It’s more complicated than that.
TL;DR: To a larger degree than most businesses, the physician is the value in a medical practice.
Let’s say you’re a dermatologist in Lincoln, Nebraska. You want to live there because of family reasons or whatever. You build a great thriving practice. You’re clearing $1m in profit annually.
(A high, but doable number for a dermatologist with a good private practice)
Now it’s time to retire.
First of all, you can’t sell a patient. Patients go where they want to. You also can’t sell medical records. Because laws. Nor really would you want to.
All you can do is sell patient habits, and tangible assets.
But of course the biggest asset is the physician themselves. And they don’t come with the practice when they retire.
Now sure. There are ways of driving non-directly-physician-derived lines of revenue in a practice. Maybe you have a nurse that does aesthetics. Maybe you sell skin creams or whatever. But generally, those lines of revenue are still broadly dependent on the physician.
So what you need is a physician who wants to move to Lincoln, Nebraska at the same time you want to retire, and buy your practice.
But even if another dermatologist did want to practice in Lincoln at the right time, why should they pay a bunch of money to you for your practice? They could just start up next door.
Sure, they’d have to buy some equipment and hire and train staff, but there’s a good chance they’d have to do some of that even buying your practice.
And truth be told, they know you’re retiring anyway, so why not just wait it out?
Plus, medical specialists are in short supply. Especially those who want to move to Lincoln at that very moment. (I’m being hard on Lincoln. I went there once and it was nice. I just don’t imagine it’s a destination most highly qualified medical specialists dream of moving to.)
So probably the actual value of your practice is “the number that makes it less of a hassle to buy you out than for another specialist to start up their own practice.” Assuming there is a specialist who wants to move to where you’re selling.
And remember, if such a person already exists, they already own the most valuable asset of your practice: a qualified medical specialist.
So in a traditional medical practice sale scenario, your valuation almost certainly isn’t going to be a multiple of your revenue or profit like a more traditional business.
And the location can be a real challenge too. I know classmates of my spouse who turned down salary offers in the $800k range in the rural Midwest (with the potential to earn much more in the future through partnership/ownership) in order to make less than half that in the cities they wanted to live in.
Even if your practice is in a desirable location, most of these issues still apply. It’s just much more likely you’ll find someone to buy your practice for some value and not have to shut it down and sell it for parts.