Colin McDermott, CFA, CPA, is a senior manager for Dallas-based VMG Health. He specializes in healthcare financial, valuation and transaction issues.
Here Mr. McDermott discusses current trends in the ASC transaction industry, as well as how surgery centers can improve their valuation and market share.
Question: What transaction trends are you currently seeing with surgery centers? Are ASCs still selling to hospitals or has that tapered off?
Colin McDermott: The transaction environment for free-standing ambulatory centers is strong. AmSurg Corporation recently reported that their acquisition pipeline is still robust and indicted that valuations remain in the 6.0 to 7.0x EBITDA range for a controlling interest in a single ambulatory center. This is consistent with what VMG has seen in the marketplace.
Additionally, the transaction environment for ASCs selling to hospitals is still prevalent. With uncertainty due to the consolidation of primary care and specialty physician practices, along with potential reimbursement pressures caused by healthcare reform, it is a proactive strategy for a stand-alone surgery centers to affiliate with a partner, either a hospital or a management company.
Q: What are options for physician owners looking to shift ownership or bring on business help without entirely selling to a hospital or management group?
CM: If physicians are looking to monetize their ownership interest in an ASC but are not interested in selling to a hospital or management company then the only remaining option would be for them to sell their ownership to new physicians. This strategy provides two benefits to the seller. It allows the seller to monetize some of their holdings along with securing future utilization of the facility by new physicians. It is very important to the long term viability of the ASC that young surgeons are provided the opportunity to invest in the facility. If the ASC has a young diversified group of physicians utilizing the facility that typically reflects positively on the future value of the business.
Q: What are some tips for surgery centers to improve their valuation? How does physician recruitment play into valuation?
CM: A surgery center can improve its valuation by reducing the perceived risk surrounding its operations. One of best ways to mitigate risk is to understand the physician base utilizing the facility. If the physician base is aging it would be prudent for the center to start thinking about a secession plan and how to bring younger surgeons into the partnership.
Q: How can ASCs become more enticing to physicians?
CM: The key to physician satisfaction in an ambulatory surgery center partnership is having a collaborative decision-making process. Often physicians own less than 50 percent in an ASC, but allowing the physicians to actively participate in important strategic decisions (e.g. new equipment purchases, operating room expansion, involvement in doctor recruitment, etc.) will create an operating environment that is more enticing to the doctors.
Q: Are you still seeing surgery centers seek an affiliation for increased reimbursement rates? Is this an effective strategy? Why or why not?
CM: Although reimbursement is one motivating factor influencing an affiliation, it's not the only benefit. AmSurg recently announced a joint venture with BayCare in Tampa, Fla. While the concept of a hospital establishing a JV with a national chain is not new, this is not a strategy that AmSurg has utilized historically. AmSurg realizes that BayCare has expertise in a particular market while AmSurg brings expertise in the operation of outpatient surgery centers so both parties benefit. Therefore, it can be very effective for a stand-alone ASC to bring in a strategic partner that might assist in managed care contracting, expense management or other areas where operations can be improved.
More Articles on Transactions and Valuations:
Saint Luke's Surgicenter Completes $6.5M Expansion
8 Statistics on ASC Operating Expenses per Case
Vargas Face & Skin Center to Move to Larger Kansas Location
Here Mr. McDermott discusses current trends in the ASC transaction industry, as well as how surgery centers can improve their valuation and market share.
Question: What transaction trends are you currently seeing with surgery centers? Are ASCs still selling to hospitals or has that tapered off?Colin McDermott: The transaction environment for free-standing ambulatory centers is strong. AmSurg Corporation recently reported that their acquisition pipeline is still robust and indicted that valuations remain in the 6.0 to 7.0x EBITDA range for a controlling interest in a single ambulatory center. This is consistent with what VMG has seen in the marketplace.
Additionally, the transaction environment for ASCs selling to hospitals is still prevalent. With uncertainty due to the consolidation of primary care and specialty physician practices, along with potential reimbursement pressures caused by healthcare reform, it is a proactive strategy for a stand-alone surgery centers to affiliate with a partner, either a hospital or a management company.
Q: What are options for physician owners looking to shift ownership or bring on business help without entirely selling to a hospital or management group?
CM: If physicians are looking to monetize their ownership interest in an ASC but are not interested in selling to a hospital or management company then the only remaining option would be for them to sell their ownership to new physicians. This strategy provides two benefits to the seller. It allows the seller to monetize some of their holdings along with securing future utilization of the facility by new physicians. It is very important to the long term viability of the ASC that young surgeons are provided the opportunity to invest in the facility. If the ASC has a young diversified group of physicians utilizing the facility that typically reflects positively on the future value of the business.
Q: What are some tips for surgery centers to improve their valuation? How does physician recruitment play into valuation?
CM: A surgery center can improve its valuation by reducing the perceived risk surrounding its operations. One of best ways to mitigate risk is to understand the physician base utilizing the facility. If the physician base is aging it would be prudent for the center to start thinking about a secession plan and how to bring younger surgeons into the partnership.
Q: How can ASCs become more enticing to physicians?
CM: The key to physician satisfaction in an ambulatory surgery center partnership is having a collaborative decision-making process. Often physicians own less than 50 percent in an ASC, but allowing the physicians to actively participate in important strategic decisions (e.g. new equipment purchases, operating room expansion, involvement in doctor recruitment, etc.) will create an operating environment that is more enticing to the doctors.
Q: Are you still seeing surgery centers seek an affiliation for increased reimbursement rates? Is this an effective strategy? Why or why not?
CM: Although reimbursement is one motivating factor influencing an affiliation, it's not the only benefit. AmSurg recently announced a joint venture with BayCare in Tampa, Fla. While the concept of a hospital establishing a JV with a national chain is not new, this is not a strategy that AmSurg has utilized historically. AmSurg realizes that BayCare has expertise in a particular market while AmSurg brings expertise in the operation of outpatient surgery centers so both parties benefit. Therefore, it can be very effective for a stand-alone ASC to bring in a strategic partner that might assist in managed care contracting, expense management or other areas where operations can be improved.
More Articles on Transactions and Valuations:
Saint Luke's Surgicenter Completes $6.5M Expansion
8 Statistics on ASC Operating Expenses per Case
Vargas Face & Skin Center to Move to Larger Kansas Location