Valuing The Business Of A Outpatient Surgery Center

The importance of accurately valuing Ambulatory Surgery Centers (‘ASC’) continues to grow as a result of an increasing trend of surgery center mergers and acquisitions by physician practice groups, hospitals and corporate partners to deliver quality outpatient services to a patient population and community.  Further, as insurance companies push surgeries to an outpatient surgical setting, utilization of outpatient surgery centers are expected to increase. 

No matter the role in this specialized business model, getting an accurate valuation of the surgery center can be extremely tricky.  Retaining a healthcare valuation expert to accurately determine the fair market value of an outpatient surgery center will help avoid common pitfalls and mistakes and contribute to developing strategies that provide the best possible outcome.


common pitfalls in ASC Valuations:


If you are attempting to acquire or sell shares of a ambulatory surgery center, it is important to be aware the current local outpatient surgery center market factors that can affect the surgery center's FMV.

As patients are becoming more conscious of out of pocket medical costs, such as deductibles and co-pays, the need for quality ASCs to perform these outpatient procedures is rapidly growing. Recent trends place pressure on physicians to perform procedures in an outpatient surgery center rather than in the hospital setting. 

Direct competition for surgery centers can be with other free-standing outpatient surgical clinics, Hospital Outpatient Surgical Departments and Physician Offices that perform allowed procedures.  It is important to have a detailed understanding of the local landscape of providers as well as the current demands when conducting a competitive market assessment.  


Before acquiring any significant shares of an surgery center, it is important to understand the market entry barriers that can impact the overall future performance of an outpatient surgical facility.  One obstacle to consider is if the State in which the ASC operates requires a Certification of Need (CON).  

Note: In some states, CONs are referred to as a Determination Of Need (DON), such as Massachusetts. 

CON or DONs are government barriers that were not originally intended to protect the poor quality of care among competing for healthcare facilities but instead was adopted in response to the capital intensive costs of building a healthcare facility that ran up healthcare costs under a service fee reimburse model.  With current CON reform, there is more criticism against CONs and repealing the statute in some population areas whereas outpatient healthcare facilities like ASCs can help reduce overall costs for government and commercial insurance payors. 

In the meantime, the process of applying for a CON can be very time intensive and does not guarantee an approval. It is important to have a comprehensive understanding of the state’s ever-changing CON laws and not to underestimate the likelihood of new surgery centers entering the market leading to increased competition and potential market risk factors.

CON Country Map


Another common pitfall of determining an FMV of an ASC is the 'level of value' and control among both majority and minority shareholders in an surgery center operating agreement. This level of value will describe the influence of minority shareholders with regard to organizational and capital investments.

For example, if ambulatory surgery center governance structure requires a supermajority of over 51% voting rights to approve any significant capital investment this may impact the value of minority interest positions as they could block certain corporate decisions.

Further, it is important to understand the covenant to compete provisions for the physicians and the owner versus non-owner mix of surgery procedures.  Obviously, physicians who are financially invested in an ambulatory surgery center (and restricted from owning an interest in a competing facility) are incentivized to continue bringing volume to the particular business.  However, if there are provisions that allow the physicians to own shares of multiple outpatient facilities, this could be problematic.


Many surgery center valuations use certain pricing methods that include an EBIDA multiplier or other various ASC multipliers (e.g. 4.0x trailing 12-month earnings). Although using a multiplier can be helpful, it can also be the inaccurate FMV formula if it is not consistent with current earnings or external trends, such as loss of a service line or referral source which would have a damaging impact on the surgery center's future net earnings. Constant review of the valuation formula to is required to ensure it reflects current operational, economic or market conditions.

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When valuing an ASC, it is important to review its overall payor mix (e.g. government payors like Medicare and worker’s compensation, and commercial payors like Aetna and United, or self-pay), as well as surgical and procedural mix.

Payor mix can provide helpful information on reimbursement projections. Now with the transition from a ‘fee for service’ payment model to a 'value-based' payment model that include bundled payments and reimbursement rate penalties on Medicare professional fees based on quality reporting results, physicians' reimbursement payments under Medicare Reauthorization CHIP Act (‘MACRA’) are only adding more risk to possible regulatory violations.

It is imperative to understand how the facility is prepared to meet the constantly evolving  value-based payment models for a better valuation of your outpatient surgical facility.


Many physicians who perform outpatient surgeries own some level of equity in the outpatient surgical facility.  These same physicians have decided in recent years to acquire ASC property due to historically low commercial interest rates. Physicians should strive to fully realize the current real estate value dictated by the market when seeking to sell their shares in the surgery center. The value of the real estate could impact the value of operating entity in many situations. 

When considering purchasing or selling any shares in a surgery center, it is important to determine the best value of outright sale verse leaseback agreement of the facility and how to handle capital equipment valuation. Creative agreements can be structured whereas the real estate and equipment can be leased or purchased.  An independent fair market value provider can assure that the various types of ASC ownership arrangements are compliant with Stark and anti kickback regulations.

Consult An ASC Expert

If you are considering a transaction with an ambulatory surgery center, it is important to consult a healthcare valuation expert to provide you with the most accurate fair market value appraisal based on tried and tested best practices, and thorough diligence on market factors.

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