Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Family Medical Practice Hit 25x EBITDA with Patient Data
Transcript
- Lucas: Luna, a deal crossed my desk recently that I think is worth unpacking. A family medical practice in suburban Ohio — three physicians, about 4,500 active patients — sold for 25 times EBITDA. Luna: Twenty-five times? That's higher than we've seen even for some tech-enabled services businesses. What was special about a primary care practice? Lucas: Right. The headline number jumps out. But when you look at the revenue composition, it starts to make sense. About 40 percent of their top line came from what I'd call 'programmatic recurring revenue' — specifically, Medicare chronic-care management billing and annual wellness visits. Luna: That's the non-face-to-face stuff. The practice gets reimbursed monthly for coordinating care for patients with two or more chronic conditions. Lucas: Exactly. That's a recurring, contract-based revenue stream that's tied to patient enrollment, not to individual visits. And they had 1,800 patients enrolled in their chronic-care management program. That's roughly 40 percent of their panel. Luna: So the buyer — was it another physician group, or a larger system? Lucas: A regional health system. They were specifically after the data. The practice had been using a certified EHR for eight years and had clean, structured data on medication adherence, readmission rates, and preventive care completion. That's gold for a system trying to improve population health metrics. Luna: And the 25 times multiple — was that purely on the recurring revenue, or did the whole practice get that multiple? Lucas: The whole practice, but here's the nuance. The buyer applied a blended valuation model. They valued the chronic-care management revenue at roughly 30 times, the routine visit revenue at maybe 12 times, and the data asset alone — the de-identified patient outcomes data — at a separate 4 times EBITDA tack-on. Averaged out, it hit 25. Luna: So the data was literally a line item in the purchase price. Lucas: It was. And that's the part I think many independent practice owners don't realize. If you aren't systematically capturing and structuring your patient data — adherence rates, lab result trends, visit frequency — you're leaving millions on the table. Luna: Walk me through the revenue breakdown. What was total EBITDA on this deal? Lucas: The practice was generating about $2.8 million in revenue, with a 22 percent EBITDA margin — so roughly $616,000 in EBITDA. At 25 times, that's a $15.4 million purchase price. But the buyer also assumed the practice's lease and equipment, so the cash consideration was around $13 million. Luna: For a three-physician practice that's a big number. What were the physicians earning before the sale? Lucas: Each was taking home about $340,000 a year in salary and bonuses. They had a productivity-based compensation model, so the partners were incentivized to maximize the chronic-care management enrollment. And they did. Luna: So part of the value was structural — the way they paid themselves kept EBITDA high. Lucas: Exactly. If they had been paying themselves market-rate salaries closer to $250,000, the EBITDA would have been higher and the multiple would have been even more dramatic. But they made a deliberate choice to keep the practice lean. Luna: What about the patient retention? Did they have long-tenured patients? Lucas: Average patient tenure was 11 years. And 60 percent of their patients were on Medicare or Medicare Advantage — which is actually favorable for the chronic-care management billing. Those patients tend to be more stable and have higher adherence to scheduled visits. Luna: So the buyer wasn't just buying a recurring revenue stream — they were buying a sticky, older, predictable patient base with documented outcomes. Lucas: Exactly. And that's where the data premium comes in. The practice had a 92 percent medication adherence rate among their chronic-care management patients. That's well above the national average of around 75 percent. The buyer could use that data to negotiate better rates with Medicare Advantage plans. Luna: Let's talk about the process. How did they find the buyer? Lucas: They used a healthcare-focused M&A advisory firm, not a general business broker. The advisor ran a targeted process — reached out to 12 regional health systems and three large private equity-backed physician management companies. They got four letters of intent. Luna: Four offers. That's competitive. Lucas: Very. The winning bid came from a system that already had a clinically integrated network in the same county. They saw the practice as a way to densify their primary care footprint and feed their specialists. The practice was referring about 200 patients a year to the system's cardiology and orthopedics departments even before the acquisition. Luna: So there was a pre-existing referral relationship that made the deal logical. Lucas: Right. And the system was willing to pay a premium to lock that in. The practice's physicians signed three-year employment agreements with a guaranteed base of $280,000 and a productivity bonus. So they didn't retire — they stayed on. Luna: That's key. A lot of buyers shy away from practices where the owner-physicians want to exit completely. Retention creates continuity. Lucas: It does. And the buyers structured part of the purchase price as an earn-out tied to chronic-care management enrollment growth over two years. If the physicians grew enrollment by 15 percent, they'd get an additional $1.2 million. Luna: So even after the sale, they have a financial incentive to keep building the program. Lucas: Exactly. And that's the kind of deal structure we're seeing more of in healthcare services M&A. The strategic buyers want to pay for future performance, not just past results. Luna: If a listener owns a small medical practice, what are the two or three things they should do this year to position for a similar outcome? Lucas: First, get serious about chronic-care management enrollment. If you have Medicare patients with two or more chronic conditions and you aren't billing for monthly non-face-to-face care coordination, you are leaving money on the table. Second, clean up your data — make sure your EHR is capturing structured data on adherence, outcomes, and visit patterns. Third, think about who your natural buyer is. Is it the local health system? A private equity roll-up? An independent physician association? Tailor your operations to what they value. Luna: And the physicians themselves — should they be thinking about a sale as a retirement event or a partnership? Lucas: Increasingly, it's a partnership. The physicians who stay on and continue to practice after the sale, while also participating in an earn-out, tend to get the best outcomes. The ones who try to cash out and walk away often leave money on the table because the buyer discounts for risk. Luna: That aligns with what we've seen in other professional services — the value is in the ongoing relationship with clients, or in this case, patients. Lucas: Absolutely. And look, conversations like this — where we dig into the actual mechanics of a deal — they take time to research and produce. If these deep dives have helped you think about your own business differently, and you want to support the show staying ad-free, you can always buy us a coffee. That's buy me a coffee dot com slash fexingo. No pressure at all — just a way for listeners who find value here to keep it going. Luna: Yeah, and it genuinely helps. We don't run ads, so listener support is what keeps these conversations happening. Lucas: So back to the practice sale. One other factor I want to highlight: the practice had a 4.5-star rating on Google and a 4.7 on Healthgrades. That's a tangible asset in a healthcare system's eyes because it signals patient satisfaction and reduces churn. Luna: Did that come up in negotiations? Lucas: It did. The buyer's M&A team did a social media and review audit as part of due diligence. They found that the practice had a 90 percent response rate to negative reviews — meaning they addressed complaints publicly within 48 hours. That level of engagement was a positive signal. Luna: So reputation management directly impacted valuation. Lucas: It did. Small things — responding to reviews, maintaining a consistent online presence, having a clean website — all of it feeds into the buyer's perception of operational quality. In a competitive process, those details can tip the scales. Luna: What about the practice's payer mix? Was there any concentration risk? Lucas: About 60 percent Medicare, 25 percent commercial, 15 percent Medicaid. That's actually favorable for a primary care practice because Medicare's chronic-care management reimbursement is stable. Commercial payers are starting to reimburse for similar programs, but Medicare is still the anchor. Luna: So the 25 times multiple — is that replicable for other practices, or was this a one-off? Lucas: I think it's replicable if the practice has three things: a high chronic-care management enrollment rate, clean outcomes data, and a natural strategic buyer in the region. Without those, you're probably looking at 10 to 15 times. But the market for primary care practices with strong recurring revenue is definitely heating up. Luna: And the trend toward value-based care — where reimbursement is tied to outcomes rather than volume — that's only going to accelerate the premium on data. Lucas: Exactly. The practices that invest in data infrastructure and chronic-care management today are building the businesses that will command the highest multiples tomorrow.