Jon Vick, president and founder of ASCs Inc., which advises surgery center owners on strategic partnering and joint ventures, says ambulatory surgery centers should take the following five steps before selling their ASC to a hospital.
1. Examine your goals. The sale of a majority interest to a hospital means you are selling control to an organization that has a much different culture than yours and will most likely manage your ASC much differently than you have, Mr. Vick says. "While the hospital may pay a competitive price and provide access to some hospital contracts that are better than yours, are you willing to potentially forego your original goals: efficiency, economics, patient and physician satisfaction?" he says. "Ask some questions and look at data: How have other facilities that have partnered with the hospital fared over the long haul? Are the patients and doctors happy, did distributions increase, did the doctors retain control over critical decisions?"
2. Determine growth opportunities for your ASC before soliciting purchase proposals. ASC can help increase its salability prior to soliciting purchase proposals by identifying new physicians who can be recruited to the surgery center and new procedures can be performed at the facility. "If you can recruit new physicians to the ASC, this will almost always increase the value of the center as soon as they start to perform procedures, but just identifying who they are will make your center more attractive to the buyers," Mr. Vick says. He adds that it is also important to concentrate on attracting in-network business as out-of-network business is being significantly discounted, sometimes at 50 percent or more.
3. Decide what you want to sell and who will sell their shares. Do you want to sell a minority or majority interest to the hospital? Despite what you may have heard, Mr. Vick says you do not have to sell a majority interest to a hospital. "Many deals have been done where the hospital buys a minority interest, sometimes as low as 10-20 percent," he says. "You also do not all have to sell the same number of shares. Many deals are done with the older doctors selling more shares and the younger doctors fewer shares."
4. Solicit competitive offers. The most effective way to know the value of your ASC on the market is to solicit and obtain competitive purchase proposals from several potential buyers. These include competing hospitals and leading ASC management companies. Mr. Vick says there are several firms that specialize in soliciting competitive purchase proposals for ASCs from hospitals and management companies, and having one of these firms assist you will help streamline the process. "They know which companies are paying the best prices, have the capital to do attractive deals and can help increase the purchase price through a competitive bidding process," he says. "Obtaining 2-3 competitive purchase proposals will tell you what the market value of your center is and give you ammunition for negotiating price and terms with the hospital."
5. Consider a three-way deal. Mr. Vick says a common trend currently seen in ASC deals involve an ASC management company buying an interest in the ASC first and then selling an interest to the hospital. "This model is growing in popularity because it provides the best value for a center and preserves the physicians' original goals: control, efficiency, economy and patient and physician satisfaction," he says. "The ASC management company will normally pay a higher price than the hospital is willing to pay and manages the center the way you want it managed. And the management company has a vested interest in seeing distributions continue to increase. The hospital provides access to better contracts. [It's] the best of both worlds."
Learn more about ASCs Inc.
Read more from ASCs Inc.:
- 5 Steps to Choosing a Corporate Partner for Your Surgery Center
- 3 Pros and 3 Cons of Surgery Centers Taking on a Hospital Partner
- Structuring a Joint Venture for an Endoscopy Surgery Center: Thoughts From Jon Vick of ASCs Inc.