Becker's ASC Review

26 JOINT VENTURES ASC valuation + common misconceptions about fair market value: 2 key insights By Angie Stewart V MG Health's Taryn Nasr, director, and Savanna Dinkel, senior analyst, spoke to Becker's ASC Review about the ASC valuation process and common misconceptions. Note: Responses were lightly edited for style and clarity. Question: What's the most important thing for ASC leaders to know about the valuation process? Taryn Nasr and Savanna Dinkel: It's impor- tant for ASC leaders to know when and why a valuation might be needed. A valuation might be requested for various reasons, including need for expertise, saving manage- ment time, regulatory considerations, due diligence purposes, purchase price determi- nation and transaction advisory. Most oen, we at VMG are engaged by an ASC or ASC's counsel to perform a Fair Market Value valuation for the purposes of complying with relevant regulatory considerations such as Stark Law and the Anti-Kickback Statute. Whether a major transaction is occurring or a physician is buying in or out of a practice, an FMV opinion is oen required. Additionally, leaders should be aware that more than just a business valuation might be needed for a full FMV opinion. Contracts such as management services arrangements, billing and collection services, and rental agreements must also be at FMV. erefore, if any of these arrangements are with a related or physician-owned party, an FMV opinion will also need to be rendered for these items. Q: What is a common misconception ASC leaders have about valuation? TN & SD: A common misconception that ASC leaders oen have about valuation typi- cally revolves around the meaning and appli- cation of FMV. FMV differs from other types of value such as strategic/synergistic value or investment value. FMV is the price at which the ASC would change hands between a hy- pothetical (not particular) willing buyer and a hypothetical willing and able seller. As a result, FMV does not take into consid- eration any post-transaction synergies such as rate lis or cost savings. During FMV ASC valuations, many ASC leaders are con- fused on why the reimbursement rates were not adjusted to the acquirer's contracted rates or why certain cost efficiencies attribut- able to the acquirer were not considered. Under the regulations related to FMV, buyers cannot pay for the value that they are bring- ing to the table post-transaction. Another common misconception about valuation is the difference between third- party FMV valuations and the buy/sell clauses detailed in most ASC operating agreements. Buy/sell clauses in operating agreements are typically formula-based or multiple-based and rely on backward- looking financial and operational informa- tion, whereas FMV valuations consider all three approaches to value, including market comparisons, asset build-ups and forward-looking cashflow projections. Since FMV valuations utilize forward cashflow projections, FMV valuations are able to account for changes in physician volume, reimbursement trends and other changes in the market space. n Michigan developer plans to establish 15 surgery centers in 1 year, seeks physician investors By Angie Stewart H ealthcare development and management company Hillcrest Capital Partners plans to develop and oper- ate 15 Michigan surgery centers with physician inves- tors by the end of 2020, Crain's Detroit Business reported. Six insights: 1. Hillcrest already manages the Charter Endoscopy Cen- ter in Flint, Mich., which it plans to convert into a multispe- cialty center. 2. So far, Hillcrest has three additional surgery centers planned for Rochester Hills, Royal Oak and Dearborn, all in Michigan. Two — the Spine and Joint Institute of Michigan in Royal Oak and the Insight Surgical Institute of Michi- gan in Dearborn — will be developed in existing centers because of the state's certificate-of-need barriers. 3. Hillcrest aims to partner with spine, orthopedic, pain management and cardiovascular specialists to establish the centers. 4. Anesthesiologist Ricardo Borrego, MD, Hillcrest's co- founder and manager, said the company will offer turnkey operations with expenses, overhead and equipment covered. "We hire staff, do the accounting and manage it," he told Crain's. "[Physician investors] buy shares. It is the only out- of-pocket costs they have. We guarantee return of invest- ment of $20 million to $30 million per project." 5. Hillcrest, which plans to use capital from investors and its own resources, estimates that each surgery center will cost about $14 million to purchase, convert or build. 6. Hillcrest plans to use the same investment strategy as Pinecrest Capital Partners, a company that developed 48 surgery centers in Texas. n

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