1. Level of ownership by physicians in competing centers. When physicians own shares in another surgery center, they naturally have to divide their ASC-appropriate cases between the centers, which means decreased case volume for each center.
According to the VMG Health ValueDriver survey, 60 percent of management and development companies said that a high level of ownership by physicians in competing factors had a “very high” impact on value, while 33 percent said it had a “high” impact. To increase ASC value, encourage shareholders with a low number of shares to increase their ownership, or buy those physicians out and bring in new investors who want to buy a material number of shares.
2. Physician age. A surgery center that depends on a majority of physicians who are nearing retirement age is a riskier purchase than a surgery center with several younger physicians. If a surgery center loses several physicians to retirement in one year, the departures could impact case volume and revenue significantly. The VMG Health survey rates a significant number of active physicians nearing retirement age as having a “very high” (53 percent) or “high” (40 percent) impact on center value.
3. Number of physicians. Ideally, a surgery center should have enough physician investors to bring adequate case volume while each enjoying a decent percentage of ownership. A low number of physicians investing in the ASC can worry a management and development company; if one or more physicians chooses to leave, profits could drop quickly. Respondents said that a low number of physician investors has a very high (40 percent) or high (33 percent) impact on value.
4. Dependence on out-of-network reimbursement. Out-of-network reimbursement is disappearing fast in many parts of the country. What used to be a profitable strategy has become increasingly endangered as payors redirect members and referring physicians to in-network centers and threaten the professional contracts of providers who refer to OON facilities. Respondents indicated that a high reliance on out-of-network payors had a very high (93 percent) impact on value.
5. Dependence on a single payor. Dependence on a single payor can be detrimental to a surgery center if the payor decides to lower reimbursement rates substantially. Respondents to the VMG Health survey said that high concentration of patient volume/revenue from a single payor had a very high (40 percent), high (33 percent) or medium (20 percent) impact on ASC value.
6. Future growth. Future growth is critical for high valuation of a surgery center — especially one that has not fully matured and realized its potential within the market. Nearly half of respondents (47 percent) indicated that expected growth in future periods had a very high impact on value. The potential for future growth could mean there are several physicians in the market who are interested in ASC investment but have not started bringing cases yet. The surgery center could also add a complementary specialty that requires little up-front expense but contributes additional case volume and revenue.
7. Hospital employment in the local market. Hospital employment is negatively affect surgery center case volume and profitability, as hospital non-compete clauses prevent physicians from investing in other facilities once they become employees. Respondents to the survey indicated that location in a market where hospitals are actively employing surgeons has a high (40 percent) impact on ASC valuation. That percentage may increase in the coming years as markets become more saturated with healthcare facilities and the pool of available physicians shrinks.
8. Inability to expand. A surgery center may not be able to grow its case volume in the future if the physical plant is limited to its current number of operating rooms. If a surgery center wants to add an additional specialty, for example, it may need more physical space to house the equipment and handle patients. Respodnents said an inability to expand existing capacity to accommodate growth had a medium (47 percent) or high (33 percent) impact on ASC value.
9. Age of equipment. A facility with aging or obsolete equipment will need more capital investment than a facility with recently purchased equipment. For this reason, the majority of management and development companies (56 percent) said significant capital expenditure requirements due to aged equipment had a high impact on ASC value.
10. Location. Physicians are more likely to bring cases to an ASC that’s located near their offices, the local hospital or other central areas. While location doesn’t have the same drastic impact on valuation as some other factors, most respondents said it had a medium (40 percent) or high (27) impact on value.
Related Articles on Turnarounds:
8 Ideas to Improve Profits at a Financially Troubled Surgery Center
5 Steps for Surgery Centers to Negotiate Top Payor Rates
20 Findings on Physician Engagement
