Find the Best Strategic Partner

For more than 30 years we have successfully helped hundreds of surgery centers and their owners achieve their goals by aligning them with the right strategic partners. Virtually every engagement is unique and by clearly understanding the objectives of our clients we create a strategy that ensures that our clients will have the right partner that will help them achieve their goals.

The strategies we recommend and implement include obtaining high value competitive bids from leading ASC management companies, or alternatively forming a 3-way partnerships with the right ASC management company and a local hospital so their centers can benefit from higher-paying hospital contracts while retaining the efficiencies and economies of a surgery center, with a professional, profit-oriented management partner. Or, for low earning centers the recommended strategy may be to sell a minority interest that will enable them to increase profits to a point where they will then realize a significantly higher value. Whether it is getting the highest price, or finding partners who can improve contracting, or recruit physicians, or improve management processes or the myriad of other factors that result in highly successful centers, ASCs Inc. has the expertise and experience necessary to help you best navigate this process and create the absolute best outcome for your center.

How to Increase the Value of Your ASC

By Doug Goldfarb and Jon Vick of ASCs Inc. | Prepared for Becker’s ASC Review
Each year many ASC physician-owners seek to sell interests in their centers for a variety of reasons. The reasons range from exit strategies for retiring partners to attracting a strategic partner that will improve the financial performance of the center and increased distributions to the partners, or just to take some money off the table while selling prices for ASCs are high. Whatever the reason for the sale, there are steps you can take beforehand to significantly increase the value of your center and make it more attractive to multiple buyers so they will compete to invest and thus increase the selling price.

Since the value of your center is directly tied to your center's profitability, anything you do to improve your center's bottom line will increase the value of your center. Here are strategies that, if successfully executed, will accomplish this:

  • Improve your managed care contracts

    • Are you negotiating new contracts when old contracts expire? Do not allow "evergreen clauses" to automatic extend existing contracts — lost revenue
    • Compare health plan contracts to each other to determine which health plans are below market rate and take action to renegotiate.
    • Determine rates for high volume cases by specialty at your center and compare health plans rates to Medicare — should be at least 200 percent of Medicare.
    • Carve-outs for implants at cost or cost-plus — especially for orthopedics, podiatry and GYN specialties — will greatly improve profitability for these cases
    • Carve-outs of high volume cases from grouper rates will ensure greatly improved profitability of these cases
  • Recruit new physicians

    • Identify targeted specialties for your center to eliminate a shotgun approach
    • Use center's resources for introduction to targeted specialties and physicians, referrals from current partners for targeted specialties, and referrals from supply vendor representatives.
    • Have shares available for newly recruited physicians as incentive to maintain loyalty to center — may need to do syndication in near future.
    • Develop forward-looking proforma and term sheet to show prospective partners the value of their investment in the center
  • Know your case costs and how to reduce them

    • Maintain accurate financial statements that reflect your cost per case by specialty – have a tool to monitor your cost
    • Create a weekly report to monitor hours per case, supply cost per case, and overtime to reduce operations costs
    • Adjust daily case schedule to consolidate rooms to reduce staffing cost
    • Overlap nursing staff in two shifts to cover afternoon cases to eliminate overtime
  • Improve your billing and collections

    • Coding is key to reimbursement — use a professional coder especially for orthopedics and podiatry
    • Monitor delays in billing of claims — coding
    • Research, correct and/or eliminate delays in operative reports beyond four to five days
    • Determine collectability of accounts over 90 days and take action
    • Monitor accounts with no payment transaction over 60 days — re-bill accounts every 30 days to reduce delays in payment
  • Reduce your supply cost

    • Become member of a group purchasing organization (GPO) to realize significantly lower costs, especially on implants
    • Standardize implant vendors to one to two vendors for each specialty to get preferred vendor pricing for volume
    • Obtain implants on consignment to lower implant inventory
    • Implant carve-outs ensure implant cost is captured in health plan reimbursements
  • Know the value of your ASC business

    • How will your ASC business be valued?
    • What criteria go into valuing your ASC business?
    • Value of a minority interest vs. a majority interest
    • How will your out-of-network cases impact value?
    • What multiples are being offered for similar centers?
    • What will be offered for your center?
  • Know the value of your center's lease or real estate (if you own it)

    • What is the value of your ASC/MOB real estate
    • How to increase the value of your center's real estate
    • Who are the buyers?
    • How to market?



Successfully executing these strategies and knowing the answers to these questions will enable you to negotiate from a position of strength. If the strategies above are successfully executed you will greatly increase your center's profits and the value of your center. Since centers are valued based on a multiple of earnings, every $1 increase in profits results in a $7 to $8 increase in center value.

To maximize the value of your center and to have a choice of strategic partners, we seek partnership proposals from at least three to four of the 20-plus ASC management companies [and the local hospital]. This allows you to select the partner(s) that will best help you achieve your goals and gives you negotiating leverage to obtain the highest price and best terms.

7 REASONS
to Sell Your ASC to a Strategic Partner

1

Seller's Market

If you are considering selling a portion of your surgery center, this is a very advantageous time to do so; purchase prices are attractive and there are over 50 well-qualified and interested corporate buyers, plus hospitals. Most centers receive multiple offers from well-capitalized buyers and prices can be leveraged higher for the sale of either minority or majority interests. It is impossible to tell how long this "seller's market" will persist. "Out-of-network" reimbursements are being phased out and there is continued downward pressure on facility fees by Medicare and other payers. From time to time physician-ownership of ASCs has been questioned as a potential conflict of interest. Hospitals have been buying ASCs and converting them to HOPDs which then charge twice as much as ASCs do.

2

Top quality centers being offered

More centers that are doing very well, with high revenues, profits and earnings before interest, taxes, depreciation and amortization (EBITDA) margins are being offered for sale. It is not unusual now to see physician-managed centers that have EBITDA margins of 25% to 40%, or more. Many centers have added ancillary services to improve their financial performance. However, many surgery center owners have seen their profit growth slowing and would like to take some money off the table. Thus selling a minority or majority interest to a professional management company that will help the center continue to improve its profitability and increase the distributions to the physicians is attractive.

3

Diversification opportunity

Fluctuations in the value of financial assets such as stocks, bonds, and real estate have increased an awareness of the importance of asset allocation. Many surgeons are overweight in the investments they have in their ASC business and ASC real estate and realize that selling a portion of these will help them diversify their assets. This becomes accentuated for senior physicians who are planning their retirement and want to make sure their nest egg is adequately diversified. Timing is important: it is far better to sell an interest in an ASC well before retiring to avoid significant discounting of a retiring partner's value to the center.

4

Increased deal flow

With many successful centers available and over 50 companies competing to acquire ASC interests, many centers are being presented with opportunities to sell a minority or majority share to a corporate partner. There are several excellent companies interested in buying minority interests and this makes a sale more attractive to many physicians as it allows them to retain a majority interest, control and more of the profits. For groups that want to take more money off the table, there is strong competition to buy majority interests as well. Because of the growing number of companies it has become increasingly difficult for physicians to make a short list of the best 3-4 companies for them to solicit. ASCs Inc. will help you select the best companies for you to partner with and, through our valuation and competitive bidding process, will help you get the highest price. Our clients typically enjoy ASC values that are significantly higher than their peers.

5

High, stable prices

Competition for good quality centers with growth potential has kept offering prices high. Multiples for majority interests have been in the 7-8 times EBITDA (less debt, plus cash) range and higher in CON states. For minority interests we are seeing offers in the 4-5 times EBITDA range for centers with significant cash flow and good growth opportunities. The leading companies have capital to invest (some with credit lines of $200 million or more) and, while stricter credit requirements have made buyers more selective, they remain very interested in high quality centers. The way to maximize the value of your ASC is to demonstrate that the current business is sustainable and that there are real growth opportunities that would benefit from corporate partner expertise, such as improving payor contract terms, recruiting new users, volume purchasing power, improving billing and collections, and adding ancillary services.

6

Incentives to sell

Capital gains and income taxes are anticipated to rise in future years. This, along with the uncertain future market for ASCs, provides a strong incentive to seek the sale of interests in ASCs, especially for those owners nearing retirement and/or seeking an exit strategy. The possibility of adverse legislation that could prohibit or restrict physician referrals to physician-owned ASCs, which could significantly reduce the value of all ASCs, is also a factor.

7

Real estate sales

Many physicians who own their medical office building/ASC real estate are interested in selling their real estate as well as their ASC. ASCs Inc. assists its clients with very attractive sale/leaseback transactions with buyers of medical real estate. These sales are usually done following the partial sale of the ASC to a corporate partner, albeit to completely different buyer. To maximize the value of the real estate it is important to make sure that your current lease includes terms that are attractive to the potential buyers. Learn more about selling your medical real estate.

The Time To Sell Is Now

You can take advantage of the current advantageous environment for selling a portion of your center. The market for ASCs & ECs will change; it is only a matter of when. ASCs Inc. has assisted in development, merger, valuation and acquisition transactions for over 500 physician-owned ASCs, endoscopy centers and surgical hospitals since 1984. If you would like to discuss your situation and goals in complete confidence please call Jon Vick, President of ASCs Inc. at 760.751.0250 or by e-mail at JonVick@ASCs-inc.com. We are looking forward to discussing how ASCs Inc. can assist you in achieving your goals.