ASCs located in states with certificate-of-need legislation and centers with a high percentage of out-of-network cases require valuation adjustments, according to the 2017 HealthCare Appraisers ASC Valuation Survey. Respondents include ASC chains representing more than 700 surgery centers across the U.S.
Overall, half of the respondents said they observed multiples increasing over the past year.
Here is what to expect for ASCs in CON states and centers with high OON volume:
1. Many buyers are willing to pay a premium for ASCs in a CON state. The typical premium is:
• Less than 0.25 multiple: 26 percent
• 0.36 to 0.5 multiple: 42 percent
• 0.51 to 0.75 multiple: 11 percent
• Greater than 1 multiple: 16 percent
Twenty-six percent said they wouldn't pay a premium.
2. Out-of-network can be a risky proposition for buyers. However, the case mix threshold for out-of-network cases varies based on buyer preference. Around 71 percent of the respondents said 20 percent OON case mix was their risk threshold; another 19 percent reported 40 percent OON was the highest risk they'd take. Ten percent of the respondents didn't have a threshold.
3. Buyers typically adjust the valuation model and pricing for out-of-network centers. The majority, 68 percent, convert revenue to in-network during the valuation. The remaining respondents reported:
• Adjusting multiples downward: 14 percent
• Applying higher risk factor and discount rates: 5 percent
• Combination of techniques: 5 percent
• Walk away — too much risk: 5 percent
Five percent of respondents reported they couldn't generalize about their valuation adjustments.
4. When buyers adjust multiples for OON cases, the magnitude of reduction is typically:
• Greater than 2.0 multiple: 57 percent
• 1.51 to 2.0 multiple: 21 percent
• 0.51 to 1.5 multiple: 14 percent
• Less than 0.5 multiple: 7 percent