Becker's ASC Review

16 ASC MANAGEMENT How private equity investment affects ASC value & 4 other key trends By Rachel Popa H ealthCare Appraisers partnered with the Ambulatory Surgery Center As- sociation to develop the HealthCare Appraisers 2019 ASC Valuation Survey, collecting responses from 26 companies representing 1,000 ASCs across the U.S. Five details to know on ASC valuation multiples: 1. Forty percent of respondents said ASC multiples are increasing. One of the major reasons multiples are on the rise is the influx of private equity investment. However, 47 percent of respondents said they haven't observed a change in the multiples from the previous year. 2. ASCs that require a certificate of need oen face more challenges during the con- struction and development phases. When centers in CON states decide to sell, they are oen more valuable than centers in non- CON states. Most survey respondents paid more than a .50 times multiple for an ASC with a certifi- cate of need: - < .50 times multiple: 21 percent - .50 to 1.00 times multiple: 55 percent - 1.01 to 1.50 times multiple: 10 percent - 1.51 to 2.00 times multiple: 10 percent - > 2.00 times multiple: 4 percent 3. Valuation multiples for controlling inter- ests in ASCs are increasing. irty-six per- cent of respondents said over the past year valuation multiples for single-specialty ASCs with controlling interests ranged from 7.0x to 7.9x; another 24 percent report multiples hit 8.0x or more. 4. For multispecialty ASCs, 44 percent of respondents said valuation multiples ranged from 8.0 to 8.9 times, and 12 percent reported observing valuation mul- tiples of 10.0 times or more. 5. ere was a wider range in valuation multiples when buyers took a minority inter- est in both single- and multispecialty ASCs. Most respondents reported multiples for mi- nority interests in the 3.0 to 5.9 times range for multi- and single-specialty ASCs. n Physician group's bankruptcy exit, rebuild involves closing surgery center — 4 details By Angie Stewart U niversity Physician Group — the faculty practice of Detroit-based Wayne State University School of Medicine — had its reorganization and bankruptcy exit plan approved by the U.S. Bankruptcy Court in Detroit, according to Crain's Detroit Business. Four details: 1. UPG filed for chapter 11 bankruptcy protection in No- vember 2018 after discovering that its financial losses were well beyond the projected $5.5 million. UPG's physician numbers dropped by 50 percent in the past decade, hurt- ing revenue and the viability of leased office space. 2. UPG's reorganization and bankruptcy exit plan entails receiving financial assistance from Wayne State. It also involves shutting down a Troy, Mich.-based surgery center, closing clinical practices and downsizing several other sites. 3. Wayne State could end up paying over $16 million to help lift UPG out of bankruptcy. The plan is expected to help UPG earn $3 million in profit by 2022, a drastic turn- around from its 2018 loss of $8.1 million. 4. By the end of the year, UPG intends to shrink its clinical space from 260,000 square feet to 115,000 square feet across seven sites. n The statistics to know about ASC revenue, out-of-network billing strategy & risk By Rachel Popa O ut-of-network strategies can affect ASC value, according to the 2019 ASC Valuation Survey by HealthCare Appraisers. HealthCare Appraisers and the Ambulatory Surgery Center Association collected data from 26 companies, including ASC management companies, investment bankers and business brokers to compile its report. ASC size in net revenue under management: • Less than $5 million: 23 percent • $5 million to $10 million: 57 percent • $10 million to $20 million: 7 percent • Greater than $20 million: 13 percent When it comes to revenue from out-of-network payer volume, 24 percent of respondents said 1 percent to 10 percent of revenue exceeds their risk tolerance, while 34 percent said 11 percent to 20 percent of revenue exceeds risk tolerance. n

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