ASC valuation amid COVID-19: 9 cash flow considerations

ASCs have been an attractive investment over the years because they can bring in consistent revenue and distributable cash flows on a reliable basis, according to VMG Health.

But beginning in early March, ASCs began to halt elective surgeries in accordance with requests from the federal government and other organizations to reroute supplies to the front line caregivers for COVID-19 patients and stem the spread of the virus. The postponed and canceled surgeries are disrupting the ASC's ability to thrive as usual, but centers will "remain attractive over a long-term investment horizon," says VMG in a new report.

The report also laid out key considerations for the cash flow impact. Over the next six months, the key considerations for cash flow impact include:

· How much volume is expected to drop
· How long the center's cash flow will be disrupted
· ASC location, as some communities will experience longer disruption and higher infection rates
· Increased bad debt and unemployment levels

The cash flow considerations for impact more than six months into the future include:

· How quickly delayed elective cases can be rescheduled
· ASC capacity for rescheduling cases
· Local and macroeconomic conditions, including the impact on payers
· Whether the center needs additional credit facilities, temporary rent or other expense deferrals
· Government relief extended to healthcare providers and small businesses

"Some centers may choose to delay equity transactions for a period of time hoping for private markets to stabilize and for increased clarity on the magnitude and duration of impact, however other transactions will move forward and will require thoughtful assessment of risk, short-term and long-term cash flow impacts," according to the report.

More articles on surgery centers:
How NueHealth & Physicians Endoscopy are responding to COVID-19
Washington practice using surgery center to increase hospital capacity
COVID-19 upends finances, supplies and staffing for Michigan GI practice

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