Valuing a DME provider requires isolating EBITDA, evaluating accreditation and compliance risk, and understanding payer contract stability. DME is capital-efficient (low asset base) but heavily regulated and payer-dependent. Start with EBITDA. Take 12 months of revenue. Subtract: (1) Cost of goods sold (product cost, freight in), (2) Delivery/logistics (vehicle costs, driver wages, fuel), (3) Billing and collections (staff, software, bad debt reserve), (4) Compliance (audit support, documentation, training), (5) Facility and equipment (rental, software systems, inventory management). Medicare and commercial insurance payers typically reimburse at rates 10-30% higher than your cost, creating margin. Calculate gross margin: (Revenue - COGS) ÷ Revenue. DME typically runs 35-50% gross margin depending on product mix. After operating expenses (delivery, billing, compliance, overhead), EBITDA typically lands at 18-35%. A $3M revenue DME with 42% gross margin ($1.26M) and 35% operating expense ratio ($1.05M) yields $210K EBITDA. Wait—that's only 7% EBITDA. Let me recalculate. Revenue: $3,000K Cost of goods sold (inventory): $1,650K (45% of revenue) Gross margin: $1,350K (45%) Operating expenses: Delivery/Logistics: $450K (15% revenue) Billing/Collections staff: $120K Compliance/Audit: $30K Facility and overhead: $180K (6% revenue) Marketing (referrer relations): $60K Owner salary: $100K Depreciation: $20K Insurance (liability, malpractice): $45K Total OpEx: $1,005K EBITDA: $1,350K - $1,005K = $345K (11.5% of revenue) That's more realistic for a mid-sized DME. Now apply multiple. A DME with strong accreditation, clean billing history, diversified payer mix, and growing product margins trades at 5.5x-6.5x EBITDA. At 6.0x: Enterprise Value = $345K × 6.0 = $2.07M. If the same business had (a) a prior billing audit with findings (now corrected), (b) 65% Medicare concentration, (c) accreditation expiring in 12 months, and (d) declining referral relationships, multiple drops to 4.0x-4.5x. At 4.2x: Enterprise Value = $345K × 4.2 = $1.449M. The compliance/accreditation/concentration risks create $600K+ valuation gap. Accreditation and compliance status are the biggest valuation levers in DME. A buyer cannot operate a DME provider without Medicare accreditation. The moment accreditation is lost, 40-60% of revenue evaporates. Buyers price this risk heavily. An accreditation that expires in 12 months post-acquisition is a buyer liability and will be negotiated as a working capital adjustment (hold 10-20% of price pending renewal and 12-month clean operation). An accreditation lapsing in 3+ years post-acquisition is acceptable. If you haven't renewed your accreditation in 5+ years, renew NOW before sale; a fresh renewal shows cleanliness and accelerates buyer confidence. Billing compliance is the second biggest lever. A single billing audit with findings (even closed) will trigger extended due diligence. Buyers hire billing auditors to review your claims submission process, coding accuracy, denial management, and collection efficiency. If auditors find systemic issues (consistent miscoding, high denial rates, poor documentation), multiple discounts are substantial (0.5x-1.5x). If findings are isolated and fully corrected, discount is smaller (0.1x-0.3x). The presence of any unresolved findings is deal-killing. Payer concentration is the third lever. Medicare is a low-margin, high-volume business. Commercial insurance is higher-margin but subject to contract termination or rate reduction. A 70%+ Medicare-dependent business is vulnerable to fee schedule cuts (CMS periodically adjusts reimbursement rates downward, sometimes 2-5% annually). Buyers will model this risk: if Medicare represents 70% of revenue and fee schedule cuts 3% next year, revenue drops $63K. Over 5-year hold period, that's $315K+ impact. A diversified mix (Medicare 40%, commercial 35%, VA/Medicaid 25%) spreads risk and supports higher multiple. If you're Medicare-heavy, work to grow commercial payers pre-sale; each 10% shift toward commercial can add 0.3x-0.5x multiple. Product mix is the fourth lever. High-margin categories (orthotic/prosthetic devices, power mobility) drive EBITDA. Low-margin categories (wound care, basic supplies) are competitive and commoditized. A business with 60% of revenue in Tier 1 products (high-margin) runs 50%+ gross margin. A business with 60% of revenue in Tier 3 products (low-margin) runs 35% gross margin. 25 percentage point gross margin difference = $750K on $3M revenue. Buyers see opportunity: if you're carrying a lot of low-margin items, why not shift mix to high-margin? Or can I consolidate low-margin SKUs into a 3PL (third-party logistics) arrangement post-acquisition? A growing Tier 1 product mix supports higher multiple; flat or declining signals competitive pressure and supports lower multiple. Referral relationship quality matters because it reduces customer acquisition cost (CAC). A business acquiring patients primarily through physician referral (low CAC, 5-10% of patient lifetime value) is lower-risk than one relying on paid marketing (CAC 15-25% of lifetime value). Document referral sources and concentration. If top 5 sources = 60% of patients, that's acceptable. If top 3 sources = 70%+, that's concentration risk. Buyers evaluate: are these relationships documented (contracts, MOUs)? Are they exclusive or non-exclusive? What's the risk of relationship loss post-acquisition? A documented referral agreement with a major hospital system (non-exclusive but formalized) reduces risk. Delivery and service capability matter for differentiation. A DME business delivering same-day in a metro area with trained technicians commanding premium reimbursement is higher-quality than one delivering regional with delayed setup. Buyers see delivery infrastructure as either an asset (if owned/operated well) or a liability (if outsourced with margin compression). Show delivery KPIs and customer satisfaction scores. Finally, benchmark against DME comps. If three DME providers in your market sold recently,