A solo physician earning $400,000 in a joint return can claim the full 20 percent qualified business income deduction and shave tens of thousands off the federal bill. The same physician earning $560,000 loses the deduction entirely. The rule that draws that line, IRC §199A and its specified service trade or business classification, is unforgiving for medicine. Understanding where a practice sits in the phase-in range, and how to move that position with lawful planning, is the QBI deduction physicians most often mishandle.

The good news is that the deduction survived through 2026 and is now permanent under the One Big Beautiful Bill Act. That removes the sunset uncertainty many practice owners had been planning around. What remains is the SSTB haircut, the income thresholds, and a handful of moves inside the phase-in range that can preserve some or all of the deduction.

How §199A Works for a Physician-Owned Practice

Section 199A allows owners of pass-through businesses, meaning sole proprietors, partnerships, S corporations, and LLCs taxed as either, to deduct up to 20 percent of qualified business income from taxable income. The deduction reduces the tax bill without reducing self-employment tax, and it applies at the individual level, not the entity level. For a physician-owner of a professional S corporation earning $300,000 of qualified business income after reasonable compensation, the deduction is worth up to $60,000, which at a 32 percent marginal bracket is roughly $19,200 of federal tax saved.

The catch, for medicine specifically, is the SSTB rule.

The SSTB Rule and Why Medicine Falls Under It

Section 199A explicitly names health as a specified service trade or business. So do law, accounting, consulting, performing arts, actuarial science, athletics, financial services, and any trade or business where the principal asset is the reputation or skill of the owners. For these categories, the deduction phases out based on taxable income and is fully lost above the top of the phase-in range.

For a medical or dental practice, the SSTB classification means the deduction is available at lower income levels, restricted in the phase-in range, and unavailable above it. The wage and property tests that expand the deduction for non-SSTB businesses do not open the door for a physician-owned practice above the phase-out ceiling.

2026 Income Thresholds and the Phase-In Range

For tax year 2026, the taxable income thresholds are $201,775 for single filers and $403,500 for married filing jointly. The phase-in range extends $50,000 above threshold for single filers, ending at $276,775, and $100,000 above threshold for joint filers, ending at $553,500.

Below the threshold, a physician-owner gets the full 20 percent deduction. Inside the phase-in range the deduction is proportionally reduced. Above the top of the range, an SSTB physician gets zero. A joint-filer physician with $478,500 of taxable income, exactly halfway through the phase-in range, is entitled to half the deduction.

Note that the trigger is taxable income, not qualified business income and not adjusted gross income. Retirement contributions, itemized or standard deductions, above-the-line deductions, and even the QBI deduction itself all affect the calculation.

Planning Moves Inside the Phase-In Range

Once a practice owner lands inside the phase-in range, three levers can meaningfully move the number.

Retirement contributions are the largest. A cash-balance defined benefit plan can shift six figures of taxable income into deferred territory, moving a joint-filer physician from the middle of the phase-in range to below the threshold and restoring the full deduction. For a solo physician with the capacity, this is often the single highest-leverage move available.

Reasonable compensation is the second lever, but the direction is counterintuitive. For an S corporation, higher W-2 compensation reduces qualified business income and therefore the deduction, but also reduces the SSTB owner’s taxable income by shifting profit to wages that are then reduced by employer payroll tax and 401(k) deferrals. The right level depends on facts specific to each practice.

Entity choice is the third. Splitting a practice into an SSTB entity and a non-SSTB entity, such as a real estate holding company that owns the office building, can preserve deduction on the non-SSTB side even when the medical entity is above the ceiling. The crack-and-pack strategy has become harder in recent years, and the regulations restrict shared ownership above 80 percent, so this needs careful structuring rather than a template.

The Bottom Line for Idaho and Utah Practice Owners

The §199A deduction is now permanent, which means planning around it is worth the effort every year, not just in TCJA sunset scenarios. For a physician-owner in Idaho Falls, Boise, Provo, or Salt Lake City, the value of getting the calculation right is often $10,000 to $30,000 a year, and the planning window closes on December 31.

Our team at Cooper Norman helps physician and dental practice owners in Idaho and Utah run the numbers on §199A planning alongside retirement contributions, S-corp wage decisions, and entity structure. If your taxable income for 2026 is trending toward the phase-in range, the time to model it is now, while there is still runway to move the levers.

This overview is general information, not tax advice for your specific situation.

The compensation model inside a medical group is not just a payroll question. It is the group’s operating system. It shapes which physicians want to work harder, which want to leave, and which partner disputes eventually surface. Most disputes inside physician groups trace back, one way or another, to whether the compensation model still fits how the group actually operates.

Three models dominate small and mid-sized physician groups in Idaho and Utah: eat-what-you-treat, equal share, and hybrid base-plus-production. Each one works well in specific conditions and creates specific tensions when conditions change. This piece walks through how each model actually works, when each stops working, how to allocate overhead fairly, and how to transition between models without a partner revolt.

How Eat-What-You-Treat Actually Works

Eat-what-you-treat (EWYT) ties each physician’s take-home directly to what they personally produce. Each physician’s share of collections is tracked separately. Overhead is allocated to each physician (usually a mix of equal shares and pro-rata shares tied to production). The physician’s net comp is their collections minus their allocated overhead.

EWYT rewards production and clarifies economic outcomes. Partners who produce more take home more, without much internal argument about who is pulling their weight.

The tensions show up in three places. Ancillary revenue (imaging, in-office lab, physical therapy) does not map cleanly to any individual physician and requires an allocation formula. Overhead allocation is more art than science, and the split between fixed and variable overhead becomes a source of dispute. And physicians in slower building years or slower quarters bear more downside risk than in other models.

The Case for Equal Share (and When It Breaks)

Equal share treats every partner physician as equal in the compensation pool, regardless of what each one produces in a given period. All practice profits (after expenses) are divided equally among partners.

Equal share works well when the partners have similar production, similar patient panels, and similar work styles. It preserves collegiality: no partner is comparing pay stubs. It also works well in environments where production is genuinely constrained by scheduling and referral flow rather than physician effort.

Equal share breaks when production diverges materially. A partner producing 12,000 wRVUs a year subsidizing a partner producing 7,500 wRVUs eventually notices. The subsidy may be justified (mentorship, admin work, transition planning) or unjustified. Either way, equal-share groups routinely need a mechanism to have that conversation productively, or the subsidy becomes silent resentment.

Hybrid Models: Base Plus Production

The hybrid model splits comp into two components: a base guaranteed salary and a production-based upside. The base cushions slow periods and provides income stability. The production component rewards effort and volume.

The split between base and production is the key variable. A 70/30 base-heavy split (70% base, 30% production) skews toward collegiality and stability. A 30/70 split skews toward EWYT-like dynamics. Most groups sit somewhere in between and evolve the split over time.

Hybrid works well for groups adding a new partner, transitioning from equal share, or trying to balance production incentive with team culture. It is the most common model for physician-owned groups over five partners because it accommodates the most different partner situations.

How to Allocate Overhead Fairly

Overhead allocation is where compensation math either builds trust or destroys it. Three common approaches:

• Equal share of all overhead. Simple, defensible for administrative and occupancy costs. Feels unfair when one partner uses far more of a specific expensive resource
• Pro-rata to production. Each partner’s overhead allocation matches their share of production. Aligns incentives; can be complex to administer
• Hybrid allocation. Fixed overhead (rent, admin, EHR) split equally; variable overhead (medical supplies, lab, per-encounter costs) allocated by production or usage

The hybrid allocation approach is the most defensible for most groups. It reflects the reality that some costs do not scale with production and some do.

How to Transition Between Models Without a Partner Revolt

Groups transitioning from one comp model to another (usually equal share to hybrid, or hybrid to EWYT) often break the transition because they try to move too fast. Three principles help transitions work:

Model the transition first. Every partner should see, on paper, what their comp would have been under the new model for the last 12 to 24 months. Surprises after implementation kill the transition. Surprises modeled before implementation invite productive discussion.

Phase the transition over two to three years. A sudden switch from equal share to EWYT will produce a partner revolt among any partners whose comp would drop. A phased transition (25% new model, 75% old model in year one; 50/50 in year two; full new model in year three) gives partners time to adjust production, retire, or leave on their own timeline.

Preserve one anchor of stability. Even a full-production model should preserve either a modest base or a minimum guaranteed distribution. This protects the group during a bad quarter and reduces the fear that drives most opposition to a comp model change.

Cooper Norman’s business transition planning team models comp restructures for physician-owned groups across Idaho and Utah, running the “what would each partner have earned” analysis before any change gets voted on. To model your group’s next comp iteration, talk with a Cooper Norman advisor.

Every successful medical or dental partnership eventually faces the same two questions: how does an associate become an owner, and how does an owner become a former owner? The answers get written into a partnership or shareholder agreement, and the exact formulas chosen determine whether the transition is a mostly administrative exercise or a several-year source of resentment.

For a small-group practice in Idaho or Utah adding its first partner, or a mature group updating a decade-old agreement, the mechanics matter. This piece covers what a buy-in is really buying, the three formulas most practices actually use, how associates fund the purchase without leveraging their houses, the tax treatment on both sides of the table, and the buy-out language every partnership should have in place before it is needed.

What the Buy-In Is Really Buying (Equity vs Income Stream)

A buy-in purchases two different things at once, and clarity about the split is where most partnership disputes start.

The first is equity: a share of the practice’s tangible assets (equipment, receivables, real estate if included), less liabilities. Equity is what shows up on the balance sheet and what the new partner would receive if the practice were dissolved tomorrow.

The second is the income stream: a share of future distributable earnings. That is the goodwill, the ongoing patient base, the referral relationships, and the operating platform the founders built. In most medical and dental practices, the income stream is where the real value lives, and it is usually the larger portion of a buy-in.

The Three Common Buy-In Formulas

Practices use three main formulas, sometimes in combination:

• AR-based (or hard asset only): The associate buys a share of net tangible assets, typically working capital including accounts receivable, less current liabilities. Goodwill is not paid for. The associate essentially earns into partnership through future practice building.
• Book value: The associate buys a share of the practice’s book equity as stated on the balance sheet. Simple to compute; often understates real value if the practice has significant goodwill.
• Appraised value: The associate buys a share of the practice’s appraised fair market value, including goodwill. Most accurate; most expensive to the incoming partner and most defensible to the outgoing partner.

Founder practices sometimes use a hybrid: appraised value for goodwill, book value for hard assets, and an installment structure for both. The choice is a negotiation between “the associate should pay for what they are getting” and “we want them to become a partner while they can still afford it.”

How Associates Fund a Buy-In Without a Second Mortgage

Very few associate physicians or dentists have $200,000 to $500,000 in cash to write a check for a buy-in. Three funding structures work in practice:

Practice-financed buy-ins are the most common. The practice sells the interest to the associate over three to seven years, with the associate paying through a reduction in take-home compensation. The math has to work for both sides: the associate has to end up with meaningfully higher long-term earnings; the seller has to receive a market-rate payment for the interest.

Bank-financed buy-ins use practice or physician loans. Several regional and specialty lenders will finance a partner buy-in when the practice’s cash flow supports it. Rates and terms have moved considerably in the last three years; the current lending market matters.

Deferred compensation buy-ins let the associate earn into partnership through reduced comp over time without a formal debt. The IRS treats these carefully, and structure matters to avoid unintended tax consequences.

Tax Treatment on Both Sides of the Table

Tax treatment differs meaningfully between the buyer and the seller, and it depends on entity type.

For an S corporation practice, a stock sale to the associate is generally capital gain to the seller and non-deductible to the buyer, who acquires stock with a carryover basis. For a partnership or LLC, an interest sale can create ordinary income on hot assets (receivables, depreciation recapture) mixed with capital gain, with the buyer receiving an inside basis step-up under §754 if the practice makes the election.

The choice of entity, the choice of §754 election, and the structure of the sale together determine whether the associate is buying with pre-tax or after-tax dollars, and whether the seller is receiving ordinary or capital gain. Running the tax math before the deal is documented is essential.

The Buy-Out Formula Every Partnership Needs Before Day One

Every partnership agreement should specify the buy-out formula for four events: retirement, death, disability, and involuntary departure. The formula should use the same valuation approach as the buy-in (fairness on both ends of the same road), specify a payment timeline that does not bankrupt the practice, and address funding through life and disability insurance where appropriate.

The single most common cause of partnership disputes is not having this formula written down before it is needed. Once a retirement or disability event triggers the conversation, negotiating leverage sits with whoever’s interest the practice is trying to protect.

Cooper Norman’s business transition planning team models partner buy-ins and buy-outs for medical and dental groups across Idaho and Utah, running the tax and cash-flow math for both sides of the transaction. To structure a fair partnership transition, talk with a Cooper Norman advisor.

Two medical practices in the same specialty, in the same town, with the same visit volume can post very different net incomes. The single largest reason is almost always payer mix. A cardiology practice sending 55% of its claims to commercial carriers takes home materially more than an identical practice sending 30% commercial and 55% Medicare, even when both are working the same number of encounters.

Most practice owners know payer mix matters. Fewer have looked at their own recently, and fewer still have run the math that connects it to owner take-home. This post covers what payer mix actually measures, how to compute it honestly, why contribution margin by payer is the real number to watch, and when a contract renegotiation is worth the fight.

What Payer Mix Actually Measures

Payer mix is the share of a practice’s business coming from each payer category. The categories usually break down as commercial insurance, Medicare, Medicaid, self-pay, and workers’ comp or auto medical. There are two ways to compute the mix, and they tell different stories.

Mix by visit count answers “who walks in the door.” Mix by revenue answers “who is paying the bills.” A primary care practice can be 45% Medicare by visit and only 30% Medicare by revenue, because Medicare reimburses less per visit than commercial. The two views are complementary. The revenue view is the one that drives profitability.

How to Compute a Real Payer Mix Report

Pull twelve months of net collections (not gross charges) by payer. Group the categories consistently, especially Medicare Advantage plans, which many practices misclassify as commercial. Medicare Advantage sits between commercial and traditional Medicare on reimbursement and should be its own line if the volume is meaningful.

Run the same report by CPT code family or service line, not just at the practice level. A general orthopedic practice may have a heavy Medicare mix on joint injections and a heavy commercial mix on sports medicine, and the two lines behave very differently at the margin. The service-line view is what a valuation analyst will build if you sell.

Contribution Margin by Payer, Not Just Revenue Share

Revenue share tells you where the money comes from. Contribution margin tells you what is left after the direct costs of serving that payer. A commercial payer paying $180 for a visit that costs $85 in direct provider time and supplies contributes $95. A Medicaid payer paying $62 for the same visit contributes negative $23 once patient overhead is allocated fairly.

Most practices never run this math. When they do, one or two payer relationships often turn out to be losing money on every encounter. The correct response is rarely to drop the payer, since fixed overhead needs a volume base. The correct response is to understand what those encounters cost and either renegotiate, reduce the volume, or price the mix into the practice’s decisions about hiring and expansion.

When Renegotiating a Commercial Contract Is Worth the Fight

Commercial payers negotiate. Not always well, and not always in the practice’s favor, but the door is open. Three conditions make a renegotiation worth pursuing:

• The practice is a meaningful share of the payer’s local network (specialty and geography matter)
• The current fee schedule is materially below the local commercial median for the same service
• The practice has clean utilization and outcomes data ready to present

Without the third condition, most practices lose the negotiation before it starts. Data is not optional. A rural Idaho or Utah practice that is one of two or three options for a payer’s local members has real leverage; the same practice needs to be able to prove its value with numbers, not narrative.

The Payer Mix Shift That Signals Trouble Early

Payer mix drifts. Most drifts are slow and hard to see month over month. Two drift patterns deserve immediate attention.

The first is a rising Medicare share driven by aging in place. This is not bad news; it is a demographic reality for many Idaho and Utah practices in rural counties. It is a planning signal that revenue per visit will compress unless volume rises to compensate.

The second is a growing Medicaid share without a corresponding growth in Medicaid contracting capacity. If the volume is going up but the payer’s fee schedule and administrative burden are unchanged, the contribution margin math will get worse each quarter. Left unchecked, this is how practices go from profitable to break-even without a visible cause.

Cooper Norman’s healthcare accounting team builds payer mix and contribution margin reports for practices across Idaho and Utah, then connects them to the practice’s cash flow and hiring decisions. To see your own mix at the revenue and margin level, talk with a Cooper Norman advisor about a payer mix review.

Overhead ratio is one of the most common metrics used to size up a medical practice and one of the most casually misapplied. A 55% overhead ratio can be excellent in one specialty and alarming in another. A single practice can even calculate two different overhead numbers depending on which formula it uses, and both can be technically correct.

For a physician-owner in Idaho or Utah trying to make sense of where the practice stands, understanding how overhead is really calculated, which specialties structurally run higher or lower, and when a “normal” ratio is still hiding a problem, matters more than chasing a single benchmark number. This piece walks through the calculation, the ranges across specialties, why some specialties run higher, when a normal ratio can still be a problem, and the levers that move overhead fastest.

How to Calculate Overhead the Right Way

The most common overhead formula is total operating expenses (excluding physician compensation) divided by net collections. This is the number most benchmarking data sets use, and it is the one worth comparing to peers.

A second common formula includes physician non-clinical compensation in the numerator (partner draws, admin time, management stipends). This produces a higher ratio and is sometimes what internal management wants to see.

A third formula uses gross charges rather than net collections in the denominator. This produces a lower ratio that is not comparable to anything real, because gross charges are not collectible dollars. Avoid it.

Whichever formula the practice uses, use the same one consistently, and know which one the benchmark data uses when you compare.

Overhead Ranges Across Specialties (High Level)

Overhead ratios differ meaningfully by specialty. Rather than repeat specific figures from paid data sources, the directional picture is:

• Surgical specialties (orthopedic, ophthalmology, ENT) tend to run lower overhead ratios because per-encounter revenue is high
• Procedural specialties (cardiology, gastroenterology, dermatology) tend to run in the middle
• Primary care, pediatrics, and family medicine tend to run higher overhead ratios because per-encounter revenue is lower and staff-intensive workflows are still required
• Dentistry runs a specific pattern of its own driven by supplies, lab, and equipment intensity

Within each band, individual practices vary widely. The band is a starting point.

The Structural Reasons Some Specialties Run Higher

Three structural factors drive most of the between-specialty differences:

Revenue per encounter. A specialty producing $350 per visit has a much easier time hitting a low overhead ratio than one producing $110 per visit, even if the two spend identically on staff and space.

Staff intensity. Procedures and surgeries can be run with a lower staff-to-provider ratio than primary care, which relies heavily on nursing and front-desk staff for high visit volume.

Supplies and equipment. Injection-heavy or equipment-heavy specialties carry a higher supplies-and-consumables load than office-only specialties.

These factors are not fully within a practice’s control. Reading overhead against a specialty-appropriate benchmark, not a universal one, is the first step to reading it usefully.

When a “Normal” Ratio Is Still a Problem

A practice at the median for its specialty can still have a real problem. Two situations to watch:

The trend is bad. A practice at 58% overhead for its specialty (perfectly normal) that was at 52% three years ago is drifting in the wrong direction. The absolute number is fine; the change is not.

The mix inside overhead is wrong. Two practices at 58% overhead can be spending very differently. One might be at 32% payroll and 26% everything else. The other at 40% payroll and 18% everything else. The staffing-heavy practice has less flexibility to absorb revenue shocks. Reading the composition, not just the headline, is where real insight lives.

Levers That Move Overhead the Fastest

Practices looking to bring overhead down have three main levers, in rough order of impact:

• Revenue lift. Because overhead is a ratio, growing net collections without proportionally growing cost is the fastest lever. Better payer mix, higher clean-claim rate, and improved denial management all lift the denominator
• Staffing efficiency. Not headcount cuts but role optimization: cross-training, workflow redesign, and reducing time spent on tasks that could be automated or eliminated
• Vendor and occupancy reviews. Not usually the biggest lever, but the easiest to execute. A payment processor review, a supplies vendor renegotiation, or an occupancy right-sizing can move a percentage point or two

Cutting staff to hit a number rarely produces sustainable overhead improvement. The revenue side of the ratio is usually where the more durable answer lives.

Cooper Norman’s healthcare accounting team works with practices across Idaho and Utah on overhead ratio analysis and the specific levers that would move theirs. To review your own overhead composition and trend, talk with a Cooper Norman advisor.

Since 2020, a large share of practicing physicians in Idaho and Utah have added a telehealth line to their calendar. Patients in the next state over now show up on the schedule alongside patients across town. From a clinical and licensure standpoint, most physicians already know they need a license in the patient’s state to see them.

The tax question is separate, and it is one most practice owners have not worked through. State medical licensure and state income tax filing answer two different questions, and a physician can be perfectly legal on the clinical side and still owe an unfiled return in a neighboring state. Here is how the tax side works when patients cross state lines.

How States Source Physician Income

Every state that has an income tax has its own rule for where a service is “sourced.” For a physician, the two live options are provider location (where the doctor sat when the encounter happened) and patient location (where the care was received). Most states default to provider location, which is why in-person medicine has always been simple: the visit happens in your office, and the income belongs to that state.

Telehealth pulls the two apart. A physician sitting in Idaho Falls treating a patient in Wyoming raises the question again. Some states have adopted patient-location sourcing for telehealth explicitly. Others still lean on provider location. A few have not answered the question at all and rely on the general “market-based” sourcing rule that applies to services generally. Because the rules are not uniform, a telehealth practice that treats patients in five states can end up with five different sourcing outcomes for the same encounter type.

Idaho, Utah, and Neighboring States: What to Watch

Idaho generally sources service income to where the service is performed, meaning provider location for most encounters. Utah has moved toward market-based sourcing for many services, which raises questions for a Utah-based physician seeing patients in Idaho, Wyoming, Nevada, or Colorado. Wyoming has no state income tax, which simplifies one direction. Montana, Oregon, and California all have their own rules and are worth checking before adding a patient panel in any of them.

These rules change. Before you add a new state to your telehealth panel, confirm the current sourcing rule with that state’s Department of Revenue guidance, not last year’s summary.

Nexus for the Practice Entity, Not Just the Individual

A physician earning income in another state is one issue. The practice entity itself, whether a PC, PLLC, or S corporation, is a separate taxpayer with its own nexus question. Once a practice entity has enough activity in a state to trigger nexus (economic nexus thresholds are common, and physical presence is not required), the entity may need to register to do business, file a state return, and in some cases collect a state franchise or gross receipts tax.

The entity-level filing is often overlooked because the physician-owner’s personal return is the one they see every April. A practice can accumulate an entity-level filing obligation in three or four states without the physician ever noticing.

Resident and Nonresident Credit Math

The physician does not pay double tax on the same income. If Idaho and Utah both claim the right to tax a piece of income, the physician’s resident state generally allows a credit for income tax paid to the nonresident state, capped at the resident-state rate on that same income. The math is not always in the physician’s favor. If the nonresident state has a higher rate, the credit only covers the resident-state portion, and the incremental cost belongs to the nonresident state.

The mechanics work only if returns get filed in the correct states in the correct order. Missing a nonresident filing does not just mean owing that state; it also means the resident credit for that tax is unavailable.

When to File a New State Return

Three signals should prompt a serious look at a new state filing:

• Repeat telehealth encounters with patients in that state throughout the year
• Any in-person presence in the state, even occasional consulting or continuing education
• The practice entity billing an insurance carrier in that state

Any one of these can be enough to trigger a filing obligation. All three together almost certainly do.

Telehealth is a real growth path for rural Idaho and Utah practices, and the tax rules should not be a reason to avoid it. They are a reason to look at the states you actually see patients in and get the filings right the first time. Cooper Norman’s healthcare accounting team works with physicians across Idaho and Utah on multi-state sourcing questions, and our tax planning team can run the resident-credit math before you add a new state to the panel. This overview is general information, not tax advice for your specific practice. Talk with a Cooper Norman advisor about how these rules apply to yours.

Every valuation of a medical practice ends with a single number, but three different roads get you there. The income approach, market approach, and asset approach each look at the practice from a different angle, and a proper valuation usually runs all three and reconciles them. For a physician-owner in Idaho or Utah who has been approached by a buyer, is planning a partner transaction, or is thinking about succession, understanding how the number is built matters as much as the number itself.

Confidence around practice multiples is common in industry articles and rarely justified. Real ranges are wide, deal specifics move the number materially, and the “market multiple” for a specialty in Boise is not the same as in Salt Lake or Provo. This piece walks through the three approaches, why owner-doctor compensation adjustments drive the math, what personal versus enterprise goodwill actually means at closing, and how the real estate question should be handled separately.

The Three Valuation Approaches (Income, Market, Asset)

The income approach values the practice based on the cash flow it produces for its owners. The most common variant is a capitalization-of-earnings or discounted-cash-flow model built on adjusted earnings, which for a physician-owned practice means Seller’s Discretionary Earnings (SDE) for smaller practices and EBITDA for larger ones. The multiple applied to those earnings reflects the buyer’s required rate of return.

The market approach values the practice by comparing it to similar practices that have recently sold. The quality of a market-approach valuation depends entirely on the quality of the comparable data. Nationwide averages are less useful than comparables from the same specialty and roughly the same market size.

The asset approach values the practice by summing the fair market value of its tangible and intangible assets, less liabilities. For most medical practices, this approach produces a floor value rather than the operating value, because the going-concern goodwill is where the real value lives.

Why Owner-Doctor Compensation Adjustments Matter

A physician-owner’s compensation on the P&L is almost never what an incoming buyer would pay a replacement physician to do the same work. The owner might be taking $600,000 in a practice where a replacement would cost $350,000 in salary, or vice versa. The valuation math has to normalize that difference.

The adjustment is called “recasting” or “normalizing” the earnings. Owner-doctor comp is adjusted to a market-rate replacement salary for the specialty and market. The resulting “adjusted EBITDA” or SDE is what a buyer is really buying, and it is the number the multiple applies to. Two identical practices with different owner-comp practices can have very different reported earnings and nearly identical adjusted earnings.

Multiples: What the Ranges Actually Mean

Practice multiples are typically expressed as a multiple of adjusted EBITDA (for larger, more sophisticated buyers) or SDE (for smaller, individual-buyer transactions). Ranges vary widely by specialty, market, buyer type, and the individual practice’s growth, margin, and diversification.

Two things to watch:

• Advertised “market multiples” from brokers and roll-up buyers are usually the top of the range, not the median
• The multiple applied to a $500,000 EBITDA practice is not the same as the multiple applied to a $2 million EBITDA practice; larger practices generally command higher multiples

A rural Idaho or Utah practice with a single physician-owner and $400,000 in adjusted earnings does not sell at the same multiple as a five-physician group in Salt Lake with $2.5 million in adjusted EBITDA. Assuming otherwise is one of the most common expensive mistakes at the beginning of a sale process.

Personal Goodwill vs. Enterprise Goodwill

Goodwill in a medical practice sits in two places. Enterprise goodwill belongs to the practice: brand, systems, staff, referral relationships that would transfer to a new owner. Personal goodwill belongs to the physician: reputation, individual referring relationships, and the patient loyalty that follows the doctor rather than the shingle.

The split matters for two reasons. First, tax treatment: in many transaction structures, sale proceeds allocated to personal goodwill are taxed to the physician as long-term capital gain, potentially outside the entity’s tax structure, which can materially change the physician’s net take-home. Second, deal reality: buyers often push back on personal goodwill because it is harder to acquire and retain.

The Real Estate Question (Sell With the Practice or Not?)

Most owner-doctors who own their office real estate hold it in a separate entity that leases to the practice. When a sale happens, the real estate can be sold with the practice, retained and leased to the new owner, or sold to a separate real estate buyer.

Retaining the real estate and leasing it to the acquirer is a common structure. It generates ongoing lease income for the former owner and lets the acquirer avoid a real estate purchase they may not want. It also complicates future flexibility; a five-to-ten year lease is a long commitment.

Cooper Norman’s healthcare business valuation team builds practice valuations for physician-owners across Idaho and Utah, running the income, market, and asset approaches together and connecting the number to the tax and deal-structure math. To have your practice valued honestly before a sale conversation starts, talk with a Cooper Norman advisor.

The regular-and-exclusive-use rule is the whole game. Miss it and the 1099 physician home office deduction disappears no matter how many square feet you devote or how carefully you track expenses. Meet it, and a locum tenens physician, an independent-contractor consultant, or a rural telehealth doctor can defensibly deduct a portion of rent or mortgage interest, utilities, insurance, and depreciation.

The rules have not changed materially since the TCJA closed the door on unreimbursed employee business expenses. What has changed is who the rules now apply to. The rise of 1099 contract medicine, locum staffing, and telehealth in Idaho and Utah has pushed a large group of physicians into a situation where §280A is worth understanding.

Who Actually Qualifies: W-2 vs. 1099 Physician

The employee-versus-contractor distinction matters more than any other threshold. Under current law, a W-2 employed physician cannot deduct unreimbursed home office expenses on the federal return. That deduction, which existed as a miscellaneous itemized deduction before 2018, was eliminated for tax years 2018 through 2025 and remains eliminated under the One Big Beautiful Bill Act.

A physician paid on Form 1099, whether as a sole proprietor, an LLC member, or the shareholder of a professional corporation reporting distributive share income, is treated as running a trade or business. That physician can deduct qualifying home office expenses against self-employment income, and can also treat the home office as a principal place of business for mileage purposes, which is often the more valuable side effect.

Physicians whose income mixes W-2 hospital work and 1099 telehealth or locum work can deduct only for the 1099 side and only if the home office is used regularly and exclusively for that specific self-employed practice.

The §280A Regular and Exclusive Use Test

Section 280A allows a home office deduction only when a portion of the home is used both regularly and exclusively for business, and either the principal place of business or a place where the physician meets patients or clients in the ordinary course of the practice.

Regular means recurring use, not occasional. Exclusive is stricter than most physicians realize. A guest bedroom that doubles as a home office once a week does not qualify. Neither does a corner of a family room. The space must have no meaningful personal use. A separately partitioned room dedicated to the 1099 practice is the safest structure. A clearly demarcated area within a larger room can qualify, but the physician needs to be able to describe and, ideally, show that no personal activity occurs there.

For a telehealth physician who takes patient encounters exclusively from a home office, principal-place-of-business status is usually easy to establish. For a locum tenens physician who provides services onsite at multiple hospitals, the home office qualifies as a principal place of business if administrative and management activities such as scheduling, credentialing, billing, and follow-up documentation are performed there and no other fixed location is used for those activities.

Simplified Method vs. Actual Expense Method

The simplified method is a flat $5 per square foot up to 300 square feet, capped at $1,500 per year. It is easy, requires no receipts, and cannot generate a loss.

The actual expense method allocates a portion of home expenses to the office based on the percentage of total square footage devoted to the business. Deductible expenses can include rent or mortgage interest, real estate taxes, utilities, insurance, repairs, and depreciation on the business portion. On a home where the actual expenses attributable to a 200 square foot dedicated office exceed $1,000 for the year, the actual method wins.

The tradeoff is complexity. The actual method requires records, an allocation schedule, and depreciation of the business portion of the home, which then affects the basis and gain calculation when the home is later sold. For most physicians with modest home office footprints, the simplified method gets 80 percent of the value with 20 percent of the effort.

Special Cases: Telehealth, Locum Tenens, and Second Practices

Three fact patterns come up often. A telehealth physician conducting all patient encounters from a home office typically has the strongest deduction. A locum physician whose administrative work happens at home has a defensible principal-place-of-business claim even though clinical work happens elsewhere. A physician who owns a small side practice, such as a medical spa or wellness consultancy, can deduct for a home office dedicated to that entity even while working a separate W-2 or 1099 clinical role.

The one fact pattern to avoid: claiming a home office for a W-2 role. Even with an employer letter, this deduction is not available on the federal return through 2025 and remains unavailable under OBBBA.

Recordkeeping That Holds Up in an Audit

Photograph the space. Keep utility, insurance, and mortgage or rent statements. Maintain a simple log or calendar showing that the office was used for the 1099 practice on a regular basis. If the physician chose the actual method, document the square footage measurement and the allocation calculation.

The home office deduction is not aggressive tax planning. It is a straightforward statutory deduction with a strict qualification test. Our team at Cooper Norman advises physician and dental practice owners across Idaho and Utah on practice tax planning, and getting the 1099 side clean is often the fastest win for a new locum or telehealth physician.

This overview is general information, not tax advice for your specific situation.

Every medical practice depends on financial software and outside vendors: accounting systems, payroll processors, tax preparers, bookkeepers, banks, and occasionally financial planners. HIPAA sits over this ecosystem, and the question of which vendors need a Business Associate Agreement (BAA), which do not, and what the practice’s ongoing obligations look like is one most physician-owners have not walked through carefully.

The stakes are practical. A vendor mishandling protected health information (PHI) exposes the practice to HHS Office for Civil Rights enforcement, patient notification obligations, and civil liability. Getting the vendor management right up front is much easier than responding to a breach after the fact. This piece walks through when a financial vendor becomes a business associate, how to keep PHI out of the accounting system where it does not belong, BAA terms worth checking, audit and access controls to look for, and what a vendor breach actually triggers.

When a Financial Vendor Becomes a “Business Associate”

Under HIPAA, a business associate is a person or entity that creates, receives, maintains, or transmits PHI on behalf of a covered entity. The definition is broader than most practices assume. A vendor that never sees a patient chart can still be a business associate if it handles claims data, payment postings, or any records that identify a patient’s medical information.

Financial vendors that typically require a BAA:

• Practice management or EHR software (which routinely handle PHI)
• Outsourced billing services (they handle claims data, which is PHI)
• Clearinghouses
• Bookkeepers or CPAs who receive PHI as part of their work (this is uncommon in most well-structured engagements, but if PHI ends up in your accounting software or reports, the vendor is a business associate)

Vendors that typically do not require a BAA:

• Banks conducting standard payment transactions (specifically excluded from the HIPAA definition)
• Payroll processors that handle staff data only, not patient data
• Accounting software vendors, if the practice’s ledger contains no patient-identifiable information
• Tax preparers, if the practice’s tax data is aggregated and de-identified

Keeping PHI Out of Your Accounting System

The cleanest way to keep an accounting system out of HIPAA scope is to make sure PHI does not land in it. In most practices, this is easier than it sounds and only fails through carelessness.

Revenue postings should reference the payer and the date, not the patient. Adjustments and write-offs should reference the reason code, not the patient’s condition. Deposit slips should not include patient names, and refund checks should be issued by the practice management system, not the general ledger accounting system.

A well-designed workflow leaves the accounting system with a clean transactional record and no patient-identifiable data. This narrows the HIPAA perimeter and simplifies vendor management.

BAA Terms to Check Before Signing

A vendor-provided BAA is a starting point, not a finish line. Six terms worth confirming:

• Explicit permitted uses and disclosures of PHI (narrow, not broad)
• Breach notification timeline (60-day is the HIPAA maximum; shorter is better)
• Subcontractor obligations (any subcontractor with PHI access must also sign a BAA)
• Return or destruction of PHI at contract termination
• Audit rights the practice retains
• Indemnification terms for breach-related costs

The template BAAs many vendors distribute favor the vendor. Terms can and should be negotiated for the practice’s protection.

Audit Logs and Access Controls a CPA Should Look For

Beyond the BAA, three technical controls signal a vendor that takes HIPAA seriously:

Detailed audit logs of who accessed what PHI when, retained for at least six years. If a vendor cannot produce audit logs on demand, the practice cannot investigate a suspected breach.

Role-based access controls that follow the minimum-necessary standard. Staff members should not have access to PHI unnecessary for their role.

Encryption of PHI both at rest and in transit. Modern vendors do this as a matter of course; older systems sometimes do not, and it is worth confirming.

What Happens After a Vendor Breach

If a vendor breaches PHI, the practice’s obligations are triggered even if the practice itself did nothing wrong. HHS OCR requires notification of affected patients, and depending on scope, notification of the media and HHS itself. The vendor’s BAA and the practice’s own incident response plan together determine how quickly the practice can meet those obligations.

Practices with cyber insurance should confirm coverage extends to vendor-caused breaches, not just first-party events. This is worth checking before a breach happens, not after.

Cooper Norman’s healthcare accounting team reviews financial-vendor engagements and BAA structures for medical practices across Idaho and Utah. To review your current vendor list and BAA files, talk with a Cooper Norman advisor.

Every EHR and practice management vendor pitching a small or mid-sized medical practice arrives with a return-on-investment slide. The slide is almost always optimistic. It usually understates true implementation cost, ignores the productivity dip that follows any go-live, and overstates the operational gains a realistic practice will achieve.

The right response is not to dismiss the ROI question; it is to run the math honestly. A physician-owner in Idaho or Utah looking at a $60,000 to $200,000 software decision deserves a payback model built from their own numbers, not a vendor’s. This piece covers what the total cost of an EHR actually includes, the productivity dip nobody puts in the proposal, where the real returns come from, and how to model payback honestly.

What the Total Cost of an EHR Actually Includes

The software license fee is one line of the total cost. A complete cost model includes:

• Software license (one-time or subscription)
• Implementation services (data migration, configuration, workflow design)
• Training (initial and ongoing as staff turn over)
• Hardware upgrades (workstations, scanners, network capacity)
• Interfaces to lab, imaging, billing, or clearinghouse systems
• Ongoing support and upgrade fees
• Loss of productivity during ramp (see below)

Vendor proposals routinely include the first two and quote optimistic numbers for the third. The remaining four categories are the difference between the quoted cost and the real cost, and they often add 40 to 70 percent to the vendor’s headline number.

The Productivity Dip That Nobody Puts in the Proposal

Every EHR or practice management go-live is followed by a period where physician and staff productivity are lower than baseline. The size of the dip varies by system and by preparation, but a two- to four-month period of reduced encounter volume and slower documentation is the norm, not the exception.

A practice averaging 3,500 encounters a month that drops to 3,000 encounters during the first two post-go-live months has lost 1,000 encounters. At a $175 average net revenue per encounter, that is $175,000 in revenue not earned. Whether the loss shows up as reduced revenue, deferred revenue as backlogs are worked through, or lost patient loyalty, it is a real cost that belongs in the ROI model.

Where the Real Returns Come From

Legitimate returns exist, and they are not the ones vendors usually lead with. The three categories that produce material payback for most practices:

Denial rate improvement. A system with better front-end edits, cleaner claim submission, and integrated eligibility verification can reduce denial rate materially. If the practice’s denials fall from 8% to 5%, and each rework denial costs 30 minutes of staff time plus a claim aging penalty, the annualized savings are real.

Coding capture. Systems that surface documentation prompts and suggest higher-level codes when supported by the record can lift average encounter revenue by a few dollars. Multiplied across 30,000 to 50,000 encounters a year, the numbers add up.

Administrative time savings. A well-implemented system can save each provider 15 to 30 minutes a day on documentation and each staff member similar time on scheduling and billing. The value of the recovered time depends on what fills it: more patient encounters, less overtime, or better work-life balance.

How to Model Payback Honestly

A working ROI model has five rows on the cost side (the total-cost items above) and three or four rows on the benefit side (denial rate, coding capture, admin time savings, plus any practice-specific benefits the vendor commits to in writing). Each row gets a low, base, and high estimate. Payback period is total cost divided by annualized net benefit.

Two rules keep the model honest:

• Only count benefits that are measurable and attributable to the system (not benefits the practice could achieve with process changes on the current system)
• Include the productivity dip as a first-year cost, not a future non-issue

Most systems payback in three to five years under a realistic model. Systems that look like they payback in twelve months usually do not, and the ones that actually would already have zero switching cost, which is a suspicious combination.

When Switching Is Worth the Pain

Switching an EHR or practice management system is one of the most disruptive things a medical practice can do. It is worth the disruption when the current system is materially failing on three or more of these: denial rate, coding accuracy, staff efficiency, patient scheduling experience, or reporting quality.

Switching for one specific feature or a lower monthly rate rarely produces net-positive ROI when the full cost is modeled.

Cooper Norman’s healthcare accounting team models EHR and practice management payback for practices across Idaho and Utah, using the practice’s own denial rate, encounter volume, and staff cost as the inputs. To run an honest payback model on your current or prospective system, talk with a Cooper Norman advisor.