Long-Term Benefits of Regular Valuations for ASCs: Q&A With Aaron Murski of VMG Health

Valuations are an important part of any business, including ambulatory surgery centers. Aaron Murski, senior manager and leader of the Business Valuation Team at VMG Health discusses how ASC leaders can benefit from regular valuations and improve the value of their centers for the future.

Q: Why is it important for ambulatory surgery centers to conduct regular valuations?

Aaron Murski:
Having a regular valuation via third party is important for the ASC to do on a regular basis because it helps keep the ASC focused on managing shareholder value and it can help really inform and guide the overall strategy and policies at the ASC. They might have certain fire drills come up that they need to react to and without an understanding of the ASC's value, and what impacts that value, it's difficult to see how their day-to-day decision-making can impact the bottom line.

They need to be focused on long term management of shareholder value instead of being distracted by the issues of the day. The valuation can also help to manage the lifecycle of the ASC and capitalize on the opportunities that could be out there to benefit the physician owners.

Q: How often should surgery centers conduct the outside valuation?

If the ASC is in a transitional phase and they have partners who are going to retire, doing an annual valuation would be a good idea. If the ASC has younger partners or a limited case service mix, every other year is about as long as I would go.

Q: How can surgery centers improve their value?

It really comes down to growth, or where the next physician or case is coming from. As costs increase over time and reimbursements are pressured, you really do need to have an understanding of where volume growth will come from. If growth isn't in the picture, the valuation can help point everyone to the cost side of the equation.

Growth and physician recruitment can help improve the value of the center, even if it's only in the ASC's strategic plan for the future. The other thing to consider is the operational cost side of the center. It can be pretty challenging to implement cost cutting measures, such as streamlining supplies because physicians want to keep their preference items. If you allow them to have preference items, make sure it doesn't burden the ASC from a cost perspective.

Finally, the staffing model can make a big difference. In their day-to-day practice, if physicians aren't using their block time, that's creating staff inefficiencies that hurt the center. You might need to revise some of the block times, or create a different system. That's a hard conversation to have, but rearranging the schedule to optimize staff is important. This might mean the center goes to fewer days, depending on utilization, or flexible staff hours can make a big difference for the ASC's value.

Q: What do administrators and surgeon investors need to know going into the valuation process? How can they make it easier for the company conducting the valuation?

They should expect to provide a lot of information. It may seem like information requests are invasive or cumbersome, but that helps move the valuation along more quickly. It's important to be as transparent as possible with opportunities or threats out there. Sometimes there are skeletons in the closet and people don't like to talk about them, but they are important for a credible realistic value of the surgery center.

Q: What problems may occur if the ASC holds back information?

There would be an unrealistic or incorrect valuation. If a physician is buying out or in and that information they hid comes to light — and it usually always does — you can erode confidence in the process and make it difficult to sell additional shares. In certain cases it could bring on litigation.

The valuation should be as efficient as possible. Have timely information and be willing to answer questions. Oftentimes, for an administrator, chasing down information doesn't seem like the best use of their time, but in a valuation it is important to have a good information flow.

Q: How can ASC investors use information about the value of the center to their advantage in the future?

They can see in real time what the lack of opportunity or lack of strategic plan can do. If a surgery center has a valuation conducted and there really isn't a growth story and no effort for cost-containment — that tends to get the physician partners' attention. It can provide a great discussion point to guide and develop the strategic plans and growth initiatives.

Alternatively, in a situation where the ASC is being managed well and operationally it's lean and efficient, and there's a growth story, the valuation can help reinforce the good behaviors and perpetuate a positive culture as well.

In the era of healthcare reform, having a good understanding of what will come a few years down the road is important. Understand business fundamentals and look at trends for the future, which is more important now than ever. The valuation helps the ASC leadership focus on what is coming in two or three years, not the budget or strategic plan for 2013. Given the challenges of running an ASC, that long term outlook isn't really discussed and by the time a problem arises it's too late to fix it.

More Articles on Surgery Centers:

5 Ways to Step Up Operations at Surgery Centers

Marketing an ASC: 7 Strategies to Reach Your Patient Base

Expect an Increase in New ASC Development: Q&A With Rob Carrera of Pinnacle III

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