How Do ASC Management Companies Assess Value?

Here are 8 points on how ASC management and development companies assess value, based on data from HealthCare Appraisers' 2010 ASC Valuation Survey.

1. Valuation multiples are staying relatively consistent. When purchasing a controlling interest in a multi-specialty center, 56 percent of respondents reported prevailing valuation multiples of 6.0 to 6.9 times EBITDA, while 13 percent reported valuation multiples of 7.0 to 7.9 times EBITDA. Over half of respondents believed valuation multiples had stayed consistent with the prior year, while 41 percent thought the multiples had decreased.

2. Predetermined formulas are generally used for underperforming physicians. When buying out retiring or underperforming physicians, 70 percent of companies base the redemption price on a predetermined formula. For new physician investors, 41 percent of respondents report using a formula to establish buy-in price; 18 percent allow the board to determine the purchase price; and 35 percent obtain a fair market value opinion from an independent source.

3. Most measure ASC profitability based on EBITDA. Regarding the measure of ASC profitability utilized by the respondents to determine the value of an ASC, 69 percent measure earnings based on EBITDA and 25 percent report using cash flow to shareholders as the primary earnings measure.

4. Orthopedics, ophthalmology, ENT, GI and pain management are particularly desirable in a surgery center. At the same time, respondents indicated that the majority of surgical specialties were desirable, with the sole exception of cosmetic surgery.

5. Hospital-owned ASCs are generally valued more highly. According to the survey, 50 percent of respondents said hospital ownership of an ASC would add to the value. Another 11 percent said hospital ownership had no impact, and another 11 percent said it would detract from the value of the center.

6. Out-of-network strategy significantly reduces value. Seventy-six percent of companies said that the magnitude of the reduction to the multiple for a center with an out-of-network strategy was more than 1.0x. This is in keeping with industry opinions that out-of-network increases the risk of an ASC investment and may no longer be a viable strategy for most surgery centers in the next few years.

7. Decreases in Medicare reimbursement lower ASC value. Many surgery centers rely on Medicare for a portion of their reimbursement, and governmental reimbursement rates are not up for discussion as with commercial insurance companies. This means changes to Medicare reimbursement can affect value significantly. According to the HealthCare Appraisers report, multiples of EBITDA would be expected to decline anywhere from 0.26-0.50x if Medicare reimbursement decreased as a result of new payment methodology, based on the most popular response from those surveyed.

8. Multi-specialty centers generally command higher multiples of EBITDA. According to HealthCare Appraisers data, 56 percent of multi-specialty centers receive valuation multiples of 6.0-6.9x EBITDA, compared to 35 percent of single-specialty centers. Another 13 percent of multi-specialty centers receive valuation multiples of more than 7x EBITDA, whereas no single-specialty surgery center received a valuation multiple that high. Single-specialty centers are also much more likely to receive valuation multiples between 4.0-4.9x EBITDA, compared to multi-specialty centers.


Access HealthCare Appraisers' 2010 ASC Valuation Survey.

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