healthcare appraisers’ - becker's hospital review...healthcare appraisers’ 2014 asc...

Findings fromHealthCare Appraisers’

2014 ASC Valuation Survey

Presented By

Todd J. Mello, ASA, CVA, MBA, Founding Partner

Nicholas A. Newsad, MHSA, Manager

Webinar Outline

Findings from HAI’s 2014 ASC Valuation Survey

• History, Purpose and Limitations of the Survey

• What are Valuation Multiples?

• Minority vs. Majority Control

• Reported Earnings Multiples

• Buyers’ Expectations

• ASC Management Fees

• ASC Billing Fees

2Findings From HealthCare Appraisers’


History, Purpose & Limitations of the Survey

• Since 2003, HAI has published ten annual ASC surveys

• Why? To provide a centralized source of market intelligence on valuation trends within the ASC industry.

• 2014 was largest to date with 25 companies respondents

• Disclaimer: Survey should not be used in lieu of a formal valuation.



What are Valuation Multiples?

The Meaning Behind the Numbers

The Finance Definition (a.k.a. Appraiser speak)

“A mathematical expression of risk and growth, which when applied to a perpetually recurring earnings stream results in an indication of value”

A multiple is mathematically expressed as follows:

• Where, (K) represents the rate of return (risk), and

• (G) represents the growth rate of the earnings stream

4

)(

1

gK

Findings From HealthCare Appraisers’ 2014 ASC Valuation Survey

What are Valuation Multiples?

Varying Growth Varying RiskScen 1 Scen 2 Scen 3 Scen 1 Scen 2 Scen 3

k 17.0% 17.0% 17.0% 17.0% 19.0% 22.0%g 2.0% 3.0% 4.0% 2.0% 2.0% 2.0%

Multiple 6.67 7.14 7.69 6.67 5.88 5.00



Three ASC’s with $2.0M EBITDA

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

2009 2010 2011 2012 (P) 2013 (P)

ASC 1

ASC 2

ASC 3

Valuation Date



Minority vs. Majority Control

• Interests providing absolute control (e.g., greater than a 50% interest) are worth more than interests which do not have the same control rights.

• Control granted by the governing documents. Examples include:

• Major equipment purchases and investments

• Debt signing authority

• Admitting new owners

• Granting physician privileges



Observed Multiples forMinority Interests

Single-Specialty Centers Multi-Specialty Centers

8

11%

26%

21%

16%

21%

5%

0%

5%

10%

15%

20%

25%

30%

35%

2.0 -2.9x

3.0 -3.4x

3.5 -3.9x

4.0 -4.9x

5.0 -5.9x

6.0 -6.9x

% o

f R

esp

on

de

nts

2013 2014

9%

19%

5%

38%

19%

5% 5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2.0 -2.9x

3.0 -3.4x

3.5 -3.9x

4.0 -4.9x

5.0 -5.9x

6.0 -6.9x

7.0 -7.9x

% o

f R

esp

on

de

nts

2013 2014


Observed Multiples forControlling Interests

Single-Specialty Centers Multi-Specialty Centers

9

20%

10%

50%

20%

0%

10%

20%

30%

40%

50%

60%

3.0 -3.4x

3.5 -3.9x

4.0 -4.9x

5.0 -5.9x

6.0 -6.9x

7.0 -7.9x

% o

f R

esp

on

de

nts

2013 2014

9%13%

22%

52%

4%

0%

10%

20%

30%

40%

50%

60%

4.0 -4.9x

5.0 -5.9x

6.0 -6.9x

7.0 -7.9x

8.0 -8.9x

% o

f R

esp

on

de

nts

2013 2014


Buyer Expectations



Preferred Number of Active Physician Owners

13%

54%

25%

8%13%

41%

21%25%

0%

10%

20%

30%

40%

50%

60%

1 - 5 6 - 10 11 - 15 16 - 20 21+

% o

f R

esp

on

de

nts

Active Physician Owners

Single Specialty Multi Specialty

Buyer Expectations



Initial Earnings Growth Expectations Post-Transaction

8%

56%

4%

32%

0%

10%

20%

30%

40%

50%

60%

0 - 3.0% 3.1 - 6.0% 6.1 - 9.0% >9.0%

% o

f R

esp

on

de

nts

Annual Earnings Growth

ASC Management Services

• Competitive trends

• 36% have minimummanagement fees • 60% of those report minimum fee of

$100K to $200K

• 48% have sliding scale management fees whereby fees decline after a predetermined threshold• 58% of those report declining

management fee rates between $5.0M and $9.9M in ASC net revenues



13%

4%

48%

31%

4%

0%

10%

20%

30%

40%

50%

60%

0.0% 3.0% 4.0% 5.0% 6.0% 7.0%

% o

f R

esp

on

de

nts

% of ASC Net Revenue

2013 2014

ASC Management Fee Rates


• 80% report no management arrangements with fees at risk for performance• 76% reported no at risk arrangements in 2013

• 64% report holding ownership in all managed ASCs• Over half of those who manage, or plan to manage, non-owned ASCs indicate

increasing management fees 1% to 3% or more for service-only ASCs






72%

76%

84%

88%

92%

92%

92%

92%

96%

96%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Corporate Human Resources Executive or Staff

Corporate Supply Chain Executive or Staff

Accounting

Corporate Revenue Cycle Executive or Staff

Benchmarking Based on Other Equity Owned Centers

Managed Care Contracting

Corporate Business Development Executive or Staff

Mock Accreditation Surveys

Oversight by Regional VP of Operations

Access to GPO

% of Respondents Providing Service

Services Often or Always Provided as Part of ASC Management Fee




40%

41%

46%

52%

83%

0% 20% 40% 60% 80% 100%

Corporate Counsel or Legal Support

Coding

Data Warehouse

Architecture and Design

Dictation

% of Respondents Not Providing Service

Services Never or Rarely Provided as Part of ASC Management Fee

ASC Billing

ASC Billing Fees % of Mgt Clients Using Billing

16

0%

4%

35%

30%

13% 13%

4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0.0 -2.0%

2.0 -2.9%

3.0 -3.9%

4.0 -4.9%

5.0 -5.9%

6.0 -6.9%

>7.0%

% o

f R

esp

on

de

nts

% of ASC Net Revenues

8%

23%

15%

0%

23% 23%

8%

0%

5%

10%

15%

20%

25%

0% <20% 20 -39%

40 -59%

60 -79%

80 -99%

100%

% o

f R

esp

on

de

nts

% of Management Clients


QUESTIONS?

17

Findings FromHealthCare Appraisers’


Todd J. Mello• [email protected]

Nicholas A. Newsad• [email protected] Appraisers, Inc. – Denver Office

(303) 688-0700

mailto:[email protected]

mailto:[email protected]

healthcare appraisers’ - becker's hospital review...healthcare appraisers’ 2014 asc...

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