Update: Physician Practice Appraisals

By Bruce Krider MHA

How Federal Payment Policy, Coverage Instability, and Regulatory Shifts Are Reshaping Valuation in 2025–2026

Physician practice appraisals have always been shaped by reimbursement trends, regulatory expectations, and the operational realities of medical practice. But the current environment—marked by Medicare payment cuts, Medicaid volatility, telehealth recalibration, and the possibility of large‑scale federal coverage changes—has introduced a level of uncertainty that appraisers can no longer ignore.

This article provides a comprehensive update on the federal forces reshaping physician practice valuation today, with a special focus on the emerging risks that appraisers must now incorporate into their models.

1. Medicare Payment Policy: The Most Immediate Pressure on Valuation

The 2025 Medicare Physician Fee Schedule (PFS) introduced another round of payment reductions, continuing a multi‑year trend of declining real‑term reimbursement. Combined with rising practice costs, this creates margin compression that directly affects:

• Normalized earnings

• Provider compensation sustainability

• EBITDA multiples

• Long‑term growth assumptions

For Medicare‑heavy specialties—cardiology, oncology, orthopedics, primary care—the impact is especially pronounced.

Appraisers are increasingly adjusting discount rates upward and adopting more conservative long‑term projections to reflect this reimbursement instability.

2. Medicaid Trends: Expansion, Contraction, and Managed Care Pressure

Medicaid remains one of the most unpredictable components of payer mix. Nationally, several forces are at play:

• States continue shifting beneficiaries into managed care organizations (MCOs)

• Redetermination processes are removing millions from Medicaid rolls

• Reimbursement rates remain well below Medicare in most states

• Administrative burden and denial rates are rising

For practices with high Medicaid penetration—pediatrics, OB/GYN, behavioral health—these dynamics materially affect valuation inputs such as:

• Collection percentages

• Bad‑debt allowances

• Revenue stability

• Long‑term sustainability

Appraisers must now treat Medicaid volatility as a core risk factor, not a peripheral one.

3. Telehealth Recalibration: The Post‑Pandemic Reset

CMS’s 2025 rules reintroduce geographic and site restrictions for telehealth, limiting many services to rural areas and approved medical facilities. This shift affects:

• Behavioral health

• Primary care

• Chronic disease management

• Remote patient monitoring models

Practices that built telehealth‑heavy revenue streams during the pandemic must now adjust to:

• Lower telehealth utilization

• Higher in‑person overhead

• Reduced flexibility in care delivery

Appraisers are revising revenue projections accordingly and reassessing the value of telehealth infrastructure.

4. Value‑Based Care: A Growing but Uneven Driver of Value

CMS continues to expand value‑based care programs, including ACO participation, primary care models, and behavioral health integration incentives. For practices with strong quality performance and care‑coordination infrastructure, this can enhance valuation.

However, value‑based care requires:

• Data analytics

• Care coordinators

• Reporting systems

• Population health tools

Appraisers must balance the potential upside with the capital and operating costs required to participate effectively.

5. The Missing Piece: Federal Coverage Instability as a Valuation Risk

While Medicare cuts and telehealth changes receive attention, a larger structural issue is emerging: the possibility of significant federal changes to Medicaid coverage and the Affordable Care Act (ACA).

Regardless of political views, the simple reality is that coverage instability introduces systemic risk. And systemic risk affects every major valuation input:

• Payer mix

• Revenue predictability

• Bad‑debt exposure

• Long‑term earnings

• Market behavior

• Discount rates

• Terminal value assumptions

Even the possibility of large‑scale federal changes creates a new layer of uncertainty that appraisers must acknowledge.

Why This Matters for Valuation

1. Payer Mix Volatility Is Now a Realistic Scenario

Coverage reductions could lead to:

• Higher uninsured rates

• More uncompensated care

• Lower collection percentages

• Increased charity‑care burden

For Medicaid‑heavy specialties, this can materially reduce normalized earnings.

2. Systemic Uncertainty Must Be Priced Into Risk Models

Appraisers don’t need to predict political outcomes.
But they do need to recognize:

• Increased regulatory uncertainty

• Greater reimbursement instability

• Higher long‑term risk exposure

This justifies more conservative valuation assumptions.

3. Buyer Behavior Is Already Shifting

Private equity groups and health systems are:

• Stress‑testing reimbursement scenarios

• Lowering EBITDA multiples

• Increasing diligence on payer mix

• Reassessing long‑term sustainability

Appraisals that ignore these forces will feel disconnected from market reality.

Special Note to Appraisers

If you perform physician practice valuations, this is the moment to expand your risk framework. The traditional inputs—historical earnings, payer mix, provider productivity, and market comparables—are no longer sufficient on their own.

Here is practical direction for your appraisal work:

1. Explicitly Acknowledge Federal Coverage Risk

Include a brief section in your report noting:

• Potential changes to Medicaid coverage

• Possible restructuring of ACA insurance protections

• Resulting uncertainty in payer mix and reimbursement stability

This signals awareness of the broader landscape.

2. Use Scenario‑Based Modeling

Consider presenting:

• Base case

• Downside case (coverage contraction)

• Upside case (coverage stability or expansion)

This approach is becoming standard among sophisticated buyers.

3. Adjust Discount Rates Thoughtfully

Coverage instability is a legitimate basis for:

• Higher risk premiums

• Wider valuation ranges

• More conservative terminal value assumptions

Document your rationale clearly.

4. Reassess Specialty‑Specific Exposure

Some specialties are far more vulnerable to coverage shifts.
Your valuation should reflect that.

5. Communicate Uncertainty Transparently

A simple statement such as:

“Given the current federal policy environment, payer‑mix volatility represents a material risk factor that has been incorporated into the discount rate and long‑term growth assumptions.”

…makes your appraisal more defensible and more aligned with market reality.

Conclusion

Physician practice appraisals are being reshaped by a convergence of federal forces: Medicare payment cuts, Medicaid volatility, telehealth restrictions, value‑based care expansion, and the possibility of large‑scale federal coverage changes. The result is a valuation environment that is more risk‑sensitive, more dependent on payer mix, and more focused on long‑term sustainability.

For appraisers, consultants, and buyers, acknowledging these systemic risks is no longer optional. It is essential to producing credible, defensible valuations in 2025–2026.