There has been a shift in a key value indicator in ASCs: Instead of focusing on case volume, appraisers are looking at cost containment.
"From a historical perspective, it used to be a 'Build it and they will come' mindset," said Chance Sherer, director of healthcare transaction and transaction company VMG Health, at the Becker's ASC Review 14th Annual Spine, Orthopedic and Pain Management-Driven ASC Conference + The Future of Spine on June 10 in Chicago. "The focus is more on consolidation now and operating efficiently."
Case volume in and across ASCs has stabilized, putting pressure on new areas of valuation, as well as producing a more competitive market for buyers, according to Clinton Flume, another director with VMG Health.
"What we're looking at now, at least from a control [transaction] perspective, is an expansion and increase of multiples you see at ASCs," Mr. Flume said. "The reason behind that is you have supply and demand, many buyers — smart buyers, too. People understand that going into an acquisition of an ASC, they're going to have to compete."
That means the acquisition strategies are going to vary from ASC to ASC. And just because one buyer is offering the highest price, that doesn't necessarily mean it will be the best transaction, added Mr. Sherer. ASC buyers and sellers need to look at post-transaction earnings and reimbursement issues, among others, he said.
In terms of significant risk factors — which include facility age, legal and partnership issues like non-compete clauses, debt load and physician diversification — Mr. Sherer said to be mindful of out-of-network payments, which is the biggest risk for valuation.
"If you have any out-of-network payments, there is going to be a lot of due diligence of understanding how you collected historically, what, if any, strategies or approaches payers have made to you," Mr. Sherer said. "If you're getting $40,000 a case where we're typically used to seeing $1,500 a case, how sustainable is this?"
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