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Over the past month or so, we’ve noticed a clear increase in valuation multiples for medical clinics located in regions classified as Modified Monash Model (MMM) 4 and 5.
Valuation multiples are a way of estimating what a clinic is worth based on its earnings. We do this by first adjusting the clinic’s profit to remove items that don’t reflect its true earning potential (such as tax, depreciation and interest), then multiply the normalised earnings by a factor to arrive at the value. In regional clinics, this factor is typically 3 to 3.5 times the normalised earnings.
With the resulting valuations trending upward, it would appear that outer regional and remote towns are quietly emerging as the “sweet spot” for investing in or acquiring general practices.
What’s driving the increase
The most obvious driver for this increase in valuations is bulk billing incentives. Due to their location, clinics in MMM 4 and 5 zones have been receiving higher government incentives than their metro counterparts for several years. This is set to increase further with the changes to bulk billing incentives coming into effect on November 1, 2025.
Given the high rate of pensioners in many regional and rural areas, the volume of bulk billed consultations and revenue derived from them will continue to create a dependable business model.
In addition to bulk billing, clinics in these regions are often eligible for other government incentives. For example, the Workforce Incentive Program Doctor Stream, which gives doctors financial incentives to practise in regional, rural and remote communities. Or the Practice Incentives Program, which applies a loading to payments given to practices in rural and remote areas.
Another key factor that’s supporting these valuation increases is lower overheads. While rent and property costs in metro areas remain incredibly high, this is not always the case in regional and rural areas, making it more affordable to operate a clinic.
Is it time to buy or invest in a medical practice?
If you own a clinic in an MMM 4 or 5 location and are considering selling, this could be an opportune moment. Buyers may value your clinic more highly than a similar practice in a saturated metropolitan market due to the:
- stable revenue
- lower costs
- growth potential
For buyers or investors looking to enter the market or expand an existing group of practices, it’s important to do your due diligence and ensure any valuations provided are accurate. You may also wish to concentrate on clinics that have significant latent potential – such as the scope to expand GP numbers or introduce allied health services in under‑utilised space to increase profitability.
Though often used as a strategy in larger regional towns or metro areas, there is also the option to hold a mix of practices: one with bulk billing and another with private billing. This can help to offset risk, balance your financial profile, and offer more choice to people in the community who want access to different levels of care or specialised services.
How RSM can help
Whether you’re thinking of buying, selling or holding, RSM’s Health Services team provides a range of services to support you.
You can engage us to:
- complete clinic valuations
- review and optimise earnings and cash flow
- identify growth opportunities
- streamline operations and reduce overheads
- develop commercially sound pricing strategies
- conduct strategic deep dives to support buying, selling, or holding decisions
We offer a free initial consultation so we can learn about your practice and objectives before providing tailored advice and practical solutions to help you achieve them.
To learn more, or to arrange a free consultation, contact Peter Nicol (Partner in Business Advisory and National Director of Medical) on 6057 3000.
