VMG Health's 2011 ValueDriver ASC Survey queried leaders from the country's 20 largest and most well-respected ASC management and operating companies and found that five factors impacted surgery center value more than others.
1. Reliance on out-of-network volume. Ninety-three percent of respondents said that a high reliance on out-of-network volume posed a "very high" risk for a surgery center. Buyers may shy away from OON centers because the future of reimbursement is uncertain: Payors may force the center to go in-network, decreasing earnings significantly. Buyers may alternately choose to value OON centers as if they were in-network, foregoing the OON "premium."
2. Few physicians generating the majority of the profits. A well-valued ASC will have the "Goldilocks" number of physician owners — not too few, not too many. According to the HealthCare Appraisers survey, management companies generally prefer 6-10 physician owners for a single-specialty surgery center and 11-15 owners for a multi-specialty surgery center. Too many physician owners can dilute ownership shares and decrease physician investment in the center's success. If physicians are making very little in distributions, they may be less likely to bring profitable cases to the center.
3. High physician ownership in competing facilities. Physicians with ownership in competing facilities may feel conflicted about where to send their cases, potentially decreasing center profitability and contributing to the success of a competitor. According to the VMG Health survey, 93 percent of respondents believed a high level of physician ownership in competing centers had a "high" or "very high" effect on ASC value.
4. High reliance on non-owner physicians. Non-owner physicians may be less invested in surgery center success than physicians with a stake in the center's financial health. Non-owner physicians may also drop out of contact with the center more easily. According to the VMG Health survey, high reliance upon non-owner physicians to derive significant volume and revenue has a high impact on EBITDA multiples.
5. High concentration of revenue from a single payor. High reliance on a single payor can be deadly for an ASC if the payor decides to cut reimbursement rates significantly. ASC valuation firms want to see a diverse payor mix for surgery centers, meaning no one payor can have a significant effect on profitability. Seventy-three percent of VMG Health survey respondents felt that a high concentration of patient volume/revenue from a single payor posed a "high" or "very high" risk, and over half of respondents felt similarly threatened by the dominance of a single payor in the center's market.
Learn more about VMG Health.
Access HealthCare Appraisers' 2010 ASC Valuation Survey.
Related Articles on Surgery Center Transactions and Valuation:
Pennsylvania Surgery Center Association President Sees Slowing ASC Growth Rate
7 Issues to Consider Before Buying an Ambulatory Surgery Center
New Washington Orthopedic Surgery Center Breaks Ground in Olympia
1. Reliance on out-of-network volume. Ninety-three percent of respondents said that a high reliance on out-of-network volume posed a "very high" risk for a surgery center. Buyers may shy away from OON centers because the future of reimbursement is uncertain: Payors may force the center to go in-network, decreasing earnings significantly. Buyers may alternately choose to value OON centers as if they were in-network, foregoing the OON "premium."
2. Few physicians generating the majority of the profits. A well-valued ASC will have the "Goldilocks" number of physician owners — not too few, not too many. According to the HealthCare Appraisers survey, management companies generally prefer 6-10 physician owners for a single-specialty surgery center and 11-15 owners for a multi-specialty surgery center. Too many physician owners can dilute ownership shares and decrease physician investment in the center's success. If physicians are making very little in distributions, they may be less likely to bring profitable cases to the center.
3. High physician ownership in competing facilities. Physicians with ownership in competing facilities may feel conflicted about where to send their cases, potentially decreasing center profitability and contributing to the success of a competitor. According to the VMG Health survey, 93 percent of respondents believed a high level of physician ownership in competing centers had a "high" or "very high" effect on ASC value.
4. High reliance on non-owner physicians. Non-owner physicians may be less invested in surgery center success than physicians with a stake in the center's financial health. Non-owner physicians may also drop out of contact with the center more easily. According to the VMG Health survey, high reliance upon non-owner physicians to derive significant volume and revenue has a high impact on EBITDA multiples.
5. High concentration of revenue from a single payor. High reliance on a single payor can be deadly for an ASC if the payor decides to cut reimbursement rates significantly. ASC valuation firms want to see a diverse payor mix for surgery centers, meaning no one payor can have a significant effect on profitability. Seventy-three percent of VMG Health survey respondents felt that a high concentration of patient volume/revenue from a single payor posed a "high" or "very high" risk, and over half of respondents felt similarly threatened by the dominance of a single payor in the center's market.
Learn more about VMG Health.
Access HealthCare Appraisers' 2010 ASC Valuation Survey.
Related Articles on Surgery Center Transactions and Valuation:
Pennsylvania Surgery Center Association President Sees Slowing ASC Growth Rate
7 Issues to Consider Before Buying an Ambulatory Surgery Center
New Washington Orthopedic Surgery Center Breaks Ground in Olympia