Is There Actually Increased Value in Ambulatory Surgery Centers (ASCs) that Have Certificate of Need (CON) Protection?—ASC Review

ASCs That Have CON Protection Have Higher Value—But Less Longevity.  

Todd Mello, Partner and Co-founder of HealthCare Appraisers, and Nicholas Newsad, Senior Associate at HealthCare Appraisers, opine in ASC Review that many ambulatory surgical center operators perceive increased economic value for those centers with certificate of need protection, multiple practice specialties, and the participation of orthopedic surgeons.

While these factors may indicate relatively higher economic value, they do not necessarily correlate with business longevity.  Here’s more: 

A majority of respondents to Healthcare Appraiser’s 2013 ASC Valuation Survey indicated they are willing to pay a premium for an ambulatory surgery center (“ASC”) with a certificate of need (“CON”). Fifty-seven percent (57 percent) of respondents say they would apply a premium of 0.26 to 0.75 to the typical EBITDA multiple. The popular belief is that CON states afford existing ASCs protection from new competitors because the state approval process is a barrier to entry. This decreases the risk profile for ASCs in CON states and increases their perceived value.

While this may indeed be the case, this market protection does not appear to correlate strongly with improved long-term sustainability. Approximately 35 percent of all ASCs identified in Medicare’s Provider of Services data file are located in states requiring CON approval for new ASC developments. The average lifespans of ASCs in CON states are only 4.6 percent longer than ASCs located in non-CON states.

This small difference is somewhat counterintuitive. Rationally, less competitive pressure from new market entrants should result in a significant increase in business longevity. The relatively small difference in average business age indicates that other factors affect the ASC life cycle more than CON protection. However, it should be noted that longevity by itself does not necessarily indicate higher earnings or economic value.

Mello and Newsad conclude that perceived economic value and business longevity do not necessarily coincide. Single-specialty orthopedic ASCs may, in fact, be much more profitable than single-specialty ophthalmology ASCs, despite the evidence that single-specialty ophthalmology centers tend to stay open 4.5 years longer.

Read the whole piece here.

Analysts studying ambulatory surgery centers found interesting disparities vis a vis “Certificates of Need” (CON) states in ASC Review

 

Mello and Newsad conclude that perceived economic value and business longevity do not necessarily coincide. Single-specialty orthopedic ASCs may, in fact, be much more profitable than single-specialty ophthalmology ASCs, despite the evidence that single-specialty ophthalmology centers tend to stay open 4.5 years longer.

Read the whole piece here.