ASC Acquisitions: What Are Currently Buyers Paying?

At the 11th Annual Orthopedic, Spine and Pain-Management Driven ASC Conference in Chicago on June 13, Stuart Neiberg, MAcc, CPA, CFA, a Manager with HealthCare Appraisers, discussed core concepts for understanding the valuation of ambulatory surgery centers as well as his observations on average multiples currently being paid for center acquisitions.

Mr. Neiberg began by discussing the concept of fair market value. Fair market value is the value standard that healthcare regulators stipulate must be paid for the purchase of a healthcare business. Mr. Neiberg explained that when determining fair market value, the value cannot be influenced by the value that a buyer would bring to the business. For example, if a hospital-owned physician practice would bring an additional 2,500 cases per year to a center if the center is acquired by the hospital, that potential revenue cannot be considered in the ASC's current value. The fair market value must consider only "what that business can do on its own today, not the value a specific buyer brings to the table," said Mr. Neiberg.

Mr. Neiberg then shared six value drivers for surgery centers:

  • Growth. Historical and potential for future growth will add value to the business.
  • Specialty mix. A diverse specialty mix adds value.
  • Payer mix. Strong payer contracts, and a payer mix that is not heavily dependent on Medicare and Medicaid will add to a center's value.
  • Certificate of need. Centers with a certificate of need in CON states can expect that to positively impact their value.
  • Management/administrative oversight. The strength and experience of a center's management will influence it’s value.
  • Hospital participation. If a hospital is an owner in the ASC, it will positively affect its value. Hospitals provide a number of benefits to centers, including physician recruitment, which can be especially difficult for ASCs in rural communities, said Mr. Neiberg.

Four risk factors that may reduce a surgery center’s value include:

  • Single specialty. A single specialty center lacks the diversity in services that reduces risk. "What happens if reimbursement falls?" asked Mr. Neiberg
  • Limited number of owners or users. A center with a small number of physician owners has a higher risk of negative impact if one physician leaves the center.
  • Competition. Increased competition decreases value.
  • Out-of-network billing. Out-of-network billing negative impacts a center's value. Centers that have in-network agreements with payers face fewer financial risks.

Finally, Mr. Neiberg shared a few observations on the current ASC transaction market. He noted an increase in transaction activity and complexity as well as an increase in multiples paid for centers. Currently, many deals have been completed at 7 to 8 times EBITDA; in the recent past, 6 to 7 times EBITDA was more typical.

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