During 2013, mergers, acquisitions, and sales of ambulatory surgical centers (ASC) were energetic. Reports are that more than half of respondents to the “2014 ASC Valuation Survey” (done by HealthCare Appraisers) explored purchasing up to 10 ASCs and 44 percent did due diligence on 11 or more chances for acquisitions.

Ponder and Company issued a white paper in April 2014 that also looks at the future of ASCs based on last year’s activity. If “the past is prologue,” what can the industry look forward to in 2014?

High Valuations

During the last ten years, the Ambulatory Surgical Center industry matured. With maturity came consolidation and ever-changing rules and regulations on reimbursement. Also, as the physician investor pool continues to age and contain fewer buyers, experts anticipated that new buyers would pay lower multiples for ownership than before. Surprisingly, just the reverse occurred.

In 2013, here is what happened:

Single-specialty ASCs had a valuation in the range of 6.0 percent to 7.9 percent times EBITDA and multispecialty ASCs were even higher with valuations ranging from 7.0 to 8.0 times EBITDA.buyers_and_sellers

In 2013, the prices headed up. Industry watchers, aware of a number of new ASC companies forming while others plan on or already have gone public; believe that the increase in valuation will continue over the next four to five years. Just last year the Surgical Care Affiliates IPO showed it transacted at eleven times EBITDA.

Multispecialty Centers Thrive

The valuation of Multispecialty ASCs trades higher than single-specialty ASCs is historic and relates to the agility of the multispecialty centers as they relate to reimbursement. In the event that reimbursement lessens for a single-specialty, disastrous or at least negative impact occurs for ASCs in that specialty. However, a Multispecialty ASC can absorb the change more with less difficulty due to its diversified reimbursement structure.

In-network Status Increases Value

The value of an ambulatory surgical center that is out-of-network has been historically at lower multiples than in-network facilities. There are exceptions though, for instance, in a community with one hospital and an ASC that is out-of-network with commercial payers, that the ASC is out-of-network may have no effect on valuation.

Management Fees

Over the past several years, management fees typically have ranged between 5 to 7 percent. However, most ASCs report management fees around the 5 percent range. Fees have lowered because of increased competition and ASC maturity. Justifiable higher fees for management services occur when an ASC is starting up and a few years afterwards. This is due to the most work, organizing, marketing, and recruiting taking place then. After the startup years, profit margins stabilize and less support needed by the facility. In fact, many management contracts have trip clauses that if a management fee exceeds a set level, the management fee goes down.

While M&A activity will continue robust activity in the hospital industry, the focus is no longer acute care hospitals, as they are less profitable than earlier. Instead, outpatient centers, including ambulatory surgical centers are the new targets. It seems that for-profit chains plan to cut activity in the M&A area while waiting to see the impact of the Affordable Care Act on regulators who resisted these deals in the past. Nevertheless, regional systems will keep up and even increase their activity in mergers and acquisitions.

With surgery center M&A activity remaining robust, consider having an ASC billing and coding audit conducted on your surgery center. A billing and coding audit can reveal many things about the performance of your surgery center, regardless of whether billing and coding is done in house or by an outside ASC billing and coding company. abeo helps ASCs grasp a better understanding of their business and provides benchmark comparisons to other ASCs across the country. After having abeo complete a Surgery Center Business Assessment your team will be prepared to have insightful discussions on the strengths and weaknesses of your business so you’ll be ready for those M&A conversations.

 

Sources
http://www.healthcareappraisers.com/ASC_Survey_2014.pdf,
http://www.beckersasc.com/news-analysis/asc-m-a-activity-4-big-trends-for-2014-from-healthcare-appraisers.html,
http://www.ponderco.com/downloads/Ponder-MA-White-Paper-Q1-2014.pdf,
http://eyewiretoday.com/view.asp?url=20110519-five_trends_affecting_the_future_of_ophthalmology_in_surgery_centers,
http://media.straffordpub.com/products/hospital-acquisitions-of-physician-practices-2013-11-12/presentation.pdf

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abeo Management Corporation (abeo) serves as a leading source of revenue cycle management and practice management with a specialization in anesthesia. The company leverages its people, processes, and software to serve independent practices, surgery centers, hospitals and healthcare systems with a scope of services that include billing, coding, transcription, practice management, and business consulting.

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