Is there a bad time to sell my ASC?

Yes of course there are less optimal times to sell you ASC. From the financial sense if you are still growing rapidly, recruiting new surgeons or have the market that would allow with some help that growth, then it is in your best financial interest to capture that growth before you sell. In other words you really do not want to sell your surgery center before the timing is right regardless of what stage your ambulatory surgery center is in. Sounds easy….the challenge is that there are some variables that are unknown in that formula without a crystal ball. So it is no different than making a surgical decision, you have to look at the situation in its entirety, analyze your ASC first-do a Ambulatory SWOT analysis (look at yours and the market’s Strengths Weaknesses Opportunities and Threats)-then look at and pay close attention to your weaknesses and opportunities. This will drive your decision. Make a professional judgment and decision and then execute on that decision. Examples of bad times to sell were bad times because we had to sell the ASC. If we were advising the centers earlier on in the process, we would have taken a different direction with the benefit of time. One time a surgery center’s majority owner, who was a surgeon, called 9 months prior to us working with him and in reality it was too late 9 months later. When he first had called us and we discussed the situation in depth, we recommended that we work together to syndicate and recruit more doctors and then add an ASC management company or hospital partner. At that time we assumed that the cost of that process was a barrier, but he called 9 months later with significant issues hanging over his head. We told him that we really did not want to get involved, but he literally begged us to help him. We explained how difficult given his timeline that it was going to be and that we would not get to where he wanted to get, but we ended up taking him on as a client. He ended up having to sell his CON and assets just to mitigate his damage. So the answer is that the bad time to sell is when you wait until you have no other option but to sell or in other words when you are forced to sell. This can happen if you are not a realist and are not able to realistically look at your SWOT and understand that either you have some weakness or your market does and you need help shoring up those weaknesses. People do this by blaming external factors when a lot...

How do you prepare to recruit new physicians to your syndication?

The preparation all depends on what stage of the life cycle that the surgery center is in, but a good bit of the process is the same. Let’s start the discussion from the pure recruiting physician’s angle around an existing and operational center cycle. In the physician recruitment area, one of the first steps is to evaluate the ambulatory surgical center to see if and why any of the current physicians are not bringing all of their qualified cases to the ASC and then what the barriers are to them bringing their cases. Meet with each of the physicians and ask the question: “What can we do differently that will make you more comfortable in bringing all your appropriate cases to the outpatient surgical center?” One of the first steps is to understand where the shortfalls are occurring. The reason that this step is very important is because going forward, ASC operational inefficiencies will strongly affect recruitment and retention of cases and recruiting new doctors to your ambulatory surgery center. How do you prepare to recruit new physicians to your syndication? Some of the typical responses Preferences with equipment or instruments not available at the ASC Investments in another surgery center or a procedure suite at their office Hospital politics/pressures Confusion around out-of-network vs. in-network contracting at the ASC Confusion with the surgery center facility cost for cash pay patients Staff or scheduler non-compliance Lack of adherence to start times Lack of familiarity/comfort with ASC staff Lack of transparency – both financially and with executive decisions Third party payer contracts Lack of background research on /compatibility with providers Lack of partner enthusiasm / partner frustration It is imperative that leadership understands that their top priority is to remove as many barriers as possible so that it is easy for the surgeons/physician to perform all of their qualified cases in this center. Create pro formas that can quantify the financial benefits adding only a few more cases per month. ASC surgeon-owners must clearly see how incremental case volume growth leads directly to higher margins (given that overhead costs are largely fixed when centers are at breakeven). This helps make the case that the investment of their time in the recruitment process is very profitable. Evaluate each surgeon’s block times – some surgeons may be able to or open to being flexible with their scheduling in order to accommodate new physicians. Define the kind of physician you want and can support ,or how you would support physicians that are not married to another ASC. For example, a natural fit for a spine surgery center center is to add pain or other orthopaedic and podiatry. While we at one time could pick and choose what...

What do buyers typically do after they purchase an ASC to improve it? Can an ASC do any of that prior to the sale to increase the value of the center?

The actions that buyers of your surgery center would look at and possibly make adjustments to for improvements all relate to value drivers. More specifically they will look for every way to decrease cost, increase revenue and increase efficiencies. Even in the most advantageous market, many owners of ASCs leave substantial money on the table when they sell their surgery center — most often because they do not truly have a handle on what they can do to maximize the multiplier basis (the metric buyers use to multiply and get a final price) or they don’t want to invest the required time and effort. However, the buyer will take the time and effort to make these changes after they purchase your center. So the question is do you want a multiple of the profit derived from the changes or do you want a percentage of those changes that you will get after the buyer makes the changes? Examples: Look at your staffing levels and cost right size that. Look at your cost per OR min and see if you can gain any efficiencies there. Supply cost-surgery centers can reduce surgical supply costs by consolidating suppliers. As a standalone center you can push for price reduction, but an investor that has multiple surgery centers can typically get a better supply cost. You want to perform an analysis on the different suppliers currently used at the surgery center, this will help the materials manager identify which cases use the most supplies — often also the cases that are performed most frequently at the center — and work on cutting the number of companies from several down to one or two if you can get that price down by doing so. You need to know what you are spending per item for surgical cases. Many centers don’t track spending levels deeply enough and as a result there are lost profits. Physician preference items often cost the surgery center a great deal if the physicians don’t partner with the ASC to reduce materials costs. Make needed adjustments. As you determine which suppliers have the best deals, work with surgeons to consolidate their preference items for the lowest cost high quality provider. Benchmark your costs against yourself and others.There are many benchmark surveys for most of the categories that you can turn to if need be. Renegotiate your lease on the ASC space, equipment etc. Renegotiate vendor agreements-all of them! Renegotiate third party payor agreements-even if you have a year left. New cases are the lifeblood of a successful ASC. Ask each partner and physician that is doing cases in your center if there are any cases that they could bring to the center that they are currently taking...

How do you prepare to recruit new physicians to your surgery center?

The preparation all depends on what stage of the life cycle that the surgery center is in, but a good bit of the process is the same. Let’s start the discussion from the pure recruiting physician’s angle around an existing and operational center cycle. In the physician recruitment area, one of the first steps is to evaluate the ambulatory surgical center to see if and why any of the current physicians are not bringing all of their qualified cases to the ASC and then what the barriers are to them bringing their cases. Meet with each of the physicians and ask the question: “What can we do differently that will make you more comfortable in bringing all your appropriate cases to the outpatient surgical center?” One of the first steps is to understand where the shortfalls are occurring. The reason that this step is very important is because going forward, ASC operational inefficiencies will strongly affect recruitment and retention of cases and recruiting new doctors to your ambulatory surgery center. How do you prepare to recruit new physicians to your surgery center? Some of the typical responses Preferences with equipment or instruments not available at the ASC Investments in another surgery center or a procedure suite at their office Hospital politics/pressures Confusion around out-of-network vs. in-network contracting at the ASC Confusion with the surgery center facility cost for cash pay patients Staff or scheduler non-compliance Lack of adherence to start times Lack of familiarity/comfort with ASC staff Lack of transparency – both financially and with executive decisions Third party payer contracts Lack of background research on /compatibility with providers Lack of partner enthusiasm / partner frustration It is imperative that leadership understands that their top priority is to remove as many barriers as possible so that it is easy for the surgeons/physician to perform all of their qualified cases in this center. Create pro formas that can quantify the financial benefits adding only a few more cases per month. ASC surgeon-owners must clearly see how incremental case volume growth leads directly to higher margins (given that overhead costs are largely fixed when centers are at breakeven). This helps make the case that the investment of their time in the recruitment process is very profitable. Evaluate each surgeon’s block times – some surgeons may be able to or open to being flexible with their scheduling in order to accommodate new physicians. Define the kind of physician you want and can support ,or how you would support physicians that are not married to another ASC. For example, a natural fit for a spine surgery center center is to add pain or other orthopaedic and podiatry. While we at one time could pick and choose...

What are the goals of the preparing to sell stage?

When you think about selling your ambulatory surgery center, you as the surgeon owners will have a few outcomes that you want see. Typically some of those outcomes are peak price and terms as well a corporate partner that will help grow your surgery center business, etc. In order to put your surgical center business in the best position possible to reach those outcomes you must work hard in preparing your surgery center for sale. The goal of the prepare to sell stage is to prepare you surgery center so it looks as appealing as possible to potential buyers. Just as you would put a new coat of paint on your house before selling, you should make your company look as attractive as possible. This takes time, effort, money and foresight. Physician owners might find that their ASC runs better with all of these value enhancing factors in place, which makes their implementation a good idea for all parties involved. Surgery center buyers and ASC investors will find that preparatory work enables them to recognize the right acquisition fit when it comes across their desk. Making sure your surgery center is as appealing as possible requires us to look at it in a multidimensional manner. Some of the goals are to: Increase the speed of the process Make the process more efficient Manage and increase the overall perception of the buyers (which directly affects the value) Learn as much about your business as you can You want to properly position your business and articulate its investment merits. This process also allows for the identification of potential buyer concerns on issues ranging from growth sustainability, margin trends and case or procedural concentration, contingent liabilities and any physician partner issues. You need to understand the assumptions that drive your surgery center’s financial model. This is very important as this forms the basis for the valuation that will be performed by the prospective buyers/investors. Therefore you must approach your surgery center’s financial projections from the buyer’s perspective and gain comfort with the numbers, trends and key assumptions driving them. You need to understand the valuation methodologies that ASC buyers will use in their analysis (comparable companies, precedent transactions, multiples of trailing EBITDA, DCF analysis and sometimes LBO analysis-which is using debt) The more questions that you answer upfront the fewer you must answer during the process to get the surgery center buyers familiar with your ambulatory surgery center’s story. The longer your surgery center business is on the market the easier it is to lose momentum. Time kills deals, speed matters, thus this process matters. Efficiency.  The more information you provide the buyer the more quickly they can determine their interest level...