How ASC owners can make the most of a sale after pandemic losses

Health systems, ASC chains and private equity firms are eyeing ASCs as investment targets with high growth potential, and the market is competitive.


But not all ASCs are equally attractive, and owners have to know their data to optimize sale value. At the Becker's Healthcare Orthopedic, Spine + ASC Virtual Event, a panel of experts gathered to discuss the finer points of ASC sales. The panel included:

  • Wael Barsoum, MD, chief transformation officer of Healthcare Outcomes Performance Company, a musculoskeletal outcomes, service line and practice management company
  • Thomas K. Miller, MD, vice chairman of orthopedic surgery and chief of sports medicine at Carilion Clinic in Roanoke, Va.
  • Mihir Patel, MD, an orthopedic surgeon with OrthoIndy in Indianapolis

Below is an excerpt from their conversation. Click here to view the full panel on demand.

Note: Responses are lightly edited for clarity and style.

Question: What should ASC owners think about when considering a sale?

Dr. Miller: You have to know your payer mix, your provider mix and your case mix. You have to understand how that has changed if you made fiscal plans that were impacted by the pandemic. How are you planning to recover? It's a reasonable question. One of the things that ASCs may have done is hold back on certain investments that may make it much more difficult for them to expand to new case profiles and markets moving forward. Their bottom line may look a little bit better right now, as opposed to somebody who committed to investments and committed to infrastructure and technology acquisition and may be carrying a slightly bigger debt load. That can explain what that debt load is going to allow them to do moving forward. They may not look as good on paper right now, but they may really be the ASC that is more valuable in the near short term.

Dr. Barsoum: Dr. Miller hit it on the money. It really comes down to the market dynamics. None of these deals looks exactly the same, and I think it's hard to compare because orthopedic surgeons tend to be a competitive bunch, and we're a pretty social bunch. Most of us have colleagues all around the country that are involved in ASCs, that have invested in ASCs and that have exited from ASCs. Many of those surgeons have reinvested in another ASC. There's always discussion about what kind of return did you get versus what I get; how many cases are we doing. It's important to recognize that the market dynamics are really important. The quality of earnings becomes very important in understanding what the valuation is.

The other comment that I would make is to be cognizant of compliance challenges. If you are getting offers that seem almost too good to be true, they could be. There are clear guidelines around when you're getting outside of fair market value, and that can really put folks at risk. So ensuring that at all times you're within fair market value for any kind of transaction that you do is absolutely the key to making sure you don't have to look over your shoulder and you stay out of trouble.

Dr. Patel: As far as our organization is concerned, we've become very data-driven. I think that as you prepare for a sale, that data is what the potential buyers are going to be looking for. Think of an IRS audit, that's basically what the buyers are going to do. If they're going to put forth a 5x, 6x, 7x multiple, at the end of the day, one has to pick that partner based on what the incentives are and what the alignments is going forward, so as not to be a disruptive force, but actually an additive force for the group in that ASC.

In my mind, the ASCs that have potential for expansion, their free cash flow is high, they've weathered the pandemic well, and they have a plan, are the most valuable ASCs, and they're trying to establish or increase the buyer's market share. Having said that, it's not a cash-out for any one particular subset of partners, it's a transaction for the future. This is not for what happened in the past. That's the kind of thing we're looking at when acquiring different entities around here.


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