Published by
Becker's Hospital Review
In markets where favorable managed care contracts are difficult to secure, ASCs have turned to an out-of-network primary billing strategy over the past decade. While an out-of-network strategy may be a lucrative alternative to less preferable contract reimbursement rates for some ASCs, the strategy often presents both buyers and sellers of ASCs with several challenges.
To better understand the market for out-of-network surgery centers, we examined valuation multiples on both the minority and control levels for out-of-network ASCs. We then compared these multiples to in-network ASC multiples over the past five years. For our dataset, we examined the price paid for a surgery center relative to its total earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
Data Process
Over the past five years, VMG Health has valued more than 1,200 ASCs, ranging from single-specialty locations to large, multispecialty surgery centers. In the study, both in-network and out-of-network ASC transactions at both the minority and control levels were examined. The preliminary dataset consisted of both VMG Health’s internal transaction database and publicly disclosed ASC EBITDA multiples. The dataset was first narrowed by quality of data and then further scrubbed to remove outlier transactions. The final dataset included 192 ASC transactions across the country.
After identifying the final dataset, each multiple was categorized by interest type (minority or control) and then by each center’s billing strategy (either in-network or out-of-network). Lastly, each multiple was categorized by year, each year’s multiple was averaged and the EBITDA multiples were valued over time.
Findings and Analysis
Our research resulted in a total of 106 minority-level valuations and 86 control-level valuations from 2007 to 2012. While the database of transactions contained hundreds of in-network valuations, out-of-network transactions were less common, thus limiting the sample size. As the data in Figure 1.2, found in the full article link below, the transaction market for out-of-network ASCs was most active in 2010 and 2011.
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