Buying an Orthopedic Practice: The Acquirer's Financial Guide

Acquiring an existing ortho practice is the fastest path to ownership — but you're paying for someone else's patient base, staff, and referral relationships. Get the valuation wrong and you'll overpay by hundreds of thousands. Understand the tax structure and you can recover that gap in Year 1. Here's how to evaluate a practice acquisition the right way.

Acquisition vs. starting from scratch

The case for acquisition over a de novo start is largely about velocity. A new ortho practice faces 90–120 days before first collections arrive (credentialing lag), 12–18 months to build a referring physician network, and 3–5 years to reach full surgical volume. An acquired practice has all of that in place: existing payor credentialing, an active panel of patients, established OR block time, and trained billing staff. Revenue starts immediately.

You pay for this acceleration in the purchase price — typically $500K to $3M+ for a solo-to-small-group ortho practice, depending on volume and subspecialty. The financial question is whether the premium over a de novo start earns a return fast enough to justify it. The calculator below quantifies that for your specific numbers.

How to value an orthopedic practice

Orthopedic surgical practice valuations for owner-operator buyers (not financial buyers like PE firms) use two common approaches:

Revenue multiple

Expressed as a multiple of the seller's trailing 12-month gross collections. For solo or small-group orthopedic practices sold to a physician buyer:

EBITDA multiple

Earnings before interest, taxes, depreciation, and amortization — adjusted for owner compensation. For physician-buyer acquisitions, EBITDA multiples run 2–4× for solo practices and 3–5× for small groups. This is fundamentally different from PE acquisition multiples (6–12× EBITDA), which reflect financial buyer returns, leverage capacity, and bolt-on value. Don't benchmark your offer against what a USPI or SurgCenter paid — they have a different return model and can justify higher prices through synergies and platform value.

What drives practice value in orthopedics specifically:

• Payer mix quality. A practice with 40% commercial and 35% Medicare is more valuable than one where 60% is Medicaid. Orthopedic reimbursement varies 3–5× by payer for identical procedures.
• Surgical volume concentration. A solo spine surgeon doing 300 cases/year transfers poorly — too much personal goodwill. A 3-surgeon group doing 800 cases/year transfers better; patients and referrers connect to the group, not one individual.
• ASC ownership rights. If the practice includes a fractional ASC interest, that's a distinct asset — valued separately at ASC equity multiples (8–12× EBITDA for ASCs, driven by reimbursement rates). Confirm the operating agreement allows transfer of physician equity; many ASC agreements require majority partner approval or right of first refusal.
• Real estate. If the seller owns the building, that's typically negotiated separately from the practice — either sold to you, sold to a third party, or leased back to you. A landlord-controlled lease with unfavorable terms or short remaining duration reduces practice value.
• Referral network transferability. How tied are referring physicians to the selling surgeon personally? If the seller has been the only orthopedist for a 20-person primary care group for 15 years, that relationship may not transfer. A transition period (6–18 months of co-practice) is standard for exactly this reason.

Due diligence checklist

Financing the acquisition

Most physician practice acquisitions under $5M use some combination of SBA financing and seller participation:

SBA 7(a) loan

The SBA 7(a) program is the standard vehicle for practice acquisitions: maximum loan $5 million, terms up to 10 years (working capital) or 25 years (real estate included), typical down payment 10–20%. Rates are variable, set at prime + a lender spread, and are negotiable with healthcare-specialty lenders. Many community banks and SBA preferred lenders have physician practice acquisition programs with streamlined underwriting — your payor contracts and 3-year revenue history are the primary collateral.¹

Important: SBA requires the seller to be fully cashed out at close on the SBA-financed portion. Seller financing is permitted but must be subordinated to the SBA loan and typically put on standby (no payments) for the first 24 months.

Seller financing and earnouts

A common structure for ortho practice acquisitions: 70–80% SBA at close, 20–30% seller-financed note subordinated to the SBA loan. This reduces your cash down payment requirement and aligns the seller's incentives with a successful transition — if the practice revenue drops 30% in Year 1 because referrers followed the seller out, the seller feels that loss too (they're still owed their note). Earnout provisions — where part of the purchase price is contingent on Year 2 or Year 3 revenue — are more common in larger group acquisitions.

Asset purchase vs. stock purchase — this matters a lot

The structure of the deal determines who gets what tax treatment. Buyers almost always prefer asset purchases; sellers prefer stock sales. Here's why:

Asset purchase (buyer preference)

In an asset purchase, you buy specific assets — equipment, receivables (sometimes), patient records, the practice name, goodwill — not the entity itself. Tax benefits for the buyer:

• Stepped-up basis in all acquired assets. You start depreciating and amortizing from the purchase price, not from the seller's original cost basis.
• 100% bonus depreciation on qualified tangible property (equipment, instruments, furniture) under the OBBBA — full deduction in Year 1.²
• Goodwill and intangibles amortized over 15 years (IRC § 197). A $1M goodwill allocation yields $66,700/year in amortization deductions — worth $24,679/yr at a 37% marginal rate, consistently, for 15 years.³

Stock purchase (seller preference)

Sellers prefer stock sales for the same reason buyers don't: the seller pays capital gains rates (20% federal + 3.8% NIIT for high earners) rather than ordinary income on equipment recapture. The buyer inherits the seller's tax basis in the entity — no step-up, no fresh depreciation.

§ 338(h)(10) election — the compromise

When the target is an S-corporation (most small ortho practices are), both parties can agree to a § 338(h)(10) election, which treats the stock sale as an asset sale for tax purposes. The seller recognizes gain as if they sold the underlying assets (mix of capital gains and ordinary income, depending on asset type), but the buyer gets a stepped-up basis as if they purchased assets directly. Both parties must consent. In practice, this often requires the buyer to pay a premium to compensate the seller for their additional tax cost — but the buyer's lifetime depreciation and amortization benefits often exceed that premium.³

Acquisition ROI calculator

Model your projected return before going into due diligence. All inputs are pre-tax — work with your tax advisor to model the net-of-tax picture, which improves materially with bonus depreciation on equipment and § 197 goodwill amortization.

Post-acquisition financial setup (first 90 days)

The financial actions that belong in the first quarter after close — many have hard deadlines:

• Entity election. If you're acquiring assets into a new entity, file S-Corp election (Form 2553) within 75 days of formation. Waiting costs you a year of FICA savings. At $800K net practice income, that's $25,000–$35,000 left on the table.
• Solo 401(k) — before December 31. The plan must be established before December 31 of the year you become the owner-operator. If you close the acquisition in October, you have 60 days. Don't miss this. At $72,000/yr in total § 415(c) capacity (2026 limit), this is the single most valuable retirement account you can open as a practice owner.
• New malpractice policy. Your acquired practice likely has a claims-made policy in the seller's name. You need a new occurrence-based policy in your name from day one. Coordinate with the seller on their tail coverage obligation. Confirm your hospital privileges are transferred — some institutions require a new application from the acquiring physician, not just novation of the seller's privileges.
• Business bank accounts. Do not commingle practice and personal funds. Open a dedicated practice operating account, payroll account, and tax reserve account from the acquisition date. S-Corp compliance requires clear separation.
• Payor credentialing. You are not automatically credentialed with the seller's insurers. Submit re-credentialing applications to all payors within the first week of close — there's typically a 60–90 day processing window during which you may be able to bill under the seller's NPI under a transition agreement, but this is payer-specific and time-limited.