Each year many ASC physician-owners seek to sell interests in their centers for a variety of reasons.
The reasons range from exit strategies for retiring partners to attracting a strategic partner that will improve the financial performance of the center and increased distributions to the partners, or just to take some money off the table while selling prices for ASCs are high. Whatever the reason for the sale, there are steps you can take beforehand to significantly increase the value of your center and make it more attractive to multiple buyers so they will compete to invest and thus increase the selling price.
Since the value of your center is directly tied to your center's profitability, anything you do to improve your center's bottom line will increase the value of your center. Here are strategies that, if successfully executed, will accomplish this:
Improve your managed care contracts:
o Are you negotiating new contracts when old contracts expire? Do not allow "evergreen clauses" to automatic extend existing contracts — lost revenue
o Compare health plan contracts to each other to determine which health plans are below market rate and take action to renegotiate.
o Determine rates for high volume cases by specialty at your center and compare health plans rates to Medicare — should be at least 160 percent to 180 percent of Medicare.
o Carve-outs for implants at cost or cost-plus — especially for orthopedics, podiatry and GYN specialties — will greatly improve profitability for these cases
o Carve-outs of high volume cases from grouper rates will ensure greatly improved profitability of these cases
Recruit new physicians
o Identify targeted specialties for your center to eliminate a shotgun approach
o Use center's resources for introduction to targeted specialties and physicians, referrals from current partners for targeted specialties, and referrals from supply vendor representatives.
o Have shares available for newly recruited physicians as incentive to maintain loyalty to center — may need to do syndication in near future.
o Develop forward-looking proforma and term sheet to show prospective partners the value of their investment in the center
Know your case costs and how to reduce them
• Maintain accurate financial statements that reflect your cost per case by specialty – have a tool to monitor your cost
• Create a weekly report to monitor hours per case, supply cost per case, and overtime to reduce operations costs
• Adjust daily case schedule to consolidate rooms to reduce staffing cost
• Overlap nursing staff in two shifts to cover afternoon cases to eliminate overtime
Improve your billing and collections
• Coding is key to reimbursement — use a professional coder especially for orthopedics and podiatry
• Monitor delays in billing of claims — coding
• Research, correct and/or eliminate delays in operative reports beyond four to five days
• Determine collectability of accounts over 90 days and take action
• Monitor accounts with no payment transaction over 60 days — rebill accounts every 30 days to reduce delays in payment
Reduce your supply cost
o Become member of a group purchasing organization (GPO) to realize significantly lower costs, especially on implants
o Standardize implant vendors to one to two vendors for each specialty to get preferred vendor pricing for volume
o Obtain implants on consignment to lower implant inventory
o Implant carve-outs ensure implant cost is captured in health plan reimbursements
Know the value of your ASC business
o How will your ASC business be valued?
o What criteria go into valuing your ASC business?
o Value of a minority interest vs. a majority interest
o How will your out-of-network cases impact value?
o What multiples are being offered for similar centers?
o What will be offered for your center?
Know the value of your center's lease or real estate (if you own it)
o What is the value of your ASC/MOB real estate
o How to increase the value of your center's real estate
o Who are the buyers?
o How to market?
Successfully executing these strategies and knowing the answers to these questions will enable you to negotiate from a position of strength. If the strategies above are successfully executed you will greatly increase your center's profits and the value of your center. Since centers are valued based on a multiple of earnings, every $1 increase in profits results in a $7 increase in center value.
To maximize the value of your center and to have a choice of strategic partners it is a good business practice to seek partnership proposals from at least three to four of the 30-plus ASC management companies [and the local hospital]. This allows you to select the partner(s) that will best help you achieve your goals and gives you negotiating leverage to obtain the highest price and best terms.
More Articles on Surgery Centers:
80 ASC Industry Leadership Moves & Honors
5 of the Most Pressing Financial Issues for ASCs
Healthcare Market Changes: What Indicates Trouble for ASCs?
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