The following article is written by Kenny Hancock, president and chief development officer for Meridian Surgical Partners.
Here are three things you should expect if you are planning to sell your ambulatory surgery center in today's economy.
1. Out-of-network payments will reduce price. A buyer in today's market will discount the ASC's EBITDA to compensate for out-of-network reimbursement. The higher payments received by the ASC due to receiving a percent of billed charges naturally inflates revenue and cash flow. Buyers will no longer take the risk that out-of-network payments are sustainable into the future and, therefore, will discount those rates to in-network rates. This many times has a significant downward impact on the amount of EBITDA the ASC generates, and since ASCs are typically valued using a multiple of EBITDA less debt, it may have a dramatic impact on valuation. Sellers should be aware of this price reduction and factor that into their decision to sell to a corporate partner.
2. Non-competes are extremely important. A seller should anticipate that a buyer will demand a non-compete radius of 20 miles, in most instances, restricting physicians from investing in a surgery center or hospital that may compete with the ASC partnership. Any attempt to lessen the radius or carve-out physicians from the non-compete will have a negative impact on purchase price and potentially terminate the transaction. In today's environment, buyers will also protect themselves from a hospital employing a physician-partner if that employment arrangement has a directive regarding where surgical cases are to be performed. Physician-partners must anticipate these provisions and factor that into their decisions to sell to a corporate partner.
3. Physician issues should be corrected. Any ASC physician-partnership issues should be corrected prior to entering into a prospective transaction with a buyer. Physicians that plan to leave the ASC or make some other decision that negatively impacts their surgical practice, thus lowering surgical case volumes, should be dealt with prior to engaging a potential buyer. Expect a buyer to discount EBITDA due to retiring partners or other issues that may lower surgical case volume. At the very least, this discovery will lead to a downward adjustment to purchase price in diligence. Prior to selecting a corporate buyer, eliminate any and all surprises that may be discovered in diligence that potentially compromise your transaction.
Learn more about Meridian Surgical Partners.
Read more from Meridian Surgical Partners:
- 5 More Physician Statistics Surgery Centers Should Track and Benchmark
- 10 Successful Techniques for Recruiting Physicians to Your ASC