FEATURE


work earnings are not considered to be sustainable into the future whereas in- network earnings are more likely to be sustainable for the long term,” he says.


Future Factors Influencing Value As important as it is to consider cur- rent operations and performance, your ASC's value may also be influenced by future projections and opportunities, as Lindsey Kroenke, RN, administra- tor for St. Joseph Center for Outpa- tient Surgery in St. Joseph, Missouri, found out when her ASC received a valuation in preparation for possibly taking on a hospital partner. “For us, some huge factors driving up our value were a projected increase in total joint volume, increases built into our payer contracts


that were


coming up and contract auto-renew- als we had built in for years to come,” Kroenke says. Most ASCs have growth opportuni-


ties like those that will influence what the center is worth, Vick says. Growth opportunities that increase value include adding specialties, renegotiat- ing contracts, securing contracts that carve out high-priced implants and fill- ing open operating room time. When valuing an ASC, an appraiser also will consider factors that can sup- port or threaten an ASC's long-term viability. “Certain barriers to entry in a market can have an impact on value,” Muller says. For instance, an ASC in a certificate of need (CON) state might benefit if competitors have a difficult time entering the market because of the challenges in procuring a CON, he says. “An ASC with an established brand built over the years can also pos- itively impact value.” As another example, Vick high-


lights the importance of developing a succession plan. “If the physician partners are approaching retirement age and an ASC lacks such a plan, that can have a significant, negative impact on the value or make the ASC unsaleable. On the other hand, if a


ASC's value, Muller says. “There are a variety of ways to accomplish this: increase case complexity, increase case volume by adding new proce- dures or new physicians, achieve an increase in payer reimbursement, find ways to cut expenses or limit annual expense increases.” These efforts also can add diver-


sity to an ASC's revenue sources by increasing the number of physicians, types of cases performed and payer contracts.


“Greater diversity low-


There are many different factors that affect value upward or downward. This includes specifics about the ASC, who the


buyer is and how much of the ASC is being sold. There is no simple formula.”


—Jonathan Vick, ASCs Inc.


few of the doctors are nearing retire- ment and they have recruited new physician partners to come on board, that will add to the value.”


Maximizing Value Even if you are not ready to pursue a transaction, learning what your ASC is worth can provide insight that helps with short- and long-term planning, Kroenke says. “A valuation will help you understand where your facility is at right now and project how your ASC will likely be affected by possi- ble changes, such as bringing on ser- vice lines or renegotiating contracts.” Receiving an appraisal also can


identify where ASCs might want to target improvement efforts. Increasing sustainable cash flow is often the most significant factor that can increase an


ers the risk profile of an ASC. This increases value,” Muller says. Kroenke’s advice to new ASC administrators: If there is a center valuation available, look at it. “There should be a lot of information about your center's current performance and prospects.” If you decide to pursue a sale of


your ASC, understand that the multiple of earnings that determines the value is going to be higher if you sell a con- trolling interest rather than a minor- ity interest, Vick says. In addition, be prepared for buyers to take different approaches to calculating your center's value. Management companies and private equity firms, he says, tend to use a “market approach” to valuation, which leans more heavily on multiples of earnings and growth opportunities. Hospitals, on the other hand, typically use an income or discounted cash flow valuation approach, which discounts future cash flow. Thus, ASC manage- ment companies and private equity firms almost always value an ASC higher than hospitals.


This highlights the importance,


Vick says, of securing multiple bids for your ASC. “Getting bids can have the biggest impact on what your ASC is ultimately worth in a sale. Even if the hospital is your preferred partner for a transaction, you can use higher bids from other potential buyers to show the hospital your ASC's fair mar- ket value. The hospital will usually up its offer as a result.”


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