HealthCare Appraisers is pleased to have collaborated with the Ambulatory Surgery Center Association (ASCA) in publishing our 2020 ASC Valuation and Benchmarking Surveys, a resource for ASC stakeholders to gauge insights into transaction activity, valuation trends, and certain operational statistics within ASCs throughout the United States. Respondents are ASC management companies, freestanding ASCs, health systems, ASC business brokers and investment bankers. 

Similar to the 2019 survey, the consensus among 2020 respondents was that transaction activity remained robust and competitive, with the trend expected to continue going forward. The majority of respondents observed both increased competition for acquisitions, and increased acquisition activity in 2019 as compared to 2018. There are many factors driving increased activity in the space, including increased interest from private equity sponsors in surgical specialty practices, hospital outpatient department (“HOPD”) to freestanding ASC conversions, and health systems attempting to recapture procedure volume as it migrates to lower cost of care settings.

In regard to transaction multiples, our Valuation Survey reports an increase in year-over-year valuation multiples for controlling interests in ASCs, including an increase in respondents observing multiples at 9.0x EBITDA or greater. From our perspective, the primary buyers at the high-end of the valuation multiple range are private equity sponsors consolidating physician practices and affiliated ASCs. 

In reviewing responses to the ASC Benchmarking Survey, we believe that many of the trends are contributing factors to hospital outpatient departments converting into freestanding ASCs. While reimbursement may be lower in an ASC setting, site neutral payments may shrink or eliminate this difference in coming years. Furthermore, ASCs have the opportunity to bring in more physician owners to help increase case volume during a time when margins have been squeezed on both revenue and expense sides.  In considering the conversion from a HOPD to an ASC, it will be important for individuals to calculate the financial impacts of lower reimbursement with potentially different case and payor mixes.

The COVID-19 pandemic has brought uncertainty on how its impact will be felt by the ASC industry in both the short and intermediate terms, which in turn will also affect the value of ASCs. Many respondents to our surveys indicated that they utilize a static formula when determining the value of their ASC for shareholder transactions. Events such as COVID-19 reveal the shortcomings of a formula to determine value as compared to having an appraisal performed. The CMS “hospitals without walls” initiative, which allows ASCs to contract with local healthcare systems to provide hospital services as a result of the COVID-19 pandemic, may help to quicken the pace of procedures moving off the inpatient only list as the COVID-19 pandemic subsides. Our surveys note the attention total joints and cardiovascular procedures are getting by the ASC industry as these procedures move off the inpatient-only list and move into the freestanding ASC setting.  Despite COVID-19, the long-term outlook for the ASC industry is as positive as ever.

Request your copy of HealthCare Appraiser’s 2020 ASC Valuation & Benchmarking Surveys here.