Vincent Kickirillo, a partner at valuation firm VMG Health in Dallas, identifies eight factors that make your ASC risky at time of sale.
1. Lack of lucrative specialties. While a really efficient single specialty ASC such as a GI-only facility can be highly desirable, it helps to include lucrative specialties like orthopedics.
2. A few physicians do most cases. Your center should not be relying on a few surgeons to bring in most of its volume. What happens if one of those surgeons is incapacitated or retires? "If your three top producers account for 50 percent or more of volume, you are too top-heavy," Mr. Kickirillo says.
3. Physician infighting. A physician group that lacks cohesiveness not only makes the ASC less productive but also raises buyers' concerns that some partners might exit the ASC and open a competing center after the sale.
4. Partners who are aging. "A center where all the physicians joined 30 years ago and are now ready to retire will appear risky to buyers," Mr. Kickirillo says. "Who will take their place?" Centers need to take the time to identity younger physicians and offer them membership.
5. Ineffective partnership agreement. The partnership agreement should include items like mandating physicians to sell all or part of their shares when they reach a certain age or when their volume drops. This will ameliorate risks to the buyer. The agreement should also have a strong non-compete covenant, stipulating that physicians cannot invest in another center within a certain radius. It should also require surgeons to bring at least one-third of their cases to the ASC, though this is also a legal safe-harbor requirement.
6. Too many cases with one payor. Buyers will view it as risky to have one large payor, such as Blue Cross Blue Shield, covering a majority of the center's volume. A center can do little about this when one payor dominates the market. It could help, however, to make sure the ASC has contracts with as many of the smaller payors as possible.
7. Too many out-of-network cases. Buyers are cautious regarding centers that rely heavily on out-of-network status because this option appears to be fading away. In the short term, however, out-of-network cases can still boost the ASC's bottom line. "Ride it as long as you can, but know that the model is going away," Mr. Kickirillo says.
8. Lack of competent management. Buyers are impressed when ASC management has demonstrated expertise with contracting, buying supplies and delivering reliable financial results. If internal management lacks these skills, a management company can step in. "Physician-owned centers can be very, very successful, but it helps to have a strong management company behind you," Mr. Kickirillo says.
Learn more about VMG Health.
Read more insight from the leadership team of VMG Health:
1. 8 Things to Know About ASC Ownership and Development
2. 10 Statistics Every ASC Should Track
3. 9 Points on Transactions and Valuations of ASCs