Jason Ruchaber, CFA, ASA, principal with HealthCare Appraisers, gave a presentation on surgery center and healthcare transactions at the 9th Annual Becker's Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 9, 2011.
Mr. Ruchaber said that during 2010, the healthcare industry saw a significant increase in transactions as the waning recession freed up more capital. Hospitals were more aggressive in their consolidation efforts, acquiring physician practices and ASCs in preparation for the advent of accountable care organizations.
He said 2010 saw a slight increase in surgery center value, driven by competition and hospital desire to consolidate; strong, multi-specialty ASCs commanded multiples of 6-7x EBITDA for buyers pursuing a controlling interest.
The factors that drove ASC value in 2010 included surgery center and the potential for cash growth, Mr. Ruchaber said. More risky surgery centers — those in areas with a lot of competition, an unstable physician population or a large percentage of OON pricing — were more likely to see multiples of 4-6x EBITDA, whereas surgery centers that demonstrated potential for long-term growth, a good mix of physicians and a strong payor mix might receive up to 7x EBITDA.
A few years ago, Mr. Ruchaber said buyers were more interested in purchasing under-performing surgery centers, for which profits could be increased significantly with a few changes to supply purchasing, staffing and revenue cycle practices. Today, those same changes may not yield the same fruitful results, so buyers are looking at surgery centers with a history of success.
Mr. Ruchaber said physician employment is affecting ASC profitability and value tremendously as hospitals pursue physician practices for employment more and more. He said around 50 percent of U.S. physicians are currently hospital-employed, a trend that poses a challenge for ASCs with a large local group of employed physicians. These employed physicians are able to choose where to send referrals, and the presence of a hospital employment contract generally prohibits physicians from investing in local surgery centers.
He said centers that have historically relied on out-of-network reimbursement are also less attractive to payors now. He said the healthcare industry may be seeing the "last days of the pure out-of-network model," and the uncertainty of future OON reimbursement means buyers are unlikely to show interest in an OON center unless the ASC is priced as if it were in-network.
Learn more about HealthCare Appraisers.
Related Articles on Transactions and Valuation:
A Roundtable on Joint Ventures
5 Factors That Heavily Influence ASC Value
C/N Group Partners With Florida Surgery Center
Mr. Ruchaber said that during 2010, the healthcare industry saw a significant increase in transactions as the waning recession freed up more capital. Hospitals were more aggressive in their consolidation efforts, acquiring physician practices and ASCs in preparation for the advent of accountable care organizations.
He said 2010 saw a slight increase in surgery center value, driven by competition and hospital desire to consolidate; strong, multi-specialty ASCs commanded multiples of 6-7x EBITDA for buyers pursuing a controlling interest.
The factors that drove ASC value in 2010 included surgery center and the potential for cash growth, Mr. Ruchaber said. More risky surgery centers — those in areas with a lot of competition, an unstable physician population or a large percentage of OON pricing — were more likely to see multiples of 4-6x EBITDA, whereas surgery centers that demonstrated potential for long-term growth, a good mix of physicians and a strong payor mix might receive up to 7x EBITDA.
A few years ago, Mr. Ruchaber said buyers were more interested in purchasing under-performing surgery centers, for which profits could be increased significantly with a few changes to supply purchasing, staffing and revenue cycle practices. Today, those same changes may not yield the same fruitful results, so buyers are looking at surgery centers with a history of success.
Mr. Ruchaber said physician employment is affecting ASC profitability and value tremendously as hospitals pursue physician practices for employment more and more. He said around 50 percent of U.S. physicians are currently hospital-employed, a trend that poses a challenge for ASCs with a large local group of employed physicians. These employed physicians are able to choose where to send referrals, and the presence of a hospital employment contract generally prohibits physicians from investing in local surgery centers.
He said centers that have historically relied on out-of-network reimbursement are also less attractive to payors now. He said the healthcare industry may be seeing the "last days of the pure out-of-network model," and the uncertainty of future OON reimbursement means buyers are unlikely to show interest in an OON center unless the ASC is priced as if it were in-network.
Learn more about HealthCare Appraisers.
Related Articles on Transactions and Valuation:
A Roundtable on Joint Ventures
5 Factors That Heavily Influence ASC Value
C/N Group Partners With Florida Surgery Center