10 Questions to Evaluate ASC Investment Opportunities

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At the 10th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 15, David M. Thoene, managing partner of Medical Surgical Partners, discussed the decision process for investing in an ambulatory surgery center.

Mr. Thoene covered a checklist for evaluating whether an opportunity to invest in an ASC is a smart business decision. The following are the questions that should be asked when reviewing a pro forma:


1. Who else is in the deal? When a promoter presents a surgery center opportunity, it is integral to have the right partners in the deal as well. "You want to join a deal with good partners. It will help you to assess projected caseload volumes," said Mr. Thoene.


2. Who is developing the project? Mr. Thoene recommends evaluating the ASC developer. "It is okay to ask for references to evaluate an ASC. It is not intrusive at all. If a physician asked me for references I would know they were taking the opportunity and the decision seriously. That is they type of person I would want investing in the ASC," said Mr. Thoene.


Evaluating the developer and asking for references is important because a surgical center developer has three budgets — working capital, construction and equipment. If the developer blows any of those budgets, the ASC project is in a tough spot. "If the developer is someone who was an administrator of another ASC or someone who has done it only once, that is a red flag. You need a developer that is experienced so you know you are in good hands," said Mr. Thoene.


3. What is the projected annual return on investment? The projected annual return should be in the project pro forma.


4. What is the percentage of equity I can buy? It is important to know how much of the surgery center you can buy. "If you invest $10,000, and you get an 80 percent return, that would be a $8,000 return. While that is great, it may not cover the cost to your practice," said Mr. Thoene.


5. What are the caseload projections and how were they derived? The caseload projections are important because they drive the project, said Mr. Thoene.


6. What is revenue per case and how were they derived?


7. Are they depending on contracts they may not be able to get? The surgery center needs to have contracts to make a profit, so an investor should make sure those contract agreements are stable and secure.


8. What is the capital budget?


9. What is the equipment budget?


10. Are any future commitments by investors expected?


More Articles on ASC Transactions & Valuation:
3 Areas of Opportunities to Assess Trends in ASC Valuation
3 Key Components of Transaction Valuation Multiples
5 Points on Selling Ambulatory Surgery Centers

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