Income-based method for valuing a medical practice

The income based approach to valuation is commonly used in the valuation of medical practices and healthcare businesses.  However, appraisers who apply the improper methods (mostly out of convenience) can drastically over or under value the practice.  One frequent mistake I see is the use of the capitaliztion of cashflow/earnings method when the practice has a clear history of volatile profitabilty.  When possible, it is better to use the discounted cashflow/earnings method.  Even if the business forecast is somewhat unclear, the discounted cashflow method offers the appraiser a much higher degree of accuracy.  This is especially relevant when appraising smaller medical practices; reimbursement changes have an effect of greater magnitude on these entities.  Avoiding shortcuts and using the proper methods is critical to an accurate assessment of practice value.