by Mark E. Kropiewnicki, JD, LLM
The total value of a medical or dental practice is measured by three major components:
Of these three components, goodwill has the most variation and is usually the most significant part of a medical or dental practice’s worth.
What exactly is goodwill? Generally, it is the likelihood that, over time, consumers will return to a business, regardless of a change in the business’ personnel or ownership.
What constitutes goodwill for medical and dental practices? It is the likelihood that patients will continue to return to a practice, regardless of the identity of the doctors in the practice. It also includes the tendency of patients to return to the same practice for a given service, as well as the patterns of other doctors and patients to keep referring patients to the same practice. Patients satisfied with a practice’s services will continue to provide business to the practice, and this expectation of prospective business has value.
Goodwill also includes a practice’s “going concern value.” This is the value of having a medical or dental practice that is fully operable, with a trained workforce, appropriate and properly functioning computer hardware and software systems, and correctly configured office space. To a buyer of a practice or to an associate buying into a practice, these systems represent savings in time and money and are benefits of buying or buying into the practice versus starting up a new one. Thus, on some level, goodwill for medical and dental practices also includes the opportunity cost of setting up a competitive practice, in terms of “lost” income before all systems are in place and fully operational and an established patient following is developed.
To some extent it is intuitive that if a practice’s doctors earn significantly more than their comparably situated peers, their practice must be “worth more.” In many cases, it is just these differences in earnings that create the incentive to buy or buy into an existing practice rather than to develop one.
Any other intangible value associated with the practice also falls under the category of goodwill regardless of the myriad ways to categorize or label it. Medical/dental charts, patient lists, phone numbers, practice location, and in many cases even the practice name itself all have value associated with them. These items are also factors that influence existing patients to return to the same practice. A non-compete agreement entered into or between the practice and its doctors or by the current practice owner and the buyer also is an often-significant measure of practice goodwill since the buyer is assured that he or she won’t face competition from the practice doctors or the practice seller after the practice has changed hands.
To one degree or another, all medical and dental practices have the items of intangible goodwill value described above. However, not all practices can command a significant (or any) payment for goodwill. Some practices have substantial goodwill value, while others have little or no goodwill value at all. A number of factors dictate the range of a practice’s goodwill value. Ultimately, the goodwill value for a practice will depend on whether or not the goodwill value is transferable to a buyer of a practice or to an associate buying into a practice.
The practice specialty is an important factor in determining the goodwill value for a medical or dental practice. Simply put, some practice specialties have more goodwill value than others.
Another major factor for this inequity in goodwill value is practice profitability measured by the compensation and benefits the owner doctor(s) receive. Profitable practices can justify a considerable goodwill payment because financial success would most likely be hard for the purchasing doctor to reproduce in a new practice. A profitable practice may possess a dominant position in the market, as well as an efficient operation with low overhead and high profits. Profitability is very attractive if a doctor is considering a practice buy-in or a practice purchase, as the high profits can be used to pay the goodwill premium to the seller and leave a substantial remainder for the buyer’s personal needs.
In contrast, a doctor looking to buy-into or purchase a practice will not be as attracted to a practice that generates mediocre earnings for its doctors. In this case, the associate or purchasing doctor will likely do better starting off with a new practice. Creating a new practice will allow the doctor to avoid the pitfalls of a poorly performing practice, such as high overhead, a bad location, or low patient volume. The current owner of a poorly performing practice will have a difficult time demanding much, if any, payment for goodwill, since the associate or purchasing doctor may be afforded more attractive options elsewhere.
The practice’s geographic location accounts for a large portion of overall goodwill value. Buyers will always be more interested in practices in a warm climate or an attractive metropolitan area, rather than in an area with a harsh climate or otherwise undesirable location. The supply and demand principle characterizes this factor. In a rural, underserved area, a new doctor can readily start up a new practice. In this situation, there is usually no incentive for a new doctor to spend a large amount of money on goodwill to buy or buy-into an existing practice.
Market competition also factors into a practice’s goodwill value. For example, markets with modest healthy competition usually have a positive effect on practice goodwill since it creates the need and desire to buy or buy into an existing practice. However, intense competition may lead to lower goodwill values, as there is increased risk of diminishing income-generating capabilities in the market.
In medical or dental practice valuations, it is important to distinguish between “institutional” goodwill and “personal” goodwill. “Institutional” goodwill includes the items of intangible goodwill value (such as those that are noted above) that are likely transferable to a buyer of a practice or to an associate buying into a practice, including, for example, in-place work force, practice systems, existing patient base and referring doctors, and, to some extent, the endorsement of the selling doctor(s). “Institutional” goodwill is salable to a buyer of a practice or to an associate buying into a practice and thus “institutional” goodwill is what constitutes the goodwill value of a medical or dental practice.
By contrast, “personal” goodwill is the personal reputation and unique qualities or characteristics of the doctor(s) in the practice that are inherent to those doctor(s) and to the referrals to those doctor(s). These personal attributes are generally not transferable to a buyer of a practice or to an associate buying into a practice and therefore are not usually salable. As a result, “personal” goodwill usually will not constitute part of the goodwill value of a medical or dental practice.
A number of valuation methods are available to assess a medical or dental practice’s goodwill value. These include the capitalized excess earnings method and the discounted cash flow (or DCF) method. However, physicians and dentists commonly use a comparable sales method to determine a medical or dental practice’s goodwill value. This comparable sales method evaluates how a given practice compares to an “average practice.” Using percentages of practice gross income paid on average, this method starts with the goodwill values actually paid by buyers. The goodwill value using this comparable sales method is generally expressed as a percentage of the most recently completed fiscal year’s gross income of the practice although an average or a weighted average of the last two or three years of practice gross income may be used if the practice gross income is flat or mixed. The goodwill value using this comparable sales method is exclusive of the practice’s hard assets and accounts receivable.
In our analysis the first issue is whether or not goodwill exists at all for the practice being valued. A practice with a healthy income stream still commands zero dollars for goodwill if the income stream is not transferable. Knee-jerk application of capitalized earnings formulas or discounted cash flow analysis can easily yield an incorrect result in these cases unless the discount or capitalization rate is reduced to zero.
If goodwill exists, the comparable sales method focuses on actual practice transactions parameters as a starting point for determining the likely range of practice value. The comparable sales method starts with the average price paid for intangible goodwill assets (stated as a percentage of cash basis gross income) for comparable specialty practices in a variety of actual transactions, such as practice sales, mergers, and buy-in and pay-out arrangements. These goodwill prices are benchmarks for evaluating the specific practice under consideration. Individual characteristics of the specific practice and its market raise or lower the value from the benchmark average. Where the database is large enough, the comparable sales data might be limited to practices of similar revenue size, overhead, community or geographic region. Year to year trends in pricing may also be important.
In order to use this comparable sales method, you need data about practice goodwill values from actual practice transactions (preferably in the particular practice’s marketplace). It is almost impossible to obtain truly comparable practice goodwill values in a particular market simply because there usually are not enough, if any, actual transactions in the particular market and, even if there are actual transactions in the particular market, the details of the transactions are not usually publicly available. However, The Health Care Group’s® Goodwill Registry does report actual transactions involving the intangible goodwill value of medical and dental practices. The Goodwill Registry for 2026 contains more than 2,567 reports of goodwill from transactions submitted by participating medical and dental practice advisors, consultants and practices during the years 2016 to 2025. The Goodwill Registry is updated annually.
The Goodwill Registry reports a practice’s goodwill value as a percentage (“Goodwill Percent”) of the practice’s annual gross revenue (i.e. cash collections) and represents goodwill values for actual real-world transactions. Data from the Goodwill Registry is regularly used by medical and dental practice advisors to determine practice goodwill values and has been used in litigation proceedings to help resolve goodwill valuation issues.
The Health Care Group’s® user-friendly Goodwill Registry Toolkit contains a database on intangible goodwill values of medical, dental and other professional practices and cumulative goodwill statistics by specialty, category, state, location (urban, suburban or rural), and region of the country. The Goodwill Registry Toolkit includes a variety of metrics and analysis options, easy export to Excel and a PDF file of the complete print version. The Toolkit allows quick and easy analysis of the Goodwill Registry’s comparable sales data specifically gross revenue, overhead percent, practice price, goodwill value, goodwill percent, valuation reason, valuation method, earnings, price to gross revenue, price to earnings, goodwill value to gross revenue, goodwill value to earnings and more. To find out more about goodwill statistics for medical and dental practices or to purchase the Goodwill Registry Toolkit visit The Health Care Group’s® website at www.healthcaregroup.com.
[1] The data in this article is copyrighted by The Health Care Group, Inc. The author is a principal consultant with and President of The Health Care Group, Inc. and a principal attorney with and President of Health Care Law Associates, P.C., both based in Blue Bell, Pennsylvania. He can be contacted by telephone, toll free at (800) 473-0032 or by email: mkrop@healthcaregroup.com.
The Health Care Group® provides a full range of practice management, consulting, valuation and legal services, including advising physicians, dentists and their practice entities throughout the country about their new doctor employment agreements, buy-in and pay-out arrangements, income division and inter-doctor arrangements, practice and goodwill valuation, and practice sale and succession planning.
