Despite the trend of hospitals acquiring physician practices at a feverish pace, orthopedics have largely stayed intact as independent entities.
At the 11th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 13, Aaron Murski, senior manager at VMG Health, discussed how orthopedic-based practices have mostly avoided this trend and how those practices are valued when they are acquired.
Just like the late 1990s, hospitals again are buying physician practices in order to gain scale and market share. However, Mr. Murski said orthopedics is still largely an unaffiliated, independent specialty. According to statistics from the American Academy of Orthopedic Surgeons, 71 percent of orthopedic practices were independent in 2012, similar to 2008 when 73 percent were unaffiliated with hospitals.
Mr. Murski said orthopedic surgeons generally do not feel pressure to sell their practices because their volumes are steady, and they have a unique payer mix that makes them financially sound.
However, if hospitals and orthopedic practices do converge on a transaction, it's normally in a competitive market and normally is a "traditional" acquisition. A traditional acquisition is when a hospital or health system purchases the practice's tangible property, and an employment agreement. "Traditional acquisitions achieve the highest level of integration," Mr. Murski said. "The buyer is invested and at risk for managing the practice, and it's more difficult to unwind."
Like all physician practice acquisitions, fair market value is a cornerstone. Valuation firms look at a theoretical value of the practice but don't factor in strategic benefits. Mr. Murski said orthopedic ambulatory surgery centers can usually fetch EBITDA multiples ranging from 6x to 7x, but orthopedic surgeons are making sure that a return on investment exists before they actually decide to sell to hospitals.
"Larger transactions with orthopedic practices have to have a real strategic nature to it," Mr. Murski says. "What's the benefit for the seller?"
At the 11th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 13, Aaron Murski, senior manager at VMG Health, discussed how orthopedic-based practices have mostly avoided this trend and how those practices are valued when they are acquired.
Just like the late 1990s, hospitals again are buying physician practices in order to gain scale and market share. However, Mr. Murski said orthopedics is still largely an unaffiliated, independent specialty. According to statistics from the American Academy of Orthopedic Surgeons, 71 percent of orthopedic practices were independent in 2012, similar to 2008 when 73 percent were unaffiliated with hospitals.
Mr. Murski said orthopedic surgeons generally do not feel pressure to sell their practices because their volumes are steady, and they have a unique payer mix that makes them financially sound.
However, if hospitals and orthopedic practices do converge on a transaction, it's normally in a competitive market and normally is a "traditional" acquisition. A traditional acquisition is when a hospital or health system purchases the practice's tangible property, and an employment agreement. "Traditional acquisitions achieve the highest level of integration," Mr. Murski said. "The buyer is invested and at risk for managing the practice, and it's more difficult to unwind."
Like all physician practice acquisitions, fair market value is a cornerstone. Valuation firms look at a theoretical value of the practice but don't factor in strategic benefits. Mr. Murski said orthopedic ambulatory surgery centers can usually fetch EBITDA multiples ranging from 6x to 7x, but orthopedic surgeons are making sure that a return on investment exists before they actually decide to sell to hospitals.
"Larger transactions with orthopedic practices have to have a real strategic nature to it," Mr. Murski says. "What's the benefit for the seller?"
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Drs. Richard Kube & David Rothbart: 3 Key Considerations for the Transition of Spine to ASCs
10 Success Factors for an Orthopedic Center of Excellence