How Does Physician Ownership Impact ASC Valuation? Q&A With VMG's Aaron Murski

Physician ownership can have a significant effect on valuation, but where does it affect valuation most? Here are five key thoughts on the impact surgeons can have on the valuation of their centers from VMG Health's Aaron Murski, partner and lead on the annual Intellimarker survey.

Question: What aspects of physician ownership impact ASC valuation?

Aaron Murski: In general there are a couple of things that can impact valuation.

One of the more intangible factors is the cohesion of physician group. Buyers look at that. If physician owners are harmonious, that can only improve valuation.

A specific tangible factor that can affect valuation is the kind of non-compete agreements contained in an operating agreement in ASC governance documents; physicians with interests in multiple surgery centers negatively impact ASC valuation. This is related to physician cohesion as well. Essentially, if physicians are trying to "row the boat" together, they can enhance value of their ASC sale to a third party buyer.

Q: Which factors can physicians influence to improve valuation?

AM: There are two ways to look at valuation. The first is in terms of the multiple, the other is terms of dollar amount. In instances where an ASC is undermanaged or there is a lot of opportunity to improve revenue cycle or lower expenses, physicians can impact that. Sometimes you'll see higher multiple on earnings, but that only means there existed historically an opportunity for physicians to improve operations.

When you look at it by dollar amount, implementing positive staff culture can lower employee turnover, which reduces employee training costs and OR turnover, and that can result in lower costs and improve volumes and earnings.

Other than that, it's things like coordinating supplies to negotiate bigger discounts that can lower expenses and improve earnings, which improves value.

Q: Which factors are out of physicians' control, and can they mitigate the impact of these uncontrollable factors?

AM: There are quite few things outside physicians' control: competition from other hospitals or centers, local market factors and the payor environment, especially where third party payers are playing hardball and making it difficult to get livable reimbursements. Every time there is a factor outside of physicians' control that presents an issue, physicians have to work extra hard at the things within their control.

Q: Where are ASCs being valued most highly? Why?

AM: All other things being equal, ASCs are valued more highly in less competitive markets, in where there is greater certificate of need protection, and in which local issues can create a better value proposition for buyers. However, it's difficult to make a case for a certain geography where ASCs are valued most highly.

Q: What can physicians do to maximize the value of their ASCs?

AM: Benchmark revenues, benchmark costs, benchmark internally, figure out how the ASC fits in market and find opportunities to improve. Most of all, be vigilant about things in your control. Also, if you're entertaining the thought of selling, be sure to get good advice. Surround yourself with advisors who can offer perspective, help set expectations and provide focus for the discussion of the sale.

More Articles on ASC Transaction & Valuation Issues:
5 Recent Hospital & ASC Joint Ventures
12 Statistics on New & Exiting ASCs From 2007 to 2012
7 Statistics on ASC Offering Price

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