3 Surprising Factors That Impact an ASC's Value

Participants in the ASC industry are generally keenly aware of the common factors that can impact ASC valuation. Amongst others, these can include the number and age of physician owners, competition in the market, availability of new recruits, reimbursement pressure, facility and equipment needs and specialty mix. There are, however, a number of lesser known dynamics that can ultimately impact ASC value.

1. Historical marketability of the ASC's ownership units. An important, however often overlooked, component of risk, the center's historical ability to market it shares and recruit new doctors provides a telltale sign of the availability of physicians in the market as well as management's skill in recruiting new doctors. It has been well documented that there is an increasing shortage of available physician investors in many markets. Despite this trend, an ASC that has demonstrated the ability to consistently recruit new physicians will be more likely than its competitors to garner new physician investment in the future. As such, when determining value it is just as important to look at the frequency of past transactions as it is to forecast future trends.

2. Reliance upon out-of-network reimbursement is not an absolute black-eye for an ASC's value. After performing valuations in countless markets across the nation, one certainty is that not all OON reimbursement is created equal. The effect of OON reimbursement on valuation should focus on the impact of this strategy on the sustainability of revenue and cash flow. For certain centers, OON reimbursement does not result in significantly above-average rates and commercial payors in the market are not overly aggressive in their tactics to combat this strategy. For such centers, it is reasonable to assume that reliance on OON reimbursement is not an immediate threat to financial performance. Is it a risk factor? Absolutely, but it would be inappropriate to group this ASC with another center that is receiving significantly above average reimbursement and located in a market in which payors are extremely aggressive in eliminating or reducing OON strategies.

3. Level of recruitment activity within the physician-owner's private practices. As the availability of new physician recruits in many markets becomes increasingly scarce, ASCs rely more than ever upon the recruitment efforts of existing physician-owners within their private practices. In recent years, sophisticated buyers in the ASC market have turned their focus to identifying ASCs that are affiliated with self-sustaining group practices (i.e., those that are active in backfilling retiring physicians and pursuing growth with new recruits). Recruiting independent physicians or physician groups to an ASC can be an extremely time-consuming, expensive and often fruitless endeavor. As such, there is a desire by buyers and management companies to align themselves with physician groups that already pursue such activities.

Contact Kevin McDonough at kevinm@vmghealth.com. Learn more about VMG Health.

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