A theoretical framework for shedding additional light on the determinants of medical practice value.

BACKGROUND: Over the years, business valuation techniques have been widely used to appraise the financial worth of medical practices. However, it has been argued that medical practices are one of the most complex and difficult types of business enterprises to value. PURPOSE: The purpose of the current study is to develop a theoretical framework that sheds additional light on the determinants of a medical practice's value and to provide practitioners with a theory-based model on which to base valuations to avoid "wild west" scenarios where individual valuators use his or her own unique models that can lead to wild variations in the value amount of the same medical practice. APPROACH: The article starts by discussing standard approaches to valuing any business including medical practices. We then develop a theoretical framework that sheds additional light on the determinants of a medical practice's value by showing how strategic choice and environmental determinism affect the value of a medical practice. Once the framework is developed, the practice implications related to the framework are discussed. FINDINGS: In this article, determinants of a medical practice's potential for sustained profitability are identified. Specifically, a framework is presented that shows how the combination of strategic choice and environmental determinism can affect a medical practice's chances of sustained profitability. Developing such a framework is an important contribution to the literature given that one of the most problematic areas of medical practice valuation is determining the factors that a valuator must assess to arrive at an appropriate fair market value for a practice. PRACTICE IMPLICATIONS: The development of a framework that sheds additional light on the determinants of a medical practice's value is important in light of the difficulty of obtaining reliable market data regarding sales of medical practices, which tend to be closely held private entities.

The effect of information technology investment on firm-level performance in the health care industry.

BACKGROUND: The return on investment for information technology (IT) has been the subject of much debate throughout the history of management information systems research. Often referred to as the productivity paradox, increased IT investments have not been consistently associated with increased productivity. Understanding individual IT factors that directly contribute to business value should provide insight into the productivity paradox. PURPOSE: The effects of 3 different firm-level IT characteristics on financial performance in the health care industry are studied. Specifically, the effects of IT budget, IT outsourcing, and the relative number of IT personnel on firm-level financial performance are analyzed. METHODS: Regression analysis of archival survey data for 914 Integrated Healthcare Delivery Systems is performed. RESULTS: IT budgetary expenditures and the number of IT services outsourced are associated with increases in the profitability of Integrated Healthcare Delivery Systems, whereas increases in IT personnel are not significantly associated with increased profitability. Each one tenth of a percentage increase in IT expenditures is associated with approximately $100,000 in increased profit, and each additional IT service outsourced is associated with approximately $950,000 in increased profit for an average-sized Integrated Healthcare Delivery System. IMPLICATIONS: To increase profitability, IT administrators should increase IT budgetary expenditures along with IT outsourcing levels. IT administrators in the health care industry can use such findings during budgeting cycles to justify increased investments in IT personnel as being budget neutral while increasing organizational capacity.

Toward a social capital theory of competitive advantage in medical groups.

Social capital can have a positive impact on medical group performance. We forward our theory based on the integration of theories in social capital, resource advantage, and the resource-based view of the firm. Further, we suggest specific ways in which medical groups can increase their levels of social capital. First, medical groups should design or redesign the workplace so that there is ample interaction among employees. Second, employee participation within the community should be encouraged. Third, medical groups should recognize that social capital becomes ingrained in organizational culture. Therefore, medical groups should take steps to ensure a culture that supports its social capital. Fourth, hiring procedures should be designed (or redesigned) to ensure that new employees add social capital to the organization. Finally, trust must be fostered at the employee level.

Valued stakeholders or unwanted stepchildren?--A stepfamily theory regarding physician group divestitures.

Drawing upon stakeholder and stepfamily literature, this article identifies critical factors that determine physician group acquisition retention or divestiture. Based on the stepfamily literature propositions are developed regarding why many physician group acquisitions do not work.