What is the life cycle of an ambulatory surgery center (ASC)?

The life cycle of an ASC has the following stages: Startup Initial Growth Rapid growth Slowing growth Plateau Decline Startup The startup is the surgery center’s pre-development phase where you are trying to figure out what direction you want to go with your ASC and how you are going to get there. For example you are a group of busy podiatrists and your case volume shows that the pro forma will be below breakeven. Do you go out and recruit some orthopaedic or spine docs and develop your ASC with just surgeons? Do you “sell” at this point in time a piece of the project to an ASC Management Company or a hospital health system? Initial Growth Then you have the the initial growth phase, which is a very important stage in your center’s development towards profitability. This is when you set the tone, lay the foundation, and the physician partners and utilizers have their first impression of the operations of the center. Additionally you will be able to address the surgical case load commitment that you based your surgery center’s pro forma off of. Profits will not be there until the fix cost are covered, thus you should focus on working with the surgeons to capture the surgical volume that you put in your surgery center’s business plan’s pro forma, on operational efficiencies and containing cost. If your doctors are not aggressively shifting cases to your center you need to address it in this stage. You need to be working towards your surgery center breaking even as quickly as possible. That being said, you should look to see if you need to be open every day or not, have minimal staffing, and recruit more surgeons that will do cases in your surgery center. There are outpatient surgery centers that are 4 or 5 years old and are not out of this stage of development. So it is important that you know how to market oupatient surgery. Rapid Growth In this stage you are covering the ASC’s fixed cost, have worked out the operational inefficiencies and working well with the surgeons. You are making consistent surgery center distributions and your EBITDA is expanding with each added case. As we have said many times before, once you are at break even every dollar of revenue should add between $.65 and $.85 to the bottom line. During this expanded growth phase is where the fun begins or everything that you worked towards moves faster. Your hard work and strategic operations are paying off with results. The profits are being driven by the core surgeons. Slowing Growth While surgery centers can go from the Initial Growth stage to the Slowing Growth stage, skipping the Expanded...

Why would I sell now when I am so profitable and growing rapidly?

The price by which an outpatient surgical center would sell is based off of the center’s profitability and growth prospects. If you look at the life cycle of an ASC, you are most likely in the rapid growth phase, which eventually will only slow down and start to decline, thereby eliminating your opportunity to get the best possible price for your center.

Why would I want to sell my ASC?

Let’s look at this answer as it pertains to each of the stages of the ambulatory surgery center cycle, with selling the surgery center as the end in mind. It depends on what you want at the end of the day. Is your goal to build a center where you can have a significant liquidity event? Or do you want to use the ASC as a profitable tool? Keep that in mind as we go through this process. Your main question is how to sell my surgical center? In this case, selling an ASC refers to taking on investors that are not physicians. Thus you are selling a good portion of the business or taking on non-physician investor partners. Common reasons surgery center surgeon owners sell include a desire to diversify assets, reduce exposure to debt guarantees if the center is not performing well, gain strategic benefits from some buyers, such as a hospital’s ability to increase reimbursement or recruit, and to acquire advantageous tax rates from the liquidity event. That is, owners are taxed at the rate for capital gains today rather than the tax rate for their future income over time, which is higher. There are certainly a number of advantages to aligning with a corporate partner: professional management, access to capital, greater focus on growth and realizing a return on your investment. Selling in the Startup Phase This is the pre-development phase where you are trying to figure out what direction you want to go, or can go for that matter. The main reason that you might want to bring on a corporate partner or hospital health system during this stage is to diversify your risk. From a pure financial perspective it is much more financially beneficial for you to hire some consultants to help you develop the center and an investment banker to recruit the physicians and sell them shares in the company, than to join with a corporate partner. The reason is that when you build the business up and once you have done all you can do and growth is moderate, you can then sell it for a multiple on the profits, whereas in this stage the corporate partners would pay the same as you do to get in the project and then almost always require a management agreement where they would take a percentage off the top. Now there are some other reasons that you might want to join a partnership, such as better reimbursement to the surgery center from non-governmental payers than the center could have negotiated on its own, but a lot of startup ASCs depending on the market still start out of network and leverage that process to get...

How do I identify the ideal time to sell my ASC?

Since we know that your ASC is worth the most when you still have moderate growth, so it would be at the top of the expanding growth stage or at the beginning of the slowing growth stage. The market has recruitable surgeons, and your center can take on more cases or has excess capacity if you have to expand your day and start surgeries at 6 am and stop them at 6 pm or expand your week and do cases on the weekend. We will assume for this question that your desire is to maximize the sales price and sales terms to you and your partners and to take on a partner that will be a good fit and increase your profits. So all of that is straightforward and an easy concept. The tough part is, when will we know all of this? When we go through this process with a specific client we would conduct in-depth interviews with the owners to get a better understanding of what they want and what they are willing to commit to in order to get there, as well as the due diligence of the center’s business. We would then lead them through SWOT analysis that would help us understand what paths to discuss. Your weaknesses and opportunities in addition to what you are willing to commit to is really what determines the answer to the question. You will then determine from that process if you have the desire to execute on some of the strategies that will take advantage of some of the opportunities that have been identified in order to expand the rapid growth cycle and slowing growth cycle. In the event that you are unwilling or unable to expand the rapid growth stage of your surgery center, it does not have to be a “do it yourself” project, so that would be an ideal time to sell. If we execute the plan that is produced from the above, then the ideal time would be to sell after the changes have been made and the newly recruited surgeons have seasoned a little...