A Look at ASC Valuation Through the Eyes of M&D Companies

Value, while contingent on the convergence of multiple objective factors, is still in the eye of the beholder. Below are five factors that majority of management and development companies, more than 50 percent, think have a significant impact on valuation, according to VMG Health's 2011 ValueDriver ASC Survey.

Opportunity for future growth –Very high and high impact: 74 percent

Nearly three quarters of management and development companies consider the opportunity for future growth to be a significant element in determining value. According to the VMG Survey, 37 percent of management and development companies seek ASCs for turnaround purposes. Struggling ASCs can still achieve success, but few buyers are interested in centers that represent little opportunity for future expansion or success. "No buyer is interested in buying single OR ASCs," said Jonathan Vick, founder and president of ASCs Inc. in a Becker's ASC Review report. "Even two-OR ASCs may not be attractive to buyers if they are small, have limited recovery beds and/or are not expandable."

Location in a CON market – Very high and high impact: 66 percent

The presence or lack of a certificate of need program in an ASC market is an influential factor. The lack of a CON program allows for more growth and the promise of simpler plans for future expansion, but the existence of CON program virtually guarantees a market is less saturated by ASCs. Many companies place high value on a center that holds a CON. After all, 60 percent of ASC management and development companies consider a high level of competition from other ASCs to be a very high or high impact factor, according to the VMG survey.

Facility Age – Very high and high impact: 55 percent

Presentation does matter. Management and development companies take serious note of an aging or poorly designed facility. ASCs kept up-to-date with a modern, fresh look can even indirectly affect an ASC's value. Aesthetics can attract patients and new physician investment, both drivers of growth. "It does not take a tremendous amount of investment to maintain that level of appearance," said Samuel Beran, MD, medical director and physician-owner of Plastic & Ocular Surgery Center of Westchester (N.Y.) in a Becker's ASC Review report.

Specialty Mix – Very high and high impact: 54 percent  

Some specialties are considered more desirable than others. Within the past few years, spine has become an increasingly attractive specialty, while historically cosmetic surgery has not been highly sought after by ASC buyers.  

"Surgery centers bringing in multiple specialties or creating partnerships with multiple physician groups can result in a collaborative network that provides better patient care and a more satisfying professional experiences for physician," said David McMillan, a principal at Pershing Yoakley & Associates, in a Becker's ASC Review report.

Reliance on one specialty or one physician group to drive volume can leave a surgery center vulnerable to unexpected market changes such as new competition or changing payer contracts.

Contracting leverage – Very high and high impact: 54 percent

Contracting leverage allows ASCs to gain higher rates of reimbursement, thus more reliable profits. Management and development companies specializing in turnarounds often focus on revamping ASC contracts and gaining favorable reimbursement. On the other hand, ASC management and development companies may place a high value on ASCs with a hospital partner; strong contracting leverage is one of the main draws in that type of joint venture arrangement.

Other contracting issues management and development companies hone in on in the valuation process include:

•    High-reliance on out-of-network payers
•    High level of revenue tied to one payer
•    Low commercial reimbursement rates

More Articles on Transactions and Valuation Issues:
Northstar Healthcare Reports $13.5M in 4Q Patient Revenue, Up 108%
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20 Surgery Centers Expected to Open in 2014

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