In a session titled "Sell Your ASC or Stay on Course - Key Considerations" at the 10th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago, Helen Suh, associate at McGuireWoods, and Scott Becker, JD, CPA, partner at McGuireWoods, discussed strategies for determining whether or not to sell an ambulatory surgery center.
1. The market is strong for transactions. A number of factors, including a persistent fear in the physician community about the impact of the PPACA, have caused fear among physicians, said Mr. Becker. "But by and large, people are generally very positive now, and practices are still doing okay — there is not nearly the amount of fear that there was several years ago," he said, adding that management companies are very aggressive about buying surgery centers, and the present market is strong for transactions to occur.
2. Management companies are attracted to underperforming centers. According to Ms. Suh, a struggling Texas ASC with few physician investors and a high level of institutional debt was purchased by a management company that saw the potential to increase the center's value. "Our client went in, saw potential in the center, and was able to double the number of physicians," she said. "Because they were so underperforming, the buyers were able to buy at a lower per-unit cost."
3. Consider your market's reimbursement risk. According to Mr. Becker, the better an ambulatory surgery center's reimbursement market, the less likely the surgery center is to be at the highest point in its multiple. "The better the reimbursement market you're in, either because of workman's comp or out-of-network or payors with no tension, you're not at the highest point in the multiple because your reimbursement doesn't seem long term sustainable," he said. An ideal market consists of four to five payors, none of which has more than 20 percent of the market, Mr. Becker said, adding that there should ideally be a low percentage of out-of-network business.
4. The center should not be overly dependent on too few or too many physicians. If a center is built around three to four or fewer physicians, it is rare to receive premium pricing, Mr. Becker said. It is instead ideal to have eight to 12 physicians at the center. "Centers with 30 or more physicians are also very hard to sell, because when you do the transaction, everybody has to sign difficult non-competes," he said.
5. It is more difficult today to secure non-competes from all participating physicians. "Companies want serious non-competes, and they're harder to negotiate today — the incentive to sign a non-compete is directly proportional to how much money the physician will make upon signing the deal," said Mr. Becker. Physicians may be hesitant to sign non-competes if they do not feel that they are receiving an adequate financial incentive, he said.
Physicians are also looking for greater flexibility, including relationships with local hospitals and the possibility of hospital employment, but theses are not insurmountable problems, Mr. Becker said. "The answer is, if people are given enough money, they are willing to live with more restrictions."
1. The market is strong for transactions. A number of factors, including a persistent fear in the physician community about the impact of the PPACA, have caused fear among physicians, said Mr. Becker. "But by and large, people are generally very positive now, and practices are still doing okay — there is not nearly the amount of fear that there was several years ago," he said, adding that management companies are very aggressive about buying surgery centers, and the present market is strong for transactions to occur.
2. Management companies are attracted to underperforming centers. According to Ms. Suh, a struggling Texas ASC with few physician investors and a high level of institutional debt was purchased by a management company that saw the potential to increase the center's value. "Our client went in, saw potential in the center, and was able to double the number of physicians," she said. "Because they were so underperforming, the buyers were able to buy at a lower per-unit cost."
3. Consider your market's reimbursement risk. According to Mr. Becker, the better an ambulatory surgery center's reimbursement market, the less likely the surgery center is to be at the highest point in its multiple. "The better the reimbursement market you're in, either because of workman's comp or out-of-network or payors with no tension, you're not at the highest point in the multiple because your reimbursement doesn't seem long term sustainable," he said. An ideal market consists of four to five payors, none of which has more than 20 percent of the market, Mr. Becker said, adding that there should ideally be a low percentage of out-of-network business.
4. The center should not be overly dependent on too few or too many physicians. If a center is built around three to four or fewer physicians, it is rare to receive premium pricing, Mr. Becker said. It is instead ideal to have eight to 12 physicians at the center. "Centers with 30 or more physicians are also very hard to sell, because when you do the transaction, everybody has to sign difficult non-competes," he said.
5. It is more difficult today to secure non-competes from all participating physicians. "Companies want serious non-competes, and they're harder to negotiate today — the incentive to sign a non-compete is directly proportional to how much money the physician will make upon signing the deal," said Mr. Becker. Physicians may be hesitant to sign non-competes if they do not feel that they are receiving an adequate financial incentive, he said.
Physicians are also looking for greater flexibility, including relationships with local hospitals and the possibility of hospital employment, but theses are not insurmountable problems, Mr. Becker said. "The answer is, if people are given enough money, they are willing to live with more restrictions."