1. Out-of-network payments will reduce price. A buyer in today’s market will discount the ASC’s EBITDA to compensate for out-of-network reimbursement. The higher payments received by the ASC due to receiving a percent of billed charges naturally inflates revenue and cash flow. Buyers will no longer take the risk that out-of-network payments are sustainable into the future and, therefore, will discount those rates to in-network rates. This many times has a significant downward impact on the amount of EBITDA the ASC generates, and since ASCs are typically valued using a multiple of EBITDA less debt, it may have a dramatic impact on valuation. Sellers should be aware of this price reduction and factor that into their decision to sell to a corporate partner.
2. Non-competes are extremely important. A seller should anticipate that a buyer will demand a non-compete radius of 20 miles, in most instances, restricting physicians from investing in a surgery center or hospital that may compete with the ASC partnership. Any attempt to lessen the radius or carve-out physicians from the non-compete will have a negative impact on purchase price and potentially terminate the transaction. In today’s environment, buyers will also protect themselves from a hospital employing a physician-partner if that employment arrangement has a directive regarding where surgical cases are to be performed. Physician-partners must anticipate these provisions and factor that into their decisions to sell to a corporate partner.
3. Physician issues should be corrected. Any ASC physician-partnership issues should be corrected prior to entering into a prospective transaction with a buyer. Physicians that plan to leave the ASC or make some other decision that negatively impacts their surgical practice, thus lowering surgical case volumes, should be dealt with prior to engaging a potential buyer. Expect a buyer to discount EBITDA due to retiring partners or other issues that may lower surgical case volume. At the very least, this discovery will lead to a downward adjustment to purchase price in diligence. Prior to selecting a corporate buyer, eliminate any and all surprises that may be discovered in diligence that potentially compromise your transaction.
Learn more about Meridian Surgical Partners.
Read more from Meridian Surgical Partners:
– 5 More Physician Statistics Surgery Centers Should Track and Benchmark
– 10 Successful Techniques for Recruiting Physicians to Your ASC
