Oncology: Private Equity and Corporate Investment in Cancer Care 

February 23, 2024

Written by Jordan Tussy, CVA; Hunter Hamilton; and Vincent Kickirillo, CVA, CFA

Following the emergence of several oncology private equity (PE)–backed platforms in 2018, there has been an uptick of tuck-in acquisition activity in the oncology space, both by these PE-backed entities, as well as by other prominent public and corporate-backed oncology platforms. These platforms have targeted geographic expansion and economies of scale through strategic affiliations with practices and physicians.  

In fact, a Harvard study published in JAMA Internal Medicine indicated that over 700 oncology practices had partnered with or had been acquired by a PE firm from 2003 to 2022. According to the study, this number represented approximately 10% of total oncology practice locations in the US.  

While increased regulatory scrutiny and a more difficult funding environment have hampered overall physician practice transaction activity, several notable platform and tuck-in acquisitions have defined the recent environment for investment in oncology.  

Verdi Oncology

After a quiet couple of years from Pharos Capital Group’s Verdi Oncology, it was announced in November 2023 that the platform’s two practices, Nashville Oncology Associates and Horizon Oncology, had joined The US Oncology Network. Additionally, Verdi Cancer and Research Center of Texas, formed in August 2019, announced its closure in September 2023. With Verdi Oncology having been founded in March 2018 through the initial acquisition of Horizon Oncology, Pharos Capital Group’s assumed exit after nearly six years aligns with typical PE holding period expectations. 


Perhaps most notable among recent transactions in the oncology space was the $2.1 billion acquisition of OneOncology from General Atlantic by TPG and AmerisourceBergen Corporation, which closed in June 2023. TPG will be the majority owner in the new joint venture, as AmerisourceBergen reportedly purchased a minority interest of approximately 35% for around $685 million in cash. TPG also has a one-year put option effective on the third anniversary of the deal closing. If exercised, this option would require Amerisource Bergen to purchase the remaining interest in OneOncology at a price equal to 19.0x the company’s adjusted EBITDA for the most recently ended 12-month period. AmerisourceBergen will also have a call option to purchase the remaining interest at the same price between the third and fifth anniversaries. Applying the 19.0x multiple to the transaction price of $2.1 billion would imply approximately $110 million of EBITDA for OneOncology today.  

General Atlantic originally invested $200 million in OneOncology in September 2018 and held the investment for nearly five years. In that time, OneOncology has expanded considerably in both size and geography. The platform now includes 19 practices across 15 states with just under 1,000 providers. The structure is that of an affiliation model in which OneOncology charges a management fee and introduces partner practices to new ancillaries (e.g., oral pharmacy, laboratory services, radiation therapy) as well as lower drug-purchasing costs. Providers further benefit from a reduction in administrative burden and a resulting increase in clinical autonomy. In addition, OneOncology also has robust data analytics capabilities, which it utilizes to help define better clinical pathways, improve outcomes, and monetize the data.  

Since the announcement of OneOncology’s acquisition by TPG and AmerisourceBergen in April, several additional practice partnerships have been announced, including the affiliation of Coastal Cancer Center and Pacific Cancer Care in May, Mid Florida Cancer Centers in November, and Pacific Cancer Medical Center, Maury Regional Medical Group, and Genesee Cancer and Blood Disease Treatment Centers in December. On January 12, 2024, it was announced that OneOncology had finalized a partnership with Huntsville, Alabama–based Clearview Cancer Institute, which—with 25 medical oncologist providing care across 13 clinics—was identified in the announcement as one of the five largest community oncology practices in the nation and the largest in Alabama. 

Integrated Oncology Network

After its recapitalization by Silver Oak Services Partners in October 2018, Integrated Oncology Network (ION) has continued its geographic expansion and now operates from more than 50 centers across 14 states in the US. Like OneOncology’s model, the independence of partner practices is also maintained under ION’s model, which, in addition to the preservation of clinical autonomy, offers to reduce the regulatory burden and increase access to the enhanced technology and resources of a larger network. ION specifically advertises its fully supported EHR and the immediate access its providers have to accurate data analytics. Most notably, in April 2022, ION announced the acquisition of California Cancer Associates for Research and Excellence (cCARE), an integrated cancer care network that provides medical oncology, radiation oncology, diagnostic imaging, and other ancillary services in the Fresno and San Diego markets. Furthermore, the platform expanded its cCARE operations with the September 2023 acquisition of High Desert Oncology of Victorville, California as well as the December opening of its new clinic in Riverside, California.  


KKR-backed GenesisCare filed for Chapter 11 bankruptcy in June 2023, announcing that its US operations would be spun out from the broader enterprise. At the time of the announcement, David Young, CEO of GenesisCare, said, “The past three years have presented significant operational and financial challenges, requiring a comprehensive restructuring of the operations and balance sheet of the company.” No disruption of patient care was anticipated, and in November 2023, it was reported that GenesisCare had developed a reorganization plan to reduce its debt load by approximately $1.7 billion, down from the $2.0 billion it had at the time of filing. The US segment will continue to operate as a sister company to the businesses in Australia, Spain, and the UK, as the enterprise entertains interest from potential buyers.  

According to bankruptcy filing documents, a number of winning bids for GenesisCare assets across the country have already been announced. Assuming these transactions close at the indicated prices (as defined in the respective purchase agreements), it would imply total cash proceeds of over $100 million.  Furthermore, the sales of these 31 practices have an implied consolidated equity value of approximately $131 million.  

Additionally, it was announced in October 2023 that GenesisCare’s Orange County radiation oncology centers were acquired by UCI Health.  

Oncology Care Partners

New to the scene is Oncology Care Partners (OCP). Backed by Welsh, Carson, Anderson, & Stowe’s healthcare platform, Valtruis, and partnering with oncology and cardiology care management provider Evolent Health, OCP opened its first two practices in Phoenix and Miami in January 2023 with the goal of advancing value-based care, particularly among Medicare Advantage patients. Based on the launch announcement of these first two practices, OCP appears to operate a hybrid model of practice partnership. The launch of its Arizona practice came in partnership with American Oncology Network, while its Miami-based medical group practice appears to have been an outright acquisition. Under both agreements, OCP says it will provide value for payors and at-risk primary care groups through the introduction of a new patient journey and digital tools to allow community providers to spend more time with their patients and reduce barriers to access.  With the launch of its most recent location in Broward County, Florida in October 2023, OCP plans to continue expansion efforts across the country to further accelerate its value-based care initiatives. 

The US Oncology Network

McKesson’s The US Oncology Network (The Network) has also remained active expanding its footprint in California, New Mexico, and Kansas with the 2023 acquisitions of Epic Care, Nexus Health, and Cancer Center of Kansas, respectively. In April 2023, The Network also announced a strategic partnership with Regional Cancer Care Associates, a multispecialty oncology with more than 20 sites of service and over 60 providers throughout the Northeast. As previously mentioned, it was announced in the fourth quarter that Verdi Oncology’s Nashville Oncology Associates and Horizon Oncology had joined The Network as well. Under The Network’s affiliation model, the operational and clinical activities of its partner practices are converted to value-based care through greater focus on the negotiation of value-based contracts for revenue optimization, empowerment of practice transformation with proven solutions, alignment of GPO and payer contracts, and support for all oncology specialties. As of the most recent transactions, The US Oncology Network’s total provider count exceeds 2,400. 

Cancer Treatment Centers of America

Previous stand-alone operator Cancer Treatment Centers of America (CTCA) was acquired by City of Hope in February 2022 for $364.4 million. At the time of its acquisition, the business operated three oncology hospitals located in Atlanta, Chicago, and Phoenix, as well as five outpatient facilities. On the one-year anniversary of the transaction, it was announced that CTCA was officially being re-branded to bear the City of Hope name at its facilities, further cementing the evolution of the organization into a national system. 

American Oncology Network

In April 2023, American Oncology Network (AON) received a $65 million strategic growth investment from AEA Growth Partners “to help further AON’s goals of supporting community practices and improving the patient experience,” according to the Company’s press release. As a result of the investment, AEA Growth gained a minority interest in the business. AON opened Lone Star Oncology in Georgetown, Texas in June and announced the affiliation with Florida Oncology & Hematology in Safety Harbor, Florida in July. AON also ventured into urology through its affiliation with Triple Crown Urology on September 1. As a result of this transaction, AON’s platform now includes over 200 providers across 85 locations in 19 states and the District of Columbia. AON has a partnership model through which affiliated practices enter a management agreement and are charged a central services fee. Synergies realized through a partnership with AON are advertised as new revenue streams through centralized ancillaries, including oral pharmacy, clinical lab, and pathology as well as economies of scale with vendor services and drug pricing. With such revenue enhancements and cost reductions, providers can earn more than they otherwise might have as independent practices. 

Most notable among AON’s recent transaction activity was the closing of a business combination with Digital Transformation Opportunities Corp., a special purpose acquisition company (SPAC), in September 2023. As a result of the transaction, AON began trading on the Nasdaq on September 21, 2023 under the ticker AONC. The transaction had an implied enterprise value of $497 million, with an implied TEV/Revenue multiple of 0.4x and an implied TEV/EBITDA multiple of 13.8x. 

The Oncology Institute

In November 2021, The Oncology Institute (TOI) was acquired by DFP Healthcare Acquisitions Corp., a SPAC, and became the first publicly traded oncology company. At the time of the acquisition, TOI’s pro forma enterprise value was $842 million. Underperforming initial expectations, the company ended 2023 with an enterprise value of approximately $148 million. To address these issues, TOI completed a corporate restructuring in Q2 2023 and has a strategic plan to eliminate cash burn and generate positive adjusted EBITDA by the end of 2024. According to their most recent earnings call, the company also plans to improve margins in legacy markets through expansion in capitated partnerships, radiation oncology, and clinical trials program. As part of this initiative, TOI acquired Southland Radiation Oncology Network in June 2023, which includes five radiation oncology clinics in the Los Angeles market. Despite the operational difficulties, The Oncology Institute remains the largest value-based care oncology operator in terms of lives served and revenue under value-based arrangement. To advance these efforts, The Oncology Institute acquires and employs the providers of its partner practices. The synergies it promotes include access to clinical trials, transfusions, and additional care delivery models more typically associated with the most advanced care delivery organizations.  


Burdened with reimbursement headwinds and rising costs, it is anticipated that oncologists will continue to seek out strategic affiliations. Platforms such as OneOncology and The US Oncology Network offer an attractive alternative that allows physicians to maintain their independence while receiving the infrastructure and growth support of a large entity.   

Furthermore, the long-term performance of major players in the oncology value-based care space remains to be seen, as does The Oncology Institute’s ability to achieve on its path to profitability in 2024.  

Lastly, with the acquisition of OneOncology, ION is one of the last pureplay, PE-backed oncology platforms that has yet to recapitalize. Given Silver Oak Services Partners has held onto this investment for over five years now, it would not be surprising if there was a recapitalization of this platform within the next couple of years.  


Silver Oak Services Partners LLC. (2023). Integrated Oncology Network acquires California Cancer Associates for research & excellence. PR Newswire. https://www.prnewswire.com/news-releases/integrated-oncology-network-acquires-california-cancer-associates-for-research–excellence-301530782.html 

Integrated Oncology Network. (2023). Integrated Oncology Network announces High Desert Oncology joins cCare. PR Newswire. https://www.prnewswire.com/news-releases/integrated-oncology-network-announces-high-desert-oncology-joins-ccare-301933873.html 

Integrated Oncology Network. (2023). Integrated Oncology Network announces cCare expansion with specialty clinic in Riverside, California. PR Newswire. https://www.prnewswire.com/news-releases/integrated-oncology-network-announces-ccare-expansion-with-specialty-clinic-in-riverside-california-302009492.html 

Sebastian, D. (2023). KKR-Backed Radiotherapy Group GenesisCare Files for Bankruptcy. Wall Street Journal. https://www.wsj.com/livecoverage/stock-market-today-dow-jones-06-01-2023/card/kkr-backed-radiotherapy-group-genesiscare-files-for-bankruptcy-LIVUzBoTLS8Z2Z8qPcP9 

GenesisCare. (2023). GenesisCare’s Plan of Reorganization Confirmed by Bankruptcy Court with Overwhelming Support from Voting Creditors. GenesisCare Newsroom. https://www.genesiscare.com/us/news/genesiscares-reorganisation-plan-confirmed-with-overwhelming-support-from-voting-creditors 

UCI Health. (2023). UCI Health purchases GenesisCare radiation oncology centers. UCI Health News. https://www.ucihealth.org/news/2023/10/fountain-valley-radiation-oncology#:~:text=Acquisition%20expands%20access%20to%20world,cancer%20care%20in%20Orange%20County&text=Orange%2C%20Calif.,filed%20for%20Chapter%2011%20bankruptcy

American Shared Hospital Services. (2023). American Shared Hospital Services Enters Into Agreement to Acquire 60% Majority Interest in Three Radiation Therapy Cancer Centers in Rhode Island. GlobeNewsWire. https://www.globenewswire.com/news-release/2023/11/20/2783147/0/en/American-Shared-Hospital-Services-Enters-Into-Agreement-to-Acquire-60-Majority-Interest-in-Three-Radiation-Therapy-Cancer-Centers-in-Rhode-Island.html 

United States Securities and Exchange Commission. (2023). Form 8-K for American Shared Hospital Services. https://app.quotemedia.com/data/downloadFiling?webmasterId=101803&ref=317881267&type=PDF&symbol=AMS&cdn=1833bea1c9c3490a4573fbbc20a1fc5e&companyName=American+Shared+Hospital+Services&formType=8-K&formDescription=Current+report+pursuant+to+Section+13+or+15%28d%29&dateFiled=2023-11-21 

Oncology Care Partners. (2023). Oncology Care Partners Launches First Three Locations, Bringing Patient Experience Focus to Cancer Care in Phoenix, Miami. PR Newswire. https://www.prnewswire.com/news-releases/oncology-care-partners-launches-first-three-locations-bringing-patient-experience-focus-to-cancer-care-in-phoenix-miami-301724825.html 

Oncology Care Partners. (2023). Oncology Care Partners Launches Broward Location Expanding Value-Based Cancer Care in South Florida. PR Newswire. https://www.prnewswire.com/news-releases/oncology-care-partners-launches-broward-location-expanding-value-based-cancer-care-in-south-florida-301947441.html 

American Oncology Network. (2023). American Oncology Network, a Rapidly Growing Network of Community-Based Oncology Practices, Receives Strategic Investment from AEA Growth. American Oncology Network News. https://www.aoncology.com/2023/04/28/american-oncology-network-receives-strategic-investment-from-aea-growth/ 

Categories: Uncategorized

How Post-Transaction Physician Compensation Structure Affects Fair Market Value of Physician Practices 

February 22, 2024

Written by Dylan Alexander, CVA and Gerrit Elzinga, CVA

As of January 2024, Definitive Healthcare reports that there are over 338,000 physician group practices in the United States. In an independent physician practice, shareholder physicians typically take home all earnings of their business and have discretionary expenses. The compensation package of the shareholder physicians negotiated during a transaction often differs from the compensation structure of the practice pre-transaction and should be taken into consideration in the valuation of a physician practice. An inverse relationship often exists between physician compensation and the valuation of independent physician groups. This means that higher post-transaction physician compensation results in less available earnings for the practice owners to sell, ultimately leading to a lower valuation for the physician practice. Post-transaction physician compensation structure plays a significant role in the value of physician practices.  

There are many forms of physician compensation. Here are a few of the most common types:  

  • Salaries: base salary, year-end/productivity bonuses, and guaranteed payments  
  • Benefits and Payroll Taxes: medical insurance, PTO balances, payroll taxes, 401(k) match, HSA, FSA, and life insurance  
  • Discretionary Expenses: car allowances, cell phones expenses, and travel and entertainment expenses  
  • Other Compensation: profit sharing, cash balance plans, medical directorships, and distributions  

Physician compensation levels vary from practice to practice. As previously mentioned, shareholder physicians typically take home all practice earnings; therefore, the post-transaction compensation structure will determine whether the subject practice has earnings or compensation to monetize in a transaction. Numerous factors determine whether physicians have compensation available to sell. Productivity and reimbursement are the main components for driving fee-for-service revenue at a physician practice. Practices with productive physicians, favorable reimbursement, and ancillary service offerings generate higher revenue, which results in increased profitability. Furthermore, practices that effectively leverage mid-level providers tend to have greater profitability than those that do not, as mid-level providers deliver many of the same services at a fraction of the cost. Expense management is key; a practice overburdened with operating expenses will be less profitable. For certain practices, historical physician compensation and its attributes may not leave meaningful earnings to sell.  

Impact on Valuation Methods

Physician practices are most often valued utilizing three methodologies: income approach, cost approach, and market approach. The income approach considers the future earning potential of a physician practice and discounts the projected cash flows back to its present value. The value of a physician practice is sensitive to the total amount of physician compensation and how that compensation is structured. The greater the physician compensation, the lower the projected free cash flows will be. Ultimately, a high level of post-transaction physician compensation results in a lower valuation for the practice. Conversely, lower levels of post-transaction physician compensation create increased projected free cashflows. However, total compensation should be consistent with market levels. If the compensation structure is below market, there are sustainability risks associated with retaining and recruiting new physicians after the transaction. Setting physician compensation in line with the market for physicians with similar productivity can mitigate these risks.  

The market approach compares an individual practice to similar physician practice transactions in the market through the application of an earnings multiple. Practice transactions often use the application of earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples. It is important to note that EBITDA is calculated after taking into consideration the post-transaction structure for all providers. The multiple is determined based on a review of similar transactions in the marketplace, attributes specific to the practice, market factors, and on perceived risk of practice profitability amongst other factors. As illustrated below, physician compensation impacts the market approach similarly to the income approach—the greater the physician compensation, the lower the earnings for which to apply an earnings multiple. 

If too much physician compensation is sold, the market multiple may need to decrease to account for physician sustainability risk. Low levels of physician compensation in relation to productivity can lead to physician attrition.  

The cost approach is an asset-based approach that analyzes an entity’s tangible and identifiable intangible assets. A level of post-transaction physician compensation that is consistent with the historical amounts or higher may eliminate positive future cash flows, causing the practice to be valued based on its assets versus earnings. It is not uncommon for practices to be valued using the cost approach due to the lack of attributes enabling them to monetize compensation while being consistent with market levels of compensation post-transaction.  


Physician practices have the unique freedom to determine the services they provide, who provides those services, and how physicians can be compensated. There are multiple factors that determine the profitability of a physician practice, which directly impacts physician compensation. The amount of compensation and the way it is structured can have material impacts on the value of a practice, regardless of valuation approach. It is imperative to understand the link between post-transaction physician compensation and the fair market value of a physician practice for both buyers and sellers.  


Definitive Healthcare. (2024). Number of physician group practices by state. Healthcare Insights. https://www.definitivehc.com/resources/healthcare-insights/number-physician-group-practices-by-state#:~:text=According%20to%20our%20database%2C%20there,them%20access%20to%20more%20patients

Kelleher, S. (2023). Understanding Physician Compensation Models. Health eCareers. https://www.healthecareers.com/career-resources/residents-and-fellows/understanding-physician-compensation

PayrHealth. (2022). Ancillary Services in Healthcare: Finding the Right Level for Your Practice. Managed Care Contracting Blog. https://payrhealth.com/resources/blog/list-of-ancillary-services-in-healthcare/

Categories: Uncategorized

Financial Due Diligence in Healthcare Transactions 

February 19, 2024

Written by Colin Haslett and Grayson Terrell, CPA

Healthcare transactions are known for their complex nature, given their rigorous regulatory compliance requirements, diverse revenue streams, intricate insurance and reimbursement policies, and significant capital requirements. Like a medical examination, financial due diligence evaluates the vital signs of a healthcare business, providing a comprehensive assessment of its financial health. By identifying potential financial risks and validating the company’s underlying valuation, due diligence helps to diagnose the current state of the business and predict its future health. No matter the size of the healthcare transaction, financial due diligence is a necessary element in the process. It provides valuable insights into the buy-side and sell-side, ensuring all parties clearly understand the financial aspects of the deal. 

One important aspect of financial due diligence in healthcare transactions is the quality of earnings process, which focuses on adjusting or normalizing EBITDA. This process involves adjusting or removing the impact of any non-recurring or one-time items from EBITDA, providing a more accurate picture of the company’s true cashflows. Throughout this process, key facts about the company that could impact the company’s EBITDA may arise, highlighting the importance of thorough financial due diligence relative to the healthcare transaction. During the quality of earnings process, it is important to carefully examine the impact of various factors on EBITDA. Some potential examples include: 

  • Changes in reimbursement rates with payors 
  • Gain/loss of providers 
  • New and discontinued service lines 
  • Shareholder and employee personal expenses existing within the reported financial statements 
  • Cash-to-accrual conversion of revenues and expenses 

In addition to examining the impact of adjustments to EBITDA, the letter of intent (LOI) will include language outlining that the proposed transaction will be completed on a cash-free, debt-free basis. As such, another focus of due diligence is identifying the debt and debt-like items within the company’s financials. These items may include deferred revenues and compensation, outstanding legal proceedings and exposures, and accrued interest. Sometimes, these items are not included in a company’s financial statements, especially if they are on a cash-basis or are off-balance sheet. Furthermore, the LOI will state a normalized level of net working capital (NWC), agreed upon by the buyer and seller, needed to run the business post-transaction. Diligence procedures will often include an NWC analysis that ensures the buyer or seller is not allowing the targeted NWC to be set too high or low, which can be costly if the target levels are not met.  

In conclusion, financial due diligence is not just a check-the-box exercise, but a critical process that mitigates risk and safeguards the likelihood of success for the transaction. Therefore, it’s an investment worth making. Adjustments to EBITDA made during the diligence process can often pay for the cost of diligence itself when the multiple of the transaction is considered. Neglecting to perform financial due diligence can have serious repercussions. Without a thorough understanding of the involved entity’s financial health, companies may overlook hidden liabilities, overestimate current and future earnings of the company, or underestimate the costs associated with integration. 

Categories: Uncategorized

Sitting Down with Our Industry Experts: Sydney Richards

February 14, 2024

At VMG Health, we’re dedicated to sharing our knowledge. Our experts present at in-person conferences and virtual webinars to bring you the latest compliance, strategy, and transaction insight. Sit down with our in-house experts in this blog series, where we unpack the five key takeaways from our latest speaking engagements.

1. Can you provide a high-level overview of what you spoke about at AHLA’s webinar, “University Brand Value and Health Care Transactions”?

My portion of the presentation was about the valuation of academic healthcare brands. I talked through different valuation methodologies, which are the income cost and market approach, by discussing the specifics related to brand valuation. Additionally, I spoke about the key things to consider in a brand valuation or in a transaction involving a brand, like how to structure the payment—whether it’s through a variable or fixed license rate—and some of the pros and cons to different affiliation structures.

2. What do you think the audience was the most surprised to learn from your presentation?

In academic brand valuations, the owners of the academic brands tend to think their brand is extremely valuable. However, from an actual fair market value transaction perspective, the value of that brand is based on the licensee’s return, even if the brand is powerful and may drive allocations higher. If the licensee can’t make a monetary return on it, there won’t be a huge value that they have to pay. Otherwise, they’d be negative.

3. How do you think your presentation helped healthcare leaders better prepare for challenges? 

Leaders can look for opportunities with this knowledge. Brands are not a common part of a joint venture arrangement. Adding a health system’s brand to a joint venture may result in an additional return or credit for something that the system is contributing to the joint venture. Historically, leaders may not have valued brands, but they can.

4. What resources would you suggest for those interested in learning more? 

The blog, Healthcare Brand Valuation: Purpose, Strategy, and FMV Implications, is a great supplemental resource for those looking to learn more about incorporating brand in healthcare transactions. Additionally, another article is coming to the VMG Health website soon, and it will focus on brand valuation. Watch our site for that upcoming content.  

5. If someone takes only one message from your presentation, what would you want it to be?  

Brands can and should be considered, and possibly included, in healthcare transactions.

Our team serves as the single source for your valuation, strategic, and compliance needs.  If you would like to learn more about VMG Health, get in touch with our experts, subscribe to our newsletter, and follow us on LinkedIn.  

Categories: Uncategorized

ASCs in 2023: A Year in Review

February 13, 2024

Written by Ryan Mendez, Jack Hawkins, and Colin Park, CPA/ABV, ASA

The following article was published bBecker’s ASC Review.

The ambulatory surgery center (ASC) sector continued to evolve in 2023, reflecting a trend of steady growth, higher-acuity cases, and some changing regulations. 2023 featured continued consolidation through a combination of investment by prominent ASC platforms and acquisitions made by new entrants in the market.

Higher acuity cases continued to decant to the outpatient setting, and with the Centers for Medicare & Medicaid Services (CMS) moving total shoulder arthroplasty to the ASC Covered Procedures List, we expect this shift to continue. In addition to these trends, 2023 saw significant changes in the regulatory landscape, particularly with the liberalization of Certificates of Need (CON) requirements for certain states. The changing of CON regulations is poised to further accelerate the development opportunities of ASCs, enhancing their ability to meet the increasing demand for outpatient surgical care. 2023 continued to solidify the ASC’s role as a dynamic force in healthcare, poised to meet the surging demand for efficient, accessible surgery.

Ambulatory Surgery Center Market Overview

As of December 31, 2023, the largest operators (in terms of number of ASCs) are United Surgical Partners International (USPI), Envision Healthcare/Amsurg Corporation, and Surgical Care Affiliates (SCA), with ownership in approximately 476, 320, and 250 ASCs respectively. As noted in the chart below, the number of total centers under partnership by a national operator saw an increase from 2011 to 2023, growing from approximately 1,339 centers to 1,941 centers, which represents a compound annual growth rate of 3.14%. Additionally, the top five management companies have increased the number of centers under management by approximately 578 centers since 2011, which represents a compound annual growth rate of 4.85%. As management companies have increased in size, they can increasingly provide a greater level of strategic value by bringing greater leverage with commercial payors, enhanced management and reporting capabilities, and improved efficiency related to staffing, supplies procurement, and other general and administrative expenses.

Market Dynamics

Public companies in the ASC market such as HCA Healthcare (HCA), Tenet Healthcare (THC), Surgery Partners (SGRY), and Medical Facilities Corporation (DR) offer insights into the ASC industry’s trends, challenges, and transaction data. These firms’ valuation multiples, illustrated in the figure below, serve as indicators of market valuation that are key to understanding the broader trends within the sector. Considering these multiples requires a nuanced approach, especially since larger organizations like HCA and THC have diversified operations beyond ASCs, which affect their market valuation and risk profiles. For example, HCA manages a large number of hospitals within its extensive healthcare services network, and THC’s ASC management platform, USPI, significantly impacts its profitability despite THC also operating numerous hospitals. To gain a comprehensive understanding of the ASC industry, it is beneficial to examine the detailed financial disclosures of these public companies. These include investor presentations and SEC filings, which offer a deeper insight into their performance and prospects than valuation multiples alone can provide.

For those interested in exploring the ASC industry further, including obtaining benchmarking information and analysis of ASCs across the United States, VMG Health’s Intellimarker is a valuable resource. The Intellimarker is an advanced, multi-specialty ASC benchmarking tool designed to facilitate a better understanding of ASCs’ relative financial and operational performance. Additionally, VMG Health’s Pulse on The Public Market provides coverage of various healthcare verticals in addition to the ASC sector.

Surgery Partners

In Q3 2023, Surgery Partners showcased a solid performance in the ASC sector, with surgical cases rising nearly 6% year –over year to over 172,000, after adjusting for divested facilities. This growth was driven by an emphasis on higher acuity cases and strategic acquisitions, as noted by Executive Chairman Wayne DeVeydt, culminating in $674.1 million in net revenue and $105.5 million in adjusted EBITDA for the quarter. The company experienced an uptick in total joint replacements, which increased by approximately 60% year –to date, supported by the recruitment of nearly 500 new physicians who specialize in musculoskeletal procedures into their centers. Despite facing challenges like anesthesia coverage and cost pressures, CEO Eric Evans is optimistic about the company’s long-term prospects, underlining its strategic focus on complex, higher-margin surgeries. Surgery Partners’ strategic acquisitions throughout the year have both bolstered its competitive position and broadened its geographical footprint and specialty mix, reinforcing its standing in high-growth markets and specialties.

Tenet Healthcare: United Surgical Partners International (USPI)

During Tenet Healthcare’s Q3 2023 earnings call, the company highlighted its strong performance in ASC operations by its subsidiary, USPI. The ASC arm of THC reported a robust quarter with $370 million in adjusted EBITDA, a 16% increase from the same period in 2022, driven by a 7.9% rise in same-facility revenues and sustained margins. The subsidiary experienced notable volume growth in high-acuity service lines, including a mid-teens increase in total joint replacements, attributed to attracting high-quality physicians and leveraging increased patient demand for ambulatory surgery care. Additionally, THC expanded its ASC portfolio in Q3 by adding six new centers focused on higher-acuity orthopedic services in states like Nevada, Maryland, Texas, and Florida, featuring top musculoskeletal specialists. According to CEO Saum Sutaria, USPI’s aggressive expansion strategy includes over 30 centers in development, emphasizing high-value, specialized healthcare services. This expansion, part of a broader effort to advance site of service value-based care, aims to position USPI for sustained growth and profitability by tapping into high-growth, high-margin healthcare services and meeting patient demand for specialized ambulatory care.

In Q4 2023, HCA Healthcare reported a robust performance, with CEO Sam Hazen highlighting the strong demand across service lines and the improved operational efficiencies that led to a significant revenue increase to $17.3 billion. This performance, which surpassed expectations, was supported by a near 14% increase in adjusted EBITDA compared to the same quarter last year. This growth was driven by an 11% increase in same-facility revenue and improvements in operating margins, highlighting HCA’s ability to leverage increased revenue effectively. CFO Rutherford identified HCA’s ambulatory surgery division contributions to this success, demonstrating the company’s strategic focus on expanding its high-acuity service offerings and enhancing patient care through strategic acquisitions and network expansion.

Medical Facilities Corporation

During the 2023 Q3 earnings call, Medical Facilities Corporation demonstrated a strong financial performance, driven by strategic divestitures and a concentrated effort on core operations, resulting in a 7.4% rise in facility service revenue to $104.6 million. The executives highlighted significant operational improvements, including a 13.7% increase in EBITDA, attributed to enhanced efficiency and cost-saving strategies. Interim President Jason Redman noted that the increased performance was largely due to case mix, but that surgical case volumes also increased by 1%. Medical Facilities Corporation saw three of their surgical hospitals recognized for excellence in joint replacement, emphasizing the strategic shift towards managing higher-acuity cases in outpatient settings.

The trend of shifting higher-acuity procedures from inpatient or Hospital Outpatient Department (HOPD) settings to ASCs continued to grow throughout 2023. Specialties like cardiology, orthopedics, and advanced spine procedures increasingly marked their presence in ASCs. Throughout the year, many ASCs doubled down on their high-acuity procedures to drive revenue growth. Annu Navani, founder of Comprehensive Spine & Sports Center in Campbell, CA, elaborated: “The growth in orthopedics, spine and pain has been steady and will remain so. These are safe specialties, as the need is always there and will continue to thrive…” It is more than just a concept, as Surgery Partners CFO, David Doherty, provided some insight into how higher-acuity cases have spurred growth during the company’s Q3 earnings call. Doherty noted, “On a same-facility basis, total revenue increased 14.2% in the third quarter, with case growth at 2.9%. Net revenue per case was 11.0%, higher than last year, primarily driven by higher-acuity procedures.” This continued shift towards higher-acuity procedures being performed in ASCs is a clear indicator of the sector’s adaptation and growth, meeting the evolving demands of healthcare while offering efficient and cost-effective solutions for complex medical needs.

In 2023, ASC operators focused on both organic growth within their existing high-acuity specialties and actively pursued M&A opportunities as a key strategy to expand their footprint. During Surgery Partner’s Q1 earnings call, CEO Eric Evans noted that, “With an increase in the share of orthopedic and cardiac procedures moving into lower-cost, high-quality, short-stay surgical facilities, we are considering all options to capture our fair share, including sourcing and managing a robust M&A pipeline…”

Similarly, during THC’s Q3 earnings call, CEO Saum Sutaria, reiterated that THC is committed to scaling their ASC portfolio: “During the quarter, we added six new centers, the majority of which were focused on higher-acuity orthopedic services.” These developments illustrate the sector’s dynamic response to changing healthcare demands, positioning it for sustained growth and wider service reach as more high-acuity cases continue to shift to the ASC setting.


CMS noted in its fact sheet that, “in addition to finalizing payment rates, this year’s rule includes policies that align with several key goals of the Biden-Harris Administration, including promoting health equity, expanding access to behavioral health care, improving transparency in the health system, and promoting safe, effective, and patient-centered care. The final rule advances the Agency’s commitment to strengthening Medicare. It uses the lessons learned from the COVID-19 PHE to inform the approach to quality measurement, focusing on changes that will help address health inequities.”

CMS finalized the addition of 37 surgical procedures to be added to the ASC CPL for CY 2024, outlined in the table below. These include 26 dental codes that were included in the proposed rule, and 11 surgical codes that were not included in the proposed rule—most notably total shoulder arthroplasty. These codes correspond to procedures that have little to no inpatient admissions and are widely performed in outpatient settings.

“We thank CMS for heeding our request to move additional surgical procedures—including total shoulder arthroplasty—onto the ASC payable list. Doing so benefits both Medicare beneficiaries, who now have a lower-cost choice for the care they need, and the Medicare program itself, which will save millions of dollars as volume moves to the high-quality surgery center site of service.” – Bill Prentice, Chief Executive Officer, ASCA

On November 1, 2022, the Medicare reimbursement fee schedule for ASCs in 2023 was finalized by CMS. Consistent with previous years, For CYs 2019 through 2023, CMS will update the ASC payment system using the hospital market basket update, rather than the Consumer Price Index for All Urban Consumers (CPI-U). CMS published the 2022 ASC payment final rule, which resulted in overall expected growth in payments equal to 3.8% in CY 2022. This increase is determined based on a hospital market basket percentage increase of 4.1% less the multifactor productivity (MFP) reduction of 0.3% mandated by the ACA. The 3.8% growth in payments represented the largest increase in projected payments year over year and was a direct result of the increase in labor, supplies, and other cost pressures seen over the last year.

Moreover, CMS released the ASC payment final rule for CY 2024 on November 2, 2023, resulting in overall expected growth in payments equal to 3.1% in CY 2023. This increase is determined based on a projected inflation rate of 3.3% less the MFP reduction of 0.2% mandated by the ACA. This is an increase of 0.3% from the proposed rule. Many healthcare industry leaders think the recent payment hike is too small given the intense cost pressures on hospitals and ASCs. How ASCs manage in today’s changing economic climate will be closely watched in the coming years

The chart below presents a summary of the historical net inflation adjustments for CY 2015 through CY 2024. The annual inflation adjustments are presented net of additional adjustments, such as the MFP reduction, outlined in the final rule for the respective CY. The CY 2024 inflation adjustment is slightly lower than the increase observed last year, although it continues to be elevated compared to the adjustments observed prior to 2023 largely driven by labor and supply cost pressures.

The table below reflects a summary of the estimated Medicare ASC payments for 2023 and 2024 for the top 10 CPT codes performed in ASCs in 2023. As noted below, the estimated 2024 payments by Medicare for the top 10 CPT codes from 2023 are projected to remain relatively flat overall, though there are some notable changes at the individual CPT level, including large decreases to three spinal/neuro stimulator codes.

CMS has projected total ASC payments in 2024 to increase to approximately $7.1 billion, an increase of approximately $207 million compared to estimated CY 2023 Medicare payments.

In 2023, we saw the continued consolidation of the ASC market with individual transactions by prominent, large-level ASC platform players and M&A activity at the lower-middle-market level with a newly founded, private equity (PE) backed ASC development management company acquiring two centers to begin its platform. Although the industry continues to consolidate, as of 2023, approximately 68% of ASC facilities remain independent, leaving room for further consolidation at the individual-facility level.

The ASC market has seen a continued trend of intentional PE activity with interest in ASCs in recent years, most often tied to related physician practice portfolio companies. Driven by favorable tailwinds, this type of investment in ASCs allows PE investors to capture additional revenue streams related to their physician practice investments. PE interest in an ASC strategy outside of a physician practice portfolio company has also increased recently. Based on data from PitchBook’s Q3 2023 Healthcare Services Report, the ASC industry saw six trackable PE deals through September 30, 2022. These deals were mostly add-on investments, with one deal being a growth investment. PE total deal activity in the ASC space has remained fairly consistent over the last five years, though 2023 notably marks the first time since 2020 when no platform PE deals were tracked through PitchBook’s report. However, October 2023 saw the announcement of a PE-backed ASC platform.

In October 2023, a newly founded, multispecialty ASC development and management company, SurgNet Health Partners, Inc. (SurgNet), announced the acquisition of two ASCs in Michigan and Ohio. SurgNet is newly backed by Fulcrum Equity Partners, Leavitt Equity Partners, and Harpeth Capital. A $50 million equity check was syndicated to launch the platform, and presumably, additional investments will follow to support further investments. SurgNet, together with its equity partners, is expected to rapidly expand in the outpatient surgery market through aggressive growth strategies, including acquisitions, de novo ventures, and effective center management.

On February 9, 2023, United Musculoskeletal Partners (UMP) partnered with two orthopedic practices based in Dallas-Fort Worth. All-Star Orthopaedics, with four clinic locations, and OrthoTexas Physicians and Surgeons, PLLC, operating five clinics and one surgery center, were both acquired by the UMP platform. In August, UMP expanded this partnership by acquiring an ortho-focused surgery center, Pinnacle Orthopaedics, in an add-on LBO transaction.

In May 2023, The Office of Health Strategy (OHS) approved two settlement agreements allowing Hartford HealthCare (HHC) to acquire two outpatient surgical centers in Connecticut. On May 12, 2023, Surgery Center of Fairfield County, a subsidiary of HCA Health, was acquired by HHC, for an undisclosed amount. Further, in October 2023, HHC acquired Lichfield Hills Surgery Center, also for an undisclosed amount.

Covenant Physician Partners expanded its ASC footprint with the merger of its St. Vincent Eye Surgery Center and Wilshire Center for Ambulatory Surgery, adding an additional facility for surgeries.

On September 18, 2023, Unifeye Vision Partners (UVP), a management and support services company with an ophthalmology and optometry practice network including 13 ASCs, announced the acquisition of Insight Vision Group, a comprehensive eyecare platform in California. Insight Vision Group is made up of 10 clinics and two multi-specialty ASCs. UVP was active in the M&A space earlier in the year, acquiring Premier Surgery Center of Santa Maria, through an LBO for an undisclosed amount.

Surgery Partners further expanded its reach in September 2023, with the announcement of the acquisition and partnership with NorCal Orthopedic Surgery Center in San Ramon, CA. The center, an out-of-network ASC originally comprised of nine separate operating entities along with 25 physician partners, was advised by Merrit Healthcare Advisors in structuring the merger of the nine entities into one ASC to then be sold to Surgery Partners.

TriasMD, the parent company of DISC Surgery Centers and another musculoskeletal management company, declared its acquisition of Pinnacle Surgery Center in October 2023. This strategic move extends DISC’s data- and evidence-driven ASC model into Northern California, marking the second acquisition within the past six months. TriasMD previously acquired Gateway Surgery Center in Santa Clarita in February.

In November 2023, Regent Surgical Health acquired majority ownership in Oregon Surgical Institute (OSI), expanding a joint venture partnership that started in 2016. Notably, OSI was the northwest US’ first ASC to focus on complex spinal and total joint replacement cases. Regent COO Jeff Andrews said, “Our evolved partnership was made possible by the trust OSI’s leadership team has placed in us, and this will bolster both value and access by strengthening OSI’s position as a home for the growing list of procedures being delivered through ambulatory surgical centers nationally.” This development highlights the continued emphasis on pushing more complex cases to the outpatient setting through health system joint venture partnerships.

In 2023, the landscape of Certificates of Need (CONs) for ASCs underwent notable changes. South Carolina led the way with significant reform, eliminating CON requirements for most health facilities, including ASCs. North Carolina amended its CON law, reflecting a trend toward liberalizing these regulations. North Carolina’s modifications to its CON law specifically targeted easing the process for ASCs and certain medical facilities by adjusting the threshold for review. By raising the financial thresholds for mandatory review, ASCs can undertake significant investments in innovative technologies, expansions, or renovations without the need for a lengthy CON application and review process. The complete repeal of ASC CONs in North Carolina is expected in the coming years. In parallel, Mississippi and Georgia engaged in legislative actions to reevaluate their CON laws as well. Mississippi put forward a provision that would allow Hospitals to establish single-specialty ASCs without the requirement of a CON. Georgia proposed a bill that would eliminate CON requirement for hospitals and establish a unique healthcare service licensure process. With a potential domino effect that could sweep through many states, these regulation changes are important to keep an eye on in the coming years. The relaxation of CON laws may foster growth in the ASC sector with new center development, with more states likely to follow suit in the future, potentially leading to increased access to ASC services and further transformations in healthcare delivery and facility expansion.

The ASC sector experienced significant growth in 2023, driven by factors like industry consolidation, continued shift of care to outpatient settings, and new revelations in the regulatory environments. Key players expanded their operations, reflecting an overall increase in the number of centers managed by national operators. Higher-acuity cases continue the shift into outpatient settings as more procedures are added to the ASC Covered Procedures List. CMS’ policies and reimbursement rates played a crucial role in shaping the sector alongside the evolving landscape of CON regulations. Overall, the ASC market in 2023 demonstrated resilience and adaptability, positioning itself for continued growth and a more significant role in healthcare delivery.

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VMG Health Q&A: Sitting Down with Our Industry Experts

February 7, 2024

Pam D’Apuzzo

At VMG Health, we’re dedicated to sharing our knowledge. Our experts present at in-person conferences and virtual webinars to bring you the latest compliance, strategy, and transaction insight. Sit down with our in-house experts in this blog series, where we unpack the five key takeaways from our latest speaking engagements.

1. Can you provide a high-level overview of what you spoke about at the FMHA/NEHIA Compliance & Internal Audit Conference?

I spoke about the 2024 regulatory changes from the Centers for Medicare & Medicaid Services (CMS) as well as the American Medical Association (AMA) CPT changes. These changes are important to stay up to date on to avoid audits and noncompliance.

2. What do you think the audience was the most surprised to learn from your presentation?

For telehealth, the relaxations of those regulations and what’s permissible post-pandemic may be surprising. For example, Federally Qualified Health Centers can serve as distant site providers for behavioral health telemedicine services; Medicare patients can receive their behavioral health care through telehealth in their homes; behavioral and mental health services can be received through audio-only platforms.

For evaluation and management (E&M) services, the CMS and AMA shared/split E&M guidelines may be surprising to providers. In 2024, AMA redefined “substantive portion” and CMS adopted the CPT definition. Organizations should educate providers on these changes and establish ongoing monitoring and auditing of shared/split services to ensure compliance with revised guidelines.

3. How do you think your presentation helped healthcare leaders better prepare for challenges? 

The most impactful way for leaders to prepare is by concentrating on upcoming audit risks and identifying areas for improvement through internal audits.

4. What resources would you suggest for those interested in learning more? 

To really ensure your practice is billing and coding correctly, using technology can remove some of that heavy lifting from your staff. VMG Health’s Compliance Risk Analyzer (CRA) is a suite of tools that analyzes every insurance claim your practice submits. The CRA identifies high-risk providers, services, and procedures. The solution provides your practice with a risk-based audit workflow that is easy to access and understand, allowing you to focus on patient care rather than audits and recoupment demands.

5. If someone takes only one message from your presentation, what would you want it to be?  

Monitor, monitor, monitor. All regulatory changes lead to greater audit risk when people don’t pay close attention to every requirement of those changes. Implement regular monitoring of coding and billing practices to mitigate risk and enhance revenue integrity for your organization.

Our team serves as the single source for your valuation, strategic, and compliance needs.  If you would like to learn more about VMG Health, get in touch with our experts, subscribe to our newsletter, and follow us on LinkedIn.  

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Up and Up and Up: Accounting for Supply Cost Inflation in Due Diligence

January 16, 2024

Written by Johnny Zizzi, CPA, and Melissa Hoelting, CPA

In the dynamic world of healthcare mergers and acquisitions (M&A), decision-makers need to understand the intricacies of historical spend normalization and cash-to-accrual conversions for accurate financial analysis. One often underestimates the impact, but a critical factor in this process centers on accounting for supply cost inflation. As companies enter into transactions, they must consider how fluctuations in supply costs impact historical financial data and, subsequently, their future financial outlook. In an era of high inflation, financial due diligence takes on a new level of complexity and significance for businesses and investors alike. The impact of soaring prices and rapidly changing economic conditions can significantly affect the accuracy of financial assessments, making it imperative for financial professionals to adopt unique strategies and considerations in their due diligence processes.

Inflation-Adjusted Financial Analysis

In high inflationary periods, traditional financial metrics may lose their relevance. Businesses should prioritize inflation-adjusted financial analysis to obtain a more accurate picture of a company’s performance. Historically, healthcare inflation has outpaced overall inflation. Medical and surgical supply costs have steadily increased over time. From 2017 to 2021, average medical surgical supply costs increased by 6.5% each year. From 2019 to 2020, the increase in these supply expenses was approximately 3% before the more rapid increase of about 10% in 2021. With these significant increases and fluctuations, advisors must be able to recalculate key financial indicators and assess a company’s ability to maintain profitability and manage costs.

Source: KaufmanHall, 2023

Cash to Accrual Impacts

Converting financial statements from a cash basis to an accrual basis can significantly impact the quality of earnings, particularly when dealing with supply cost inflation. Under cash accounting, expenses are recognized only when cash changes hands, which can distort the true financial picture when supply costs are rising. To convert supply expenses on a cash basis, advisors typically begin by calculating monthly reported supply costs as a percentage of monthly revenue. Then, depending on the frequency of supply purchases, the average percentage of the last six to 12 months becomes each month’s adjusted supply cost percentage. However, with rising costs, advisors might need to reduce the lookback below six months regardless of the purchasing patterns, as using older data could result in understating supply costs for the most recent months. Thus, a financial due diligence team becomes essential in transactions with rising supply costs, as the cash-to-accrual process becomes more complicated and requires an in-depth analysis and conversation.

Robust Forecasting and Scenario Analysis

Rising labor expenses, growing inflationary pressures, declining admissions, and intermittent supply chain disruptions have placed significant pressure on profit margins across the healthcare industry. Through the mid-point of Q4 2022, the median hospital operating margin equaled (0.5%) as compared to 4.0% during this same period in 2021.

As inflation and supply chain uncertainties continued throughout 2023, forecasting and scenario analysis are paramount because they enable businesses to proactively manage the financial impact of rising costs and make informed decisions. This proactive approach allows companies to adjust pricing strategies, negotiate better contracts with suppliers, seek alternative sourcing options, or implement cost-cutting measures—all of which are vital for maintaining profitability and ensuring business continuity in the face of supply cost inflation.

If a company begins these steps before any potential transaction, it sets itself up for potentially favorable pro forma adjustments to offset any historical inflation. However, the key to receiving credit for these changes comes from having proper support and evidence of a downward trend in price, such as current invoices, signed contracts, or cost-per-volume analysis. Ultimately, instituting the results of forecasting and scenario analysis can serve the dual purpose of mitigating the adverse effects of inflation on current performance and providing an avenue for potential upside adjustments in future transactions.

Net Working Capital Analysis

Net working capital analysis takes on heightened significance in accounting for supply costs during times of high inflation within the context of a quality of earnings analysis. As supply costs rise, they can impact a company’s balance sheet, affecting both assets and liabilities. For example, inventory values may increase due to higher supply costs, potentially inflating total assets. Meanwhile, accounts payable may also rise as the company incurs additional liabilities for unpaid invoices related to these increased costs. Advisors must align the timing of cash flows associated with assets and liabilities to mitigate liquidity risks stemming from supply cost inflation. Additionally, the typical 12-month lookback may be inappropriate in times of rising costs, as older periods will not reflect current and future market conditions. As a result, many transactions shift towards a three- to six-month lookback to set the price/earnings-to-growth (PEG). In times of rising prices, the due diligence team’s role becomes even more essential: Determining the balance sheet impact of market conditions requires careful consideration.


Healthcare M&A is undeniably dynamic, and the ability to navigate its intricacies is contingent upon a deep understanding of historical spend normalization and cash-to-accrual conversions, as well as the nuanced impact of supply cost inflation. The rising tide of inflation has placed an exceptional level of complexity and significance on financial due diligence for both businesses and investors in healthcare. To tackle these challenges effectively, we have highlighted the importance of inflation-adjusted financial analysis to provide a more accurate depiction of a healthcare organization’s performance in the face of escalating costs. Transitioning from cash to accrual accounting methods and employing pro forma adjustments are vital tools for enhancing the quality of earnings analysis in the healthcare landscape. Moreover, robust forecasting and scenario analysis, as well as vigilant net working capital management, are fundamental strategies in addressing the complexities introduced by supply cost inflation. As increased inflation shows little signs of subsiding, the role of financial due diligence in healthcare transactions becomes even more vital in addressing the current market conditions’ added complexities and considerations.


  1. Definitive Healthcare. (2023, March 31). Annual changes in hospital medical supply costs.
  2. Avalere. (2020, May 21). Follow the Pill: Understanding the Prescription Drug Supply Chain.
  3. VMG Health. (2023). 2023 Annual Healthcare M&A Report.
  4. KaufmanHall. (2023, August). August 2023 National Hospital Flash Report.
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Handling Fair Market Value for Unlisted Procedures

November 29, 2023

Physician compensation continues to have new areas to tackle, from payments for quality to excess call to shared savings. In addition, VMG Health has recently seen an increase in unlisted procedures and inquiries from organizations on how to appropriately compensate physicians for their services. It is important to note that while unlisted procedures may still be reimbursable by a payor(s), they do not yet have a corresponding work relative value unit (WRVU) assigned by CMS and the American Medical Association (AMA).

This raises the question from health systems: what is an appropriate methodology to account for unlisted services when determining physician compensation if the physician is paid based on a WRVU productivity model and/or a base salary with a WRVU-based bonus model?

Due to the complexity of the CMS Medicare Physician Fee Schedule (MPFS) and the magnitude of codes listed, CMS and the AMA do not rebase WRVUs for each CPT code each year. As a result, advances in medical technology and the development of new, innovative procedures lead to services being provided to patients who are unlisted on the MPFS. VMG Health has observed a sizeable uptick in unlisted services including, but not limited to, implants, imaging, surgical, and laparoscopic services.

When determining physician compensation for unlisted services, health systems should ensure the proposed payment is consistent with fair market value (FMV). In addition, contractual terms should be considered to prevent the potential for duplicate payments. One approach VMG Health has frequently observed in the marketplace is compensating the physician based on a percentage of revenue received for the unlisted service. A few important factors to consider:

  • Is the procedure solely performed by the physician?
  • Is the revenue solely for professional services or is the revenue received on a global basis? In other words, are all technical expenses and revenues included in the payment (space, equipment, supplies, non-provider staff, etc.)?
  • If applicable, what incremental costs are associated with the unlisted service, and are the costs primarily fixed or variable?
  • Is the physician’s contract structured as a base salary with a WRVU-based bonus? Payments for unlisted procedures should not be paid in addition to the base salary until the base salary is met.
  • Is the procedure considered cosmetic and how do revenues and costs vary between cosmetic and medical procedures?

Another approach when compensating a physician for unlisted procedures is a comparative code method and utilizing the WRVU associated with the comparative code. However, it can be difficult to confirm an accurate comparative code for certain procedures. This could understate or overstate the WRVU associated with the unlisted service. There are several factors to consider when selecting a comparison code such as:

  • Procedures of similar nature on the same body area.
  • Physician work effort required.
  • Percentage of time the unlisted procedure takes compared to the comparison code.

As more new technology is introduced to the healthcare market, determining physician compensation for unlisted procedures will continue to be a topic of discussion for health systems. Before paying physicians for unlisted services, health systems should ensure that the compensation arrangements are commercially reasonable and do not result in compensation that exceeds FMV.

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The Importance of Buy-Side Diligence: Evaluating Assumptions in Healthcare

November 17, 2023

Written by Grant White, CPA, Colin Haslett, and Joe Scott, CPA

In the healthcare industry, investors evaluate potential investment opportunities that typically first come through sell-side marketing materials like teasers or confidential information memorandums (CIMs). These materials show the company’s financial performance over the past two years and projections for the current and next two to three years. It’s crucial to note that these projections naturally involve assumptions about future growth.

While these assumptions help buyers grasp the company’s strategic direction and growth opportunities, relying solely on them might lead to overestimations in purchase prices or underperformance post-acquisition. Financial projections have the potential to be biased and overly optimistic by overlooking potential market shifts or industry trends that may impact performance.

For instance, in the healthcare services industry, projected financial performance might hinge on key events such as:

  • Introducing new or expanding service lines
  • Hiring additional providers
  • Opening new facilities
  • Transitioning procedures from inpatient to outpatient settings in company-owned ambulatory surgery centers
  • Renegotiating contracts with commercial insurance payers

Prudent investors recognize the importance of buy-side due diligence. This diligence serves not just to verify historical data, but also to test the credibility of projected financial assumptions. Diligence teams must reconcile key documents, analyze historical financial and operational trends, and engage in candid conversations with key management personnel to evaluate these assumptions.

To illustrate this point, consider two scenarios wherein a company projects $1 million in revenue from hiring a new provider in its CIM distributed to potential investors:

  • Scenario 1: The provider began employment six months ago, has demonstrated consistent growth, and is on track to reach the projected $1 million revenue in the upcoming year.
  • Scenario 2: Management intends to hire a provider but lacks a signed employment contract to validate their revenue projection.

In summary, buy-side diligence is instrumental in verifying management’s claims and assessing the feasibility of a company’s projections. The insights gained through the diligence process help buyers make informed investment decisions, guard against inflated purchase prices, and provide buyers with more accurate expectations of post-close performance.

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Key Takeaways from OIG Advisory Opinion No. 23-07: Physician Compensation as a Percentage of ASC Profits

November 14, 2023

By Taylor Anderson, CVA, Taylor Harville, and Trent Fritzsche

The Department of Health and Human Services Office of Inspector General (OIG) posted Advisory Opinion No. 23-07 on October 13, 2023 (“Opinion”). The Opinion was related to the request submitted by a redacted requestor (“Requestor”) to pay bonuses to its employed physicians based on net profits derived from certain procedures performed by the physicians at ambulatory surgery centers (ASCs) operated by the Requestor (“Proposed Arrangement”). More precisely, the Requestor was seeking the opinion of the OIG about whether the Proposed Arrangement would lead to sanctions under the federal Anti-Kickback Statute (AKS).

Based on the relevant facts detailed in the Opinion, the Proposed Arrangement consisted of the following key facts and circumstances:

  • The Requestor operates a multi-specialty physician practice of 11 physician employees.
    • Additionally, the Requestor certified that all these physicians would be considered bona fide employees of the Requestor in compliance with the definition of the term “employee” described in 26 U.S.C. § 3121(d)(2).
  • The Requestor receives payments from federal healthcare programs.
    • Requestor certified that it would not furnish any “designated health services” as defined at 42 C.F.R. § 411.351 and that the Proposed Arrangement would not implicate the physician self-referral law, section 1877 of the Social Security Act.
  • The employed physicians would receive employment compensation from the Requestor in exchange for the services provided on behalf of the Requestor. This included services related to payments made under federal healthcare programs.
  • The Requestor proposed to set up a new compensation structure. The compensation structure would make it so that whenever a physician employee performed an outpatient surgical procedure at an associated ASC* the physician employee would receive a bonus equal to 30% of the Requestor’s net profits from the ASC facility fee collections attributable to the physician employee’s procedures performed that quarter.

Ultimately, the OIG concluded the quarterly bonus structure would not generate prohibited remuneration under the federal AKS.

In the analysis summarized in the Opinion, the OIG highlighted several considerations that ultimately led to the conclusion. These included the following:

  1. The Requestor certified that the physician employees would be bona fide employees of the Requestor in accordance with the definition of that term set forth at 26 U.S.C. § 3121(d)(2).
  2. The bonus compensation would constitute an amount paid by an employer to an employee for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid, or other federal healthcare programs.

The OIG also noted that a compensation structure tied to profits generated from services provided to patients referred by the compensated party is suspect under the federal AKS, particularly in arrangements where the physician is an independent contractor or there is a different corporate structure. However, because the Proposed Arrangement satisfied the regulatory safe harbor for employees, the compensation would not be prohibited.

Lastly, the OIG noted that while the Proposed Arrangement would not generate prohibited remuneration under the federal AKS, it was clear that it expressed no opinion as to whether the Proposed Arrangement would implicate the physician self-referral law.

When developing unique compensation structures with physicians or any service provider it is important to be mindful of the various laws and statutes in place. Proper review and consideration of the federal AKS and other healthcare regulations is essential for any organization when structuring compensation plans to ensure proper regulatory compliance. Additionally, documentation of fair market value and commercial reasonableness is another key element of any provider compensation arrangement, especially if those providers are a source of potential referrals.

For additional guidance related to structuring and valuing provider compensation arrangements, please reach out to Managing Director Jonathan Helm at jonathan.helm@vmghealth.com to learn more.


  1. Office of Inspector General. (October 10, 2023). OIG Advisory Opinion No. 23-07.

*The Opinion noted there were two ASCs operating as corporate divisions of Requestor.

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