📖 Approx. 6 minutes
Background for Considering the Sale of an Orthopedic Clinic
Among orthopedic clinic practitioners, some consider selling or transferring their practice due to their own aging, lack of successors, or to expand their business or venture into new medical fields. In particular, surgical facilities and rehabilitation departments are crucial elements that influence a clinic’s profitability and future prospects, and accurately assessing their value is essential for determining a fair price in M&A. This article, aimed at directors and heads of clinics considering the sale of their orthopedic practice, focuses on valuing surgical facilities and rehabilitation departments, providing practical insights with a discussion of issues unique to medical M&A.
Key Points for Valuing Orthopedic Clinics in M&A
The valuation of orthopedic clinics in M&A is generally calculated based on net asset value and capitalized earnings value. Net asset value is the clinic’s assets (real estate, equipment, supplies, etc.) minus its liabilities, with a particular emphasis on the fair market valuation of high-value medical equipment such as surgical facilities and MRI machines. Capitalized earnings value forecasts future profitability and converts it to present value, influenced by trends in medical fees, patient numbers, and the utilization rate of the rehabilitation department. For medical corporations, unique considerations such as the presence or absence of equity interests, changes in corporate members, and the return of funds also affect the valuation, differing from stock corporations. Furthermore, the impact of regional medical plans and revisions to medical fee schedules must be taken into account.
| Evaluation Item | Description | Considerations |
|---|---|---|
| Net Asset Value | The amount obtained by subtracting total liabilities from total assets of the clinic. | Fair market valuation of real estate and medical equipment (surgical facilities, MRI, etc.), uncollected medical fees, loans, unpaid bills, etc. |
| Capitalized Earnings Value | Valuation based on future earning potential. | Past earnings performance, future earnings projections (patient numbers, rehabilitation utilization rate, impact of medical fee revisions), trends of competing clinics. |
| Intangible Assets | Brand power, location, skills of doctors and staff, patient lists, etc. | Especially the specialization of the rehabilitation department and patient attraction based on surgical outcomes. |
Valuing Surgical Equipment: Distinguishing Specialized and General Equipment
Surgical equipment, indispensable for orthopedic clinics, is a significant factor in its valuation. Highly specialized equipment such as surgical microscopes, arthroscopes, electrosurgical units, anesthesia machines, and fluoroscopy units have limited circulation in the used market, making professional appraisal recommended. General equipment (operating tables, lighting, monitors, etc.) is valued based on general used market prices. The depreciation status of this equipment, the existence of maintenance contracts, and renewal dates also serve as points for price negotiation. In M&A, the valuation will vary depending on whether this equipment is inherited as is, or if some of it is sold or disposed of. It is important for the seller to understand the appropriate valuation of the equipment and aim for a mutually agreeable price with the buyer.
Valuing the Rehabilitation Department: Utilization Rate and Specialization
The rehabilitation department, a pillar of revenue for orthopedic clinics, hinges its value on its utilization rate and specialization. The number of physical therapists and occupational therapists on staff, the availability of specialized training equipment, the average rehabilitation time per patient, and the patient recovery rates and satisfaction levels resulting from rehabilitation are directly linked to profitability. Clinics with strengths in sports rehabilitation or post-operative rehabilitation, in particular, can expect high profitability, and their specialization tends to be valued. Revisions to rehabilitation-related fees due to medical fee schedule changes directly impact revenue, so future trends must be closely monitored. It is crucial for the seller to present the strengths and achievements of the rehabilitation department concretely, enabling the buyer to understand its profitability.
Rehabilitation Department Profitability Evaluation Checklist
- Number and specialization of physical therapists and occupational therapists
- Types of rehabilitation equipment and their utilization rates
- Average rehabilitation time per patient
- Treatment outcomes and patient satisfaction from rehabilitation
- (If applicable) Track record in sports rehabilitation or post-operative rehabilitation
Unique Issues for Medical Corporations: Member Changes and Fund Repayments
M&A involving medical corporations presents unique issues distinct from those of stock corporations. The most critical is the change of “members.” Medical corporations are composed of members (not investors, but individuals who form the general meeting of members), and changes in membership may require adherence to the articles of incorporation and approval from the competent authorities. Additionally, for medical corporations with a “fund” system, the procedures for repaying funds associated with M&A must be considered. Funds are contributions made for the establishment and operation of the medical corporation, and their repayment involves specific procedures and tax treatments. These procedures are complex, making the support of specialists (M&A advisors, tax accountants, lawyers, etc.) indispensable. The smooth resolution of these issues can determine the success or failure of the M&A.
Consideration of M&A Schemes and Permits/Notifications
The M&A schemes for orthopedic clinics primarily include two options: “business transfer” and “stock transfer (or equity transfer for medical corporations).” A business transfer involves the individual transfer of clinic business assets (equipment, patient lists, medical contracts, etc.), offering the advantage of not inheriting liabilities but requiring individual contract succession procedures. On the other hand, a stock transfer (equity transfer) involves transferring the membership interests (equity interests) of the medical corporation. Since contractual relationships remain with the medical corporation, the procedures are relatively simpler, but there is a risk of inheriting the corporation’s off-balance-sheet liabilities. The choice of scheme depends on the clinic’s situation and the intentions of the seller and buyer. Furthermore, post-M&A, new permit applications and procedures for inheriting existing permits and notifications are necessary. In particular, changes to designations as an insured medical institution and notifications regarding facility standards affect the calculation of medical fees, requiring prompt and accurate handling.
Key Points for Selecting an M&A Scheme
- Business Transfer
- Advantages: No inheritance of off-balance-sheet liabilities, ability to select assets/liabilities individually.
- Disadvantages: Requires individual contract succession procedures, may be subject to consumption tax.
- Stock Transfer (Equity Transfer)
- Advantages: Procedures are simpler as contractual relationships remain with the medical corporation, not subject to consumption tax.
- Disadvantages: Inherits all aspects of the corporation, including off-balance-sheet liabilities, requires procedures for changing corporate members.
Capital Gains Tax and Impact on Regional Healthcare
Capital gains earned from the sale of a clinic are subject to tax. For sole proprietors, it is income tax and resident tax, while for medical corporations, the capital gains or losses are subject to corporate tax. Particularly, when equity interests of a medical corporation with equity interests are transferred, the capital gains may be taxed as “deemed dividends” or “capital gains,” making the tax treatment complex. It is important to collaborate with specialists such as tax accountants to implement appropriate tax-saving measures. M&A also impacts the regional healthcare provision system. For example, the continuous provision of surgical facilities and rehabilitation services, accessibility for local residents, and collaboration with existing medical institutions are expected from the acquiring party, who should develop and execute a business plan based on the regional medical plan. Beyond mere profit motives, contributing to regional healthcare is also indispensable for successful M&A.
Importance of Consulting with Specialists
M&A of orthopedic clinics involves numerous complex issues unique to the medical industry, making consultation with specialists essential. By collaborating with professionals in each field, such as M&A intermediaries with extensive experience in medical M&A, tax accountants and lawyers well-versed in the taxation and legal aspects of medical corporations, and specialists knowledgeable about equipment valuation for medical institutions, it is possible to achieve a smoother and more favorable M&A. In particular, accurate advice from specialists is indispensable for valuing specialized assets like surgical equipment and rehabilitation departments, handling procedures unique to medical corporations such as member changes and fund repayments, and navigating complex tax treatments. M&A Medical (CentralMedience Inc.) offers free consultations as an M&A support organization specializing in the medical industry. Please feel free to contact us.
Consult M&A Medical for Medical Succession
M&A Medical is a specialized M&A and business succession support service for medical institutions. As an M&A support organization certified by the Small and Medium Enterprise Agency, we support the successful transfer of clinics and medical corporations struggling with succession issues, as well as strategic acquisitions, on a success fee basis.
- Initial consultation and preliminary appraisal are free
- No upfront fees or monthly charges (success fee only)
- Strict confidentiality (proceeds under NDA)
- Service available nationwide in all 47 prefectures and for all medical specialties
Please consult us early in your consideration phase, whether you “just want to know the market value,” “have no successor,” or “are considering joining a group.”