice (that they have likely developed over many years) and become hospital employees solely for the value of its tangible assets (tables, chairs, and equipment); in other words, you would not have a willing seller at that price. Conversely, a buyer will not generally be willing to pay for an asset that does not generate some level of return on investment. We typically find that intangible value should be ascribed to the employment contract/non-compete agreements signed by the physicians (i.e., workforce), and in certain cases, other specifically identifiable intangible value should be considered as well. Of course, any finding of intangible value must be supported by the facts and circumstances of the individual practice, including the post-acquisition compensation model, and some level of profit should be anticipated in the projection."