📖 Approx. 6 minutes ／ Updated 2026.05.08
In M&A involving medical corporations, financial due diligence (financial DD) is a critical process that determines success or failure. However, accounting for medical corporations is based on unique rules under the “Medical Corporation Accounting Standards,” with different account titles and tax exceptions compared to general corporations. This article provides a detailed explanation from a practical perspective on the key points that professionals such as tax accountants and certified public accountants should pay particular attention to when analyzing the financial statements of medical corporations.
Specifics of Medical Corporation Accounting and Structural Differences from General Corporations
When analyzing the financial statements of a medical corporation, the first principle to understand is its “non-profit” nature. Medical corporations are prohibited from distributing surplus profits, and any profits must be used to maintain and expand the medical service system. This characteristic is strongly reflected in the net assets section of the balance sheet (B/S).
In general corporations, what is recorded as “capital stock” becomes “paid-in capital” or “fund” in a社団医療法人 (social medical corporation). Particularly in the case of “medical corporations with equity,” the equity is subject to capital gains tax, and its valuation is extremely complex. On the other hand, in “fund contribution type medical corporations,” which are currently permitted for new establishment, the fund has characteristics similar to a debt with an obligation to repay, leading to a significantly different interpretation of net assets.
Key Points for Scrutinizing Assets and Liabilities on the Balance Sheet (B/S)
The most characteristic current asset on the balance sheet of a medical corporation is “accounts receivable from medical services.” This represents claims for medical fees against the Social Insurance Medical Fee Payment Fund and the National Health Insurance Federation, and there is typically a time lag of about two months from service provision to payment. In financial DD, it is necessary to verify that these receivables are consistent with the content of the medical claims (receipts) and that there is no risk of reduction due to errors or adjustments.
- ✅ Accounts Receivable from Medical Services: Reconciliation of book balance with payment notices from social insurance and national health insurance (for the last 3 months)
- ✅ Inventory: Check for expired or dead stock of pharmaceuticals and medical supplies
- ✅ Medical Equipment: Distinction between leased and company-owned equipment, and the possibility of inheriting maintenance contracts
- ✅ Loans to Director: Existence of fund outflows to related parties and their recoverability
Regarding fixed assets, the depreciation status of high-value medical equipment such as CT and MRI scanners is important. It is necessary to consider the discrepancy between the statutory useful life and the actual period of usability, as well as the need for future renewal investments (capital expenditures). Furthermore, whether renovation costs to meet facility standards have been appropriately capitalized or expensed as repairs serves as a basis for assessing the appropriateness of operating income.
Profitability Assessment using Profit and Loss Statement (P/L) and EBITDA
The profitability of medical corporations is directly affected by revisions to medical fee schedules. P/L analysis requires not just whether “a profit is being made,” but also a qualitative analysis of “which medical services are generating revenue.” Medical revenue should be broken down into categories such as “outpatient revenue,” “inpatient revenue,” and “self-pay revenue,” and trends in patient numbers and average revenue per patient (average medical fee) should be tracked.
In M&A for medical institutions, the “adjusted net assets + goodwill (Noren)” method is generally adopted for price calculation. Goodwill is often calculated as “Adjusted EBITDA x 2 to 5 times (guideline).” The “adjustment” process is crucial here. In clinics that operate similarly to sole proprietorships, personal expenses of the director (e.g., vehicle maintenance, entertainment expenses) may be included in operating expenses. By appropriately adding these back, the actual earning capacity after acquisition is assessed.
Do Not Overlook: Off-Balance Sheet Liabilities and Regulatory Compliance Checks
The risk of “off-balance sheet liabilities,” which are not apparent from the figures on the financial statements alone, is the biggest concern in medical corporation M&A. In particular, unpaid overtime wages for medical staff and failures to enroll in social insurance can lead to significant payment obligations after the succession.
Reconcile time cards with payroll registers. Check for unpaid overtime wages for the past 2-3 years.
Consistency between items reported to the public health center and actual conditions. Review findings from regular inspections.
Reasonableness of transaction prices with MS corporations (Medical Service Corporations), and existence of any improper profit transfer.
Furthermore, the re-organization of hospital beds due to regional medical care planning and trends in medical fee revisions cannot be ignored. Tax accountants and CPAs are required to analyze financial statements from the perspective of “business continuity,” considering the supply-demand balance in the secondary medical area where the target medical institution is located, and whether revenue can be maintained in the future.
Practical Flow from Financial DD to Final Agreement
The results of financial DD are reflected not only in the negotiation of the final transfer price but also in the representations and warranties and indemnification clauses of the Share Purchase Agreement (SPA). As professionals, their role is not just to point out numerical errors but to articulate and communicate to the client how these issues will impact future operations.
In particular, business tax for medical corporations has complex tax exceptions, such as income related to “social insurance medical services” being tax-exempt (Article 26, etc., of the Act on Special Measures for Taxation). Careful consideration is also required regarding how organizational restructuring through M&A will affect the application of these exceptions.
Conclusion: Supporting Medical M&A Based on Professional Expertise
Analyzing the financial statements of medical corporations is insufficient if it merely involves tracking superficial numerical data. Analysis based on a deep understanding of the unique laws and regulations of the medical industry, the medical fee system, and the accounting structure as a non-profit organization is essential. When consulted about M&A by a client medical institution, or when supporting a potential acquirer, financial DD that covers these specific issues is key to risk avoidance. As the optimal valuation methods and items to check vary by case, it is advisable to collaborate with advisors well-versed in the medical industry in practice.
Free Consultation Available for Financial DD and Valuation in Medical Corporation M&A
M&A Medical (operated by CentralMedience Inc.) is an M&A support institution certified by the Small and Medium Enterprise Agency. Our team of experts, deeply familiar with the complex financial, tax, and legal aspects unique to the medical industry, provides comprehensive support. If you have any practical questions or concerns regarding the interpretation of financial statements, calculation of fair value, or investigation of off-balance sheet liabilities, please feel free to contact us. We will propose the optimal succession scheme tailored to your institution’s situation.
For Medical Succession Consultations, Contact M&A Medical
M&A Medical is a specialized M&A and business succession support service for medical institutions. As an M&A support institution certified by the Small and Medium Enterprise Agency, we support the successful transfer of clinics and medical corporations facing successor shortages, as well as strategic acquisitions.
- Initial Consultation and Preliminary Appraisal are Free
- No Retainer or Monthly Fees (Success Fee Only)
- Strict Confidentiality (Proceeds after NDA execution)
- Support available nationwide across all 47 prefectures and all medical specialties
Please consult us early, even in the initial stages of consideration, whether you “just want to know the market price,” “have no successor,” or “are considering joining a group.”