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Valuation of Physician Practices: Avoiding the Five Common Pitfalls, by Jeffrey Bettinger, M.D., FACEP
Valuation of physician accounts receivable is necessary as a prerequisite for various financial transactions and
agreements. Examples include sale or purchase of physician practices, institution of buy/sell agreements, and
borrowing of funds or establishment of lines of credit where the accounts receivable serve as collateral.
Unfortunately, unlike other types of accounts receivable (AR), the variables that affect the amount of eventual
collections from physician accounts receivable pools are protean. Possessing a thorough understanding of these
variables, and then asking the right questions, will allow a valuator to more accurately predict the true value
of the AR pool. Conversely, lack of appreciation of these variables may lead to significant valuation errors.
Following is a discussion of five mistakes that are commonly made when valuing physician AR. The first three mistakes
deal with lack of understanding of the reports generated by the billing system on which the AR resides. The remaining
two address misinterpretation of the governmental and payer rules that apply to physician billing. Understanding these
common pitfalls will allow an AR reviewer to ask the right questions and greatly increase the valuation accuracy.
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