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Valuation Considerations in ASC Joint Ventures
Presented by:Nicholas Janiga, ASA | PartnerHealthCare Appraisers, Inc.
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Nicholas J. Janiga, ASA | Partner
Mr. Janiga is a Partner with HealthCare Appraisers and for the past 10 years has beenproviding his clients consultation in business valuation, litigation support, intellectualproperty, healthcare provider compensation relationships, and other types of financialanalyses. Mr. Janiga’s extensive industry experience includes working with healthcareorganizations, attorneys, administrators, providers, developers, consultants, investmentbankers, and private equity groups in connection with transactions involving ambulatorysurgery centers, cancer centers, diagnostic imaging centers, dialysis centers, lithotripsycompanies, physical therapy centers, pathology laboratories, urgent care centers,physician practices, hospitals, hospital departments, medical device manufacturers,durable medical equipment suppliers, patent holding companies, accountable careorganizations, and other healthcare entities. Many of the transactions Mr. Janiga analyzesinvolve Stark, Anti-Kickback, IRC 501(c)(3), and/or other regulatory implications, whichnecessitates analyses of fair market value and/or commercial reasonableness.
Mr. Janiga earned a Bachelor of Business Administration degree in 2007 from the SeidmanCollege of Business at Grand Valley State University, dual majoring in finance andeconomics, and minoring in accounting. He is an Accredited Senior Appraiser (ASA) inBusiness Valuation through the American Society of Appraisers.
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Outline of PresentationValuation Considerations in ASC Joint Ventures
Supply + Demand Factors Driving Joint Ventures
Macro
Micro
Forms/Structures of Recent Joint Venture Activity
Valuation Overview and FMV Considerations
Common Errors/Pitfalls in FMV Analyses
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Macro Supply + Demand FactorsRecent Regulation
Where have we been the past decade
2005 Deficit Reduction Act
2006 End of Temporary Moratorium on Construction of New Physician-Owned Hospitals
2010 Patient Protection & Affordable Care Act
2011 Budget Control Act (Sequestration in 2013)
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Macro Supply + Demand FactorsRecent Regulation
Where have we been the past decade continued…
2012 American Taxpayer Relief Act (2014 equipment utilization rate)
2013 Medicare Payment Advisory Commission June 2013 Report to Congress – Chapter 2: Medicare Payment Differences AcrossAmbulatory Settings
2015 Bipartisan Budget Act (Section 603 – Site Neutrality)
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Macro Supply + Demand FactorsRecent Regulation
Where have we been the past decade continued…
2018 Department of HHS anticipates shifting 50% of Medicare fee-for-service payments to alternative payment mechanisms (i.e., value instead ofvolume payment mechanisms)
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Macro Supply + Demand FactorsAchieving Lower Costs
Population Health Management
Value/Risk-based contracting with payors
Medicare Shared Savings Program (ACOs)
Other ACOs
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Macro Supply + Demand FactorsAchieving Lower Costs
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158%
169%
161%
164%
174%
178%
181%182%
179%
145%
150%
155%
160%
165%
170%
175%
180%
185%
2008 2009 2010 2011 2012 2013 2014 2015 2016
HOPD Medicare Rates as % of ASC Medicare Rates, By Year
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Macro Supply + Demand FactorsHospital Employment – Orthopedic Surgeons
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8%
31%
55%
0%
10%
20%
30%
40%
50%
60%
2005 2010 2015
% of Orthopedic Surgeons Employed by Integrated Delivery Systems
*Data Compiled From: 2005, 2010, and 2015 Medical Group
Management Association, Physician Compensation and
Production Surveys
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Macro Supply + Demand FactorsHospital Employment - Gastroenterologists
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*Data Compiled From: 2005, 2010, and 2015 Medical Group
Management Association, Physician Compensation and
Production Surveys
9%
20%
43%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2005 2010 2015
% of Gastroenterologists Employed by Integrated Delivery Systems
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Macro Supply + Demand FactorsHospital Employment - Pain Mgt Physicians
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*Data Compiled From: 2005, 2010, and 2015 Medical Group
Management Association, Physician Compensation and
Production Surveys
4%
21%
47%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2005 2010 2015
% of Pain Mgt Physicians Employed by Integrated Delivery Systems
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Macro Supply + Demand FactorsHospital Employment - Urologists
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*Data Compiled From: 2005, 2010, and 2015 Medical Group
Management Association, Physician Compensation and
Production Surveys
5%
17%
46%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2005 2010 2015
% of Urologists Employed by Integrated Delivery Systems
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Macro Supply + Demand FactorsHospital Employment - Ophthalmologists
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*Data Compiled From: 2005, 2010, and 2015 Medical Group
Management Association, Physician Compensation and
Production Surveys
8%
21%
41%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2005 2010 2015
% of Ophthalmologists Employed by Integrated Delivery Systems
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Macro Supply + Demand FactorsHospital Employment - ENTs
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*Data Compiled From: 2005, 2010, and 2015 Medical Group
Management Association, Physician Compensation and
Production Surveys
13%
24%
45%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2005 2010 2015
% of ENTs Employed by Integrated Delivery Systems
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Macro Supply + Demand FactorsHospital Employment - Family Medicine
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*Data Compiled From: 2005, 2010, and 2015 Medical Group
Management Association, Physician Compensation and
Production Surveys
48%
60%
76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2005 2010 2015
% of PCPs Employed by Integrated Delivery Systems
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Macro Supply + Demand FactorsMaturing Market
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3,028
3,358
3,597
3,848
4,106
4,362
4,567
4,8384,955
5,0395,152 5,228 5,307 5,343
5,446
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of Medicare-Certified ASCs by Year
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Micro Supply + Demand FactorsMarket-Specific Factors
Size of primary service area
Number of existing market participants
Hospitals/Health Systems
ASC Management Companies
Freestanding ASCs
Independent Surgeons
State-Specific Items
Certificate of Need, reimbursement, employment
Local economic and demographic conditions17
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Forms/Structures of Recent Joint Venture Activity
De Novos
Existing Surgery CentersHOPD
Freestanding
Existing Surgery Centers as part of larger JOA
Single + Multispecialty Surgery Centers
Involvement of multiple types of market participants
Other driving factors (e.g., capital, contracts)
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Forms/Structures of Recent JV ActivityDriving Forces Behind Contribution of HOPD
Hospital’s “position” within the local market
Declining Case Volumes
Engage experienced management company
Recognition of possible payment neutrality
HOPD
Freestanding
Less costly physician alignment opportunity
Other local environment factors
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Valuation Overview and FMV Considerations
Income Approach
Single Period vs. Multi Period
Market Approach
Guideline Public Companies
Comparable Transactions
Asset Approach
Net Asset Method
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FMV ConsiderationsGuideline Public Companies
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9.27x
9.64x
10.93x
8.00x
8.50x
9.00x
9.50x
10.00x
10.50x
11.00x
11.50x
AMSURG Surgery Partners Surgical Care Affiliates
Trailing Twelve Month Valuation MultiplesEnterprise Value / EBITDA
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FMV ConsiderationsComparable Transactions - HAI’s Annual ASC Valuation Survey
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0%
10%
20%
30%
40%
50%
60%
70%
80%
4.0-4.9x 5.0-5.9x 6.0-6.9x 7.0-7.9x 8.0+
EBITDA Multiple Trend for Controlling Interests in Multi-Specialty ASCs
2013 2014 2015 2016
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Common Errors/Pitfalls in FMV Analyses for Joint Ventures
Forgetting to Adjust the Income Statement
Normalize RevenueFully Accounting for Appropriate Expenses
Fixed CostsManagement, billing and collecting, otherSupplies
Use of Valuation Approach(es)
Assessment of “Risk”
Level of Value (Secondary Discounts)
Adjusting for Stock vs. Asset Deal
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Thank You!Valuation Considerations in ASC Joint Ventures
Please contact me if you have questions regarding this presentation.
Nicholas J. Janiga, ASA | PartnerHealthCare Appraisers, Inc. (303) 566-3173 [email protected]://www.hcfmv.com/njaniga.html
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