Current State of the ASC Market

Written by Matthew Searles
Merritt Healthcare Advisors

By any objective measure, the ambulatory surgery center (“ASC”) market has experienced increased activity in the last several years.  The increase in activity, and competition for strong acquisition candidates, is driven by general macroeconomic trends supporting and encouraging high quality care at the lowest possible cost.   Overall these factors have led to increased valuations for Sellers of ASCs.

According to recent surveys by valuation firms VMG and HAI, the percentage of ASCs receiving multiple between 7-8, and higher, has increased in recent years.  In should be noted that these multiples are typically measured from the Seller’s perspective and do not include potential synergies that the buyers expect to add to the facility.

Federal and private payers’ shift towards value based care naturally benefits ASCs, where quality metrics are high relative to other sites of services and the cost can often be 40-60% less than the same services provided in hospital settings.  The ACA specifically encouraged value based compensation, as do alternatives being offered currently in Congress, so this trend is expected to continue.

In-network ASCs that are well diversified, and well positioned for sale, can expect to have strong interest from a variety of strategic and hospital system purchasers.  Buyers will look for ASCs that do not concentrate their revenue in a small number of members, physicians close to retirement (without succession plans in place) or ASCs who are non-participating with major payers.  The strong acquisition candidate will also be free of major regulatory issues and from a legal perspective will be structured to accommodate a transaction.

Despite federal regulation prohibiting hospitals from acquiring 100% of an ASC and raising rates to HOPD levels, hospitals remain viable acquirers of ASCs.  This is because of the federal and private pressure to reduce health care costs for consumers. Because of their specialized nature, ASCs are efficient, safe and often a more appropriate setting for the performance of outpatient cases.  This makes them attractive to Hospital buyers looking to lower the cost of quality care.

Other trends that point towards increased utilization, and thus to growth, in the ASC market include continued migration of higher acuity cases to the ASC setting.  These cases include total joint, spine and bariatric procedures.  Further adding to the growth potential for ASCs are demographic trends pointing to an aging population that will increase demand for low cost ASC services.

Strategic ASC companies continue to drive strong demand for ASC acquisition candidates. Buoyed by macroeconomic trends that benefit their models, and with the ability to provide economies of scale and professional management to independent centers, strategic acquirers are very active and competition among them has increased valuations.

Recent entries of private equity backed “roll-up” acquirers as well as non-traditional, vertically integrated purchasers is further adding to competition for independent ASCs.  The latter includes examples such as Optum’s (United Healthcare) recent acquisition of a formerly publically held ASC company with over 200 active sites.  After a period of consolidation these new entrants are adding another option for Sellers.

In summary the ASC market is strong and is likely to grow stronger into the foreseeable future as these facilities present a real solution to rising healthcare costs.


About Merritt Advisors

Merritt Healthcare Advisors is the leading provider of M&A consultative services for healthcare organizations across the country. Merritt Healthcare Advisors is the proven partner for physician and hospital leaders seeking to optimize their value. Given the recent dramatic change throughout healthcare in both national and local markets, hospitals, health systems and physicians navigate a complex landscape when it comes to buying or selling a healthcare organization. As the only M&A advisory organization with active clinical operations, we have an unmatched perspective when it comes to coordinating beneficial transactions within the highly complex healthcare industry.

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