6 Common Questions on Buying, Selling and Valuating Ambulatory Surgery Centers: Q&A with Blayne Rush and Curtis Berstein

Blayne Rush, president of Ambulatory Alliances, and Curtis H. Bernstein, managing director of Sinaiko Healthcare Consulting, tackle six common questions associated with the buying, selling and valuating of ambulatory surgery centers.

Q: Do you see more or less interested buyers competing for deals than a year ago?

Blayne Rush: It depends on the deal. The deals that are very attractive — those are becoming harder to come by. All of the buyers — the minority-interest investor buyers and the majority minority interest investor buyers — want to look at those deals, and those competing bids are driving prices for those centers up. When you start to look at deals for out-of-network centers, the potential buyers are going down. Same with the small, single-specialty, 1-2 operating room ASCs with 1-2 physicians — the potential buyer pool for those deals are going down compared to times in the past.

Q: Are the typical deals being made with a management company buyer or a hospital?

Curtis Bernstein: With the public hospitals companies and their focus on consolidation, they’re not typically doing deals with management companies. We’re seeing those systems like Tenet, HCA and Community Health Systems go out and want to buy the center themselves. They want a controlling interest because they want to consolidate the ASCs. When we are seeing some hospital and management companies joint venture, they might do a deal where the health system owns 51 percent and the management company owns 49 percent, or the management company has an interest in an ASC and they’ll bring in a hospital partner.

We’re seeing that more deals with not-for-profit hospital companies because they’re not as worried about the consolidation issues. We are seeing the number of those ventures coming together — large health systems and ASC management companies. There are a number of those different ventures out there looking to buy centers. Some are looking for a 51 percent share, some are willing to buy 30 percent. They’re generally looking for a decent interest in the center, but there’s really no specific amount that I’ve seen.

With regard to the hospitals, they’re looking to buy a percent that will allow them to convert the ASC to a hospital outpatient department to capture the HOPD reimbursement rate. That might be 100 percent.

We’re also seeing the move toward co-management deals, especially if the management company is involved. The management company may remain a part owner with the physicians and may co-manage the surgery center. In this scenario, a group will generally get a base fee for managing the center and then will get a certain portion of incentive payment for meeting certain indicators as the center performs in the future.

Q: How intent are chains to bringing in hospital partners?

BR: With the hospitals employing many physicians now, similar to the 90s, we’re seeing more ASC management companies looking to bring on hospital partners for the physicians and for the contracts. A lot of these management companies, generally speaking, shy away from the out-of-network model, and hospitals are typically able to get better contracts than some individual ASCs and some chains.

With the deals I’ve been involved with, I think those with majority ownership are very intent on bringing in a hospital partner, while those with a minority interest are less intent.

Q: Are price multiples going up or down?

CB: They’re fairly stable. I think companies are paying the same multiple on an ASC based on the specifics of the ASC. A good ASC might go for a 9x multiple or might go higher than that depending on growth prospects and other appealing qualities.

I think you would have received that same deal last year or the year before for that same center. I don’t think the expected returns have changed, and I don’t think the access to capital has changed. I do see more people saying they have money now to do deals. I think you’re going to get the same multiple you would have received before based on the specifics of the center, but every center is certainly different.

Q: What do you see as the prospect of selling a center with out-of-network and how are buyers valuing out-of-network centers?

CB: For some of the ASC management companies, their whole strategy is around out-of-network. I think it’s definitely possible to sell an out-of-network center. The issue is you’re not going to get the same multiple of earnings as you would for an in-network center just because the strategy of an OON center is definitely being tested in a number of states. I’ve recently seen cases in California and New York. I don’t think any party truly won any of those cases; I think they all settled. It just goes to show you that the payors are going to push down on paying out-of-network rates that are significantly higher than in-network rates.

When we value a center, we’re going to look at the state and see about the pressure that has been placed on out-of-network reimbursement within that state, and probably take some kind of adjustment associated with the risk that the out-of-network revenue may not be around long.

With regard to management companies, private equity groups and publicly traded companies look at the potential impact on same-store sales. If they buy an out-of-network center and then the payor says it’s not going to pay those out-of-network rates anymore, it’s going to pay a lot less, the ASC may litigate and will probably settle for somewhere in the middle, but now the same-store sales are going to drop 25 percent, maybe 50 percent depending on the extent of the ASC’s out-of-network.

Q: What issues are of particular concern for buyers today?

BR: I think the largest issue is the employment of physicians, especially when you start seeing orthopods being employed by hospitals. We all know it’s moving toward that direction. Those are typically high-paid surgeons in the market and the ones that hold out, but even they are agreeing to employment, and that’s alarming buyers.

The other big issue is the out-of-network issue. Buyers come in and really look at out-of-network reliance closely, and I’ve seen the majority of buyers not even interested if it’s a significant amount of out-of-network because the traditional seller isn’t willing to discount the price enough where those potential buyers would be interested in buying that center.


Blayne Rush, president of Ambulatory Alliances, is an SEC-registered and FINRA-licensed investment banker. He specializes in ASC brokerage; ambulatory surgery center turnarounds and increasing ASC valuations through physician recruitment and syndications; and access to the capital markets and capital structuring consulting for surgery centers, urgent care centers and radiation oncology centers.

Curtis H. Bernstein, ASA, CPA/ABV, CVA, MBA, is managing director of Sinaiko Healthcare Consulting. He specializes in providing valuation, transaction advisory, strategic and operational consulting services to clients. He has extensive experience working closely with hospital systems, physician groups, ASCs and other healthcare providers.


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