Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Preparing for a Transaction and Valuating Your ASC
0 Playsin 19 hours
Jim Freund is the Managing Partner at Physician Transaction Advisors, where he and his team have spent more than 20 years advising physician-owned surgery centers through transactions, partnerships, and long-term strategic planning. Having worked on hundreds of ASC deals across the country, Jim brings a unique perspective on what drives centers to explore a transaction and how leaders can prepare before beginning the process. In this episode, he walks through when to start the conversation and what to consider as you evaluate your next move.
In our data segment, we will discuss a custom metric from HST’s demographic benchmarking report: Payment Share by Specialty. The data consistently proves that your case mix and your revenue mix are not the same. And if you’re only looking at case volume, you’re probably missing what’s really driving your financial performance. I'll share what we uncovered after analyzing 5.3 million cases.
Resources Mentioned: https://www.hstpathways.com/specialty-data/asc-demographic-data
Brought to you by HST Pathways.
Recommended
Transcript
Podcast Introduction
00:00:00
Speaker
Welcome to this week in surgery centers. If you're in the ASC industry, then you're in the right place. Every week, we'll start the episode off by sharing an interesting conversation we had with our featured guest, and then we'll close the episode by recapping the latest news impacting surgery centers.
00:00:16
Speaker
We're excited to share with you what we have. So let's get started and see what the industry's been up to.
Guest Introduction: Jim Freund
00:00:24
Speaker
everyone. For today's episode, we are speaking with Jim Freund, who is the managing partner at Physician Transaction Advisors. He and his team spent more than 20 years advising physician-owned surgery centers through transactions, partnerships, and long-term strategic planning.
00:00:42
Speaker
They've worked on hundreds of ASC deals across the country. and so Jim brings a unique perspective on what drives centers to explore a transaction and how they can think about preparing before the process.
00:00:58
Speaker
In this episode, he walks through when to start the conversation and what to consider as you evaluate future moves. And after, we'll have our data segment where we look at custom metric from HST's demographic benchmarking report specifically for ASCs, and it'll will look at payment share by specialty.
00:01:21
Speaker
Stick around for that to see what we uncovered from analyzing over 5 million cases. Hope everyone enjoys the episode and here's what's going on this week in surgery centers.
Jim Freund's Background & Transition
00:01:39
Speaker
All right, everyone, i am so excited to be joined today by Jim Freund. We're going to talk all about transacting as an ASE when you know it's time and what your first step should be if you find yourself in that situation.
00:01:52
Speaker
Before we get started, Jim, if you could just introduce yourself to our listeners, tell us a little bit about your background and what you do currently. Sure. Thanks so much. Great to be with you. My name's Jim Freund and I am the managing partner and CEO of Position Transaction Advisors. For years we were ASCs Inc., but we transitioned to became PTA about three or four years ago.
00:02:21
Speaker
Really because almost exclusively we worked with surgery centers for for almost 20 years representing the position owners of several hundred practices over that time. And we were, we got brought into transactions that involve orthopedic centers and GI centers and specialty practices as well. so Most of those containing surgery centers, but for the most part, every trade transaction, every deal, every evaluation that we do involves a surgery center, but also very tied to the physicians, their practices. There's a lot of impact between the two. So we did a name change, but our group is essentially the same. We've got a great core senior group of
00:03:10
Speaker
individuals who have spent their whole careers in leadership positions in the surgery center and outpatient space, doing everything from developing, syndicating, managing facilities to ah ASC groups and practices to leading technology firms. So we have a ah very background that we bring to every one of our transactions, very different than what you would see from a traditional investment from bank or broker, which are primarily made up of finance degree professionals. We've got we've got every one of our senior team is more than 30 years of actual ASC experience. so
00:03:55
Speaker
think that's what kind of sets us apart and has enabled us to work successfully with so many ASCs over the years. That's fantastic. And like I said I'm so excited to get to pick your brain today, get your insights. You come from just this all-star team of deep industry expertise and have really seen the ASC industry grow up from its infancy and now in this stage where there's so much change and things have really shifted for a lot of surgery centers. so that's what we're going to talk about
Why Consider ASC Transactions?
00:04:26
Speaker
today. so we'll jump right into it And so my first question is,
00:04:29
Speaker
In your work, obviously, you've been a part of many transactions. and You've seen a lot of different scenarios that physician owners and ASCs find themselves in They need to do something. So what have you seen as the most common forcing functions that do push an ASC from that we're fine, everything's going good to that place where they need to start exploring options for the future?
00:04:50
Speaker
And if you could just talk a little bit about what's changed in the environment that is making it a little bit more challenging. very Yeah, sure. Certainly the ASC space and and healthcare care in general is a great deal more challenging than when we first got into this almost 40 years ago from the complexity involved in managing facilities, reporting requirements, you name it.
00:05:17
Speaker
maintaining staff, et cetera. So I don't think there's ever like a single forcing factor that physicians face. I think it almost always at some point there comes a time where the amount of work and effort required to to run successfully manage, run a surgery center just become such ah a burden that It makes sense for position owners to explore options that may help them really realize their goals. There's, there's just so much that they're faced with now that from we've seen the costs associated with staffing and supplies and maintaining your surgery center, the challenges in getting anesthesia, of the
00:06:13
Speaker
recruiting new physicians, all the financial pressures around revenue cycle and accounting and and running your center. Now you've got all technology demands and integration and security and regulatory requirements. So there's just There's a myriad of challenges that that a every organization faces. And with that, you've got to, you've aside from having, doing your own practice, running your own business, you've got this complex business to run on top of it. So oftentimes having a partner who can help you with that, and that can that can take many forms, but
00:06:53
Speaker
Having a partner can, and evaluating what those partnerships can look like are really important. Absolutely. That makes sense. Are there particular indicators that you see at like the business level, perhaps that might be a sign or a signal for an owner to at least start evaluating what a transaction could look like or what that potential partnership might look like that they need to explore?
Assessing Capacity for Partnerships
00:07:19
Speaker
Yeah, I think it really, there always comes a point, I think where physicians want to understand what a partnership could look like.
00:07:30
Speaker
And so you have to look at what your group looks like today and consider what the future holds for you. Do you have young physicians who are going to migrate into your roles? Are you able to recruit? Are you able to bring in physicians? Are you able to negotiate contracts? Are you able to put all these pieces together and continue to function profitably with a high degree of autonomy? Are all your physicians happy? Do you have a good partnership? Are your goals being realized? All of those things come into play as you're looking at your business. Are you handling all the
00:08:09
Speaker
the requirements that you have now brought by, by industry, by government, by administrative needs. So I think there's that, and every surgery center, every physician, every administrator knows those challenges really well and they face them every day.
00:08:28
Speaker
So it really comes to a point where Listen, do I have the ability to successfully manage all of these challenges as I continue to go forward?
00:08:39
Speaker
Or do I need help to realize our team's goals as we move forward? And that's not just... for an organization, but it's also for the individual docs because everyone's got their own objectives, their own goals as they move forward. So yet you have to take all of that into consideration. I think that's that's really important. It's really important at a board level and it's really important from an individual perspective.
00:09:07
Speaker
Absolutely. and And that kind of leads me into my next question. It's a great segue to talk about what groups should be prepared for when they go into a transaction potentially. Yeah. I think what we talked before you had said that most groups come in with this preconceived plan and idea of what's going to happen.
00:09:23
Speaker
So when you start working with a group of physician owners What are some of the core alignment questions that you ask them to make sure everybody's on the same page around the vision for what that end state should look like? Because you mentioned everybody's got their own agenda. How do you get everybody on the same page? That's a great question. And I'm not sure there's a single answer for but really having very open, frank, honest discussions and physicians are good at that. If you're sitting in board meetings, they, they're going to tell you what they think and
00:09:55
Speaker
what they want and oftentimes they're not in agreement. So, so you need to really sit down and evaluate, okay, what are our objectives collectively and how can we realize our goals as we move forward?
00:10:11
Speaker
That really involves a lot of thought. We're always approached by groups that say, well, we want to partner with the local hospital we want to partner with this management company because they're doing this and this. And we say, well, we sit back and say, well, so your goals are in alignment.
00:10:34
Speaker
And so you've talked about that. You've talked about all this And then you start to peel back the onion and say, well, maybe not. Maybe we're not quite there yet.
00:10:47
Speaker
One of the things that, you know, is really important is identifying the goals of every, not just a group, but individuals. for For example, there's going to be physicians who are closer to retirement.
00:10:58
Speaker
There's going to be younger physicians who want to grow and don't want to see half of their income gone. There's the longevity of the practice, how this ties together, how they're going to get realized maximum value for their effort. So I think what we are most often able to do is open up from what they see as a, as you said, a preconceived plan and say, okay,
00:11:26
Speaker
Maybe this isn't exactly what we want. Maybe we need to learn more about what is out there and then make a determination based on that. And that's really core to what we try to do with any of our clients is just that is to give them an um opportunity to evaluate what those options are.
00:11:47
Speaker
That makes sense. So could you walk us through what some of those options are? i know that there's broad spectrum of directions that an ASC can go in everything from maybe not even doing a transaction, but securing some other type of partnership or support.
00:12:04
Speaker
There's a lot of different, a lot of different things they can do to get that support that they need. So how should an ASC choose the right type of partner for the problem they're trying to
Options for ASC Partnerships
00:12:13
Speaker
solve? Yeah, you're exactly right. There's a myriad of options for any group. And to your point, there's there's groups that simply can provide management support and services that don't even require equity. That may be the best route for a group, somebody who will provide that level of support and services that are required to get you to where you need to be.
00:12:41
Speaker
And then it goes all the way to selling, creating partnerships, and they can be minority partnerships. They can be majority partnerships. They could be joint ventures between local or regional hospitals and ah perhaps a surgery center management company. They could be private equity backed. platforms. So there's really a broad range of, of partnership options or support options available for any surgery center. So it's really important from our perspective, it's, it's most important to
00:13:19
Speaker
be able to fully evaluate what your options are, how those would impact your facility on a go forward basis, and give you all the information that you need to make informed decisions. Because unless you do that, you truly don't know. Like we get into arrangements and signed with clients.
00:13:43
Speaker
And almost always they tell us, well, we've talked to this group in this group. We really liked this group and we think we're going to move forward with it to the point of we've even been engaged when they've already gone down the path and have an offer in front of them.
00:13:58
Speaker
But we always ask step back and look at what all your options are. evaluate those understand because there's nothing that are going to be perfect. So, so it gives you an opportunity to look at and say, okay, here's, here are the things that I really like about this group. Here's something that I'm not really keen on.
00:14:20
Speaker
Here are the things that are most important to our, our group. We want to rate maintain our clinical autonomy, but we need help with contracts. We need help with this, but we're really good here. And at the same time, it gives an opportunity for any prospective partner to get to know you better, understand how they could impact you.
00:14:43
Speaker
Cause they're always looking for insight. They're looking for good people. One of the things we always hear is good executive teams, good staff, administrators, nursing staff, the entire plethora of people required to run at a surgery center is it's significant and having quality individuals in those positions is important. So it it works both ways. or gives It gives the physicians and their executive teams an opportunity to understand understand what options are out there for them and the partnerships, what the partnerships would potentially look like. And you go to the point of working with groups to potentially put together pro formas based on the impact that they can have on your business, what it would look like financially, e cetera. So, so doing an evaluation really of all your options.
00:15:38
Speaker
from our perspective is the best way to approach this because it, it enables you to make the most educated decision in terms of the future of your organization.
00:15:51
Speaker
For sure. That, that makes total sense to me. This is certainly not a like one size fits all strategy. Right. Absolutely. There's a lot of options out there that people are potentially not even aware of.
00:16:03
Speaker
Yeah, exactly. it's right but so It's so much of it is market driven and there's going to be something different in every market. There's going to be somebody who's a bigger player. There's going to be challenges and opportunities and you have to look at those as well. So, yeah.
00:16:20
Speaker
That's a great point and actually leads into my next question as well, which is another situation that is by no means one size fits all. And that's how you would begin to go go through evaluation of your ASC and even just know going into any conversations what your center is worth.
00:16:40
Speaker
And I'm curious, like, so what are the biggest drivers of that? And what does that process look like as somebody starting to
Key Valuation Factors for ASCs
00:16:47
Speaker
go? Yeah, that's interesting. thing I'll start with the end in mind. that So when somebody asks me what their center's worth, I tell them really, i can't tell you what your center's worth because the market is going to determine what your center's worth. Like, for example, we just, I'm a big Boston Red Sox fan and we just lost Alex Bregman to free agency to the Cubs.
00:17:13
Speaker
he went out to market and the red sox thought they could get him for x and he ended up signing it for y because there was a demand for him in service he was able to get the price and terms that he wanted so so it's really it's really a condition of the market you're gonna no matter what there's going to be evaluation of your facility you're got there's going to be an evita that you have but With any facility, a buyer is looking at a lot of factors. They're looking at what's your, not just your EBITDA, they're looking at, first they look at how many physicians you have, how old are your physicians, how long do they want to work, what are their specialties, even to the point of what kind of guys are they, what kind of gals are they, what what kind of doctors are they?
00:18:03
Speaker
They really want to work with great doctors, great people, like you would in in any business. And then you look at, okay, the location, your specialty mix, the competition, your ability to recruit or physicians and staff. Do they like working there? Do they want to work there? Can you bring ah can you bring people in What are your contracts like? what are What value can we add? Because one of the things any prospective buyer looks at is, okay, what, what value can I add? Because they're looking, they're not looking at where you are today. they're looking at where you're going to be and where you're going to be is that whole myriad of factors that we're discussing, but it's also the impact that they can have on your organization. So there's a lot that go into They can, they look at your facility and the makeup of the facility and the years and your lease and
00:19:00
Speaker
Is there room for expansion? Is there room, are the ORs going to be sufficient and to grow to the degree that you're going to want? So, so all of that goes into it. So part of, ah big part of what we do is build what we call a confidential information memorandum.
00:19:19
Speaker
That really brings all of that to the forefront. And we're able to share all of that with prospective partners so that they can not just understand the numbers, but really understand the opportunity that and that includes what the challenges are what the growth opportunities are all of that that goes into determining the how this partnership would work the value what it's worth what they're what they would be willing to pay what all of that goes into goes into putting that together and you want to do it
00:20:00
Speaker
You don't just want to put together what I would call a sales piece. You really want it to be very presenting your group in best light, but also very honestly upfront because this is going to be a partnership and any partnership that's successful has to be a win-win.
00:20:17
Speaker
it It can't be one way. It can't be, listen, we made a great deal and we got what we want. It's gotta be your partner has to be successful for everyone to be successful over time. So really creating that kind of relationship requires you to have a ah very meaningful conversations and assessments of what each brings to a prospective partnership. So That's what try to do as we go through that process. We think it's important for any groups to do as they're evaluating their options.
00:20:51
Speaker
Absolutely. Transparency and honesty essential from the get-go. and Right. Absolutely. So let me ask you this, are there any steps or or things that owners should do before they start this process or anything they should get in order to make sure that the process doesn't fall apart later?
Leadership & Operations Before Transactions
00:21:12
Speaker
and Absolutely. I think getting your everything in order is really important. Is really important because all of these prospective partners are going really dig into your business. So having your leadership involved and that includes your executive leadership involved in this process from the outset is really important. Even if it's just sometimes the physicians are reluctant to share with the staff that they're considering a transaction, but when the staff understands that, listen, we're just evaluating our options.
00:21:48
Speaker
And this is going to be ah meaningful for you as well, because any prospective partner is going to want quality people as part of their team. So they're going to, they're going to want to see that. So you've got a cleaning up AR, cleaning up your business. cleaning up all understanding all aspects of where you are. And you get, as you go through these processes, you get a really good insight into your business. And some of it, a lot of it good. A lot of it is, oh, we need to do this, that we never walk away from one of these saying, oh man, you guys are perfect.
00:22:23
Speaker
It's always okay. We've got to address some shortfalls that we have here. Some we didn't even know about and because we've had The ability to do this more than 300 times, it's, it it's given us a lot. We're able to share a lot of insight in terms of, okay, what are best practices? Where should we be? What, what should this look like? And it enables.
00:22:50
Speaker
organizations, surgery centers to act on that, make necessary changes or adjustments or address issues that may be there so that when you, when you go to market, if you go to market, then you've got, you've got a more desirable offering. Fantastic.
00:23:09
Speaker
Well, Jim, are there any other tips or suggestions you have for a physician owner, an ASC that is thinking or considering about a transaction in 2026? I would say that that that going back to what we talked about, there's always people knocking on your door to offer you something. And they're they're going to tell you, they this is our best offer and we'll give you our best price.
00:23:37
Speaker
Well, one of the things that we have done in every one of our 300 plus transactions, or maybe almost every one of them is get our clients a better price, better terms,
00:23:54
Speaker
by helping the prospective partners and buyers of surgery centers to understand the value of this, of the group. And and sometimes it may be from a pro forma basis. It may be saying, okay, yes, this is what this looks like, but as they partner with you, they're gonna implement your contracts and this is gonna impact their bottom line by this. So as we go through evaluation, we can get credit for that. We can improve. We know we're going to eliminate these costs as we go forward. So we look at we look at their EBITDA and and they're all their financial reports, and we can analyze them and say, listen, these these are we need to make adjustments here. We need to do this.
00:24:43
Speaker
So our job is really not just supporting the physicians, but also supporting the buying side to help them because the buyers really want want your group. They really want you and they're willing to pay for it as long as they can justify it.
00:24:59
Speaker
So helping them justify a higher price, better terms is something that they're willing to do. They just need help in getting across the line. And that's one of the things that I think we do very well because we've been doing it for so long and we truly understand their business.
00:25:19
Speaker
So I would say that's probably No matter what you have, and we have lots of case studies where we come in even after a group has offers and are able to get them significantly more or better.
00:25:33
Speaker
And so i I think it's always important to, again, going back to evaluating all your options. I love it. Yeah, that's great. ace And then I have one more question for you. it's something we ask our guests every week on the show. And that's what is one thing that ASC leaders can do this week to improve their surgery center?
Improvement Strategies for ASC Leaders
00:25:56
Speaker
One thing, and this goes back to but my days of starting when we started out, but I could probably give you 10 things. So if I have to give you one, I will say, evaluate your revenue cycle, management, and contracts, because that's, we go in and all of a sudden you're looking at this and you're saying, there's something wrong here. yeah they This doesn't match up.
00:26:24
Speaker
And could go to 10 other things like case costing, et cetera, that are important. But I think a, when it comes to bottom line, ah think really understanding your revenue cycle, how you're functioning, you know, where your dollars are coming from is really important.
00:26:44
Speaker
Absolutely. i could not agree more. Yeah. Well, thank you so much for joining me. i have learned a ton from you and I think everybody listening to this episode will as well. So thanks again for joining me. Well, thanks so much for having me and I really appreciate it and look forward to following you on future podcasts.
00:27:03
Speaker
Thank you. Okay.
HST Pathways Data Analysis
00:27:13
Speaker
Alright, let's dive into the data. So HST Pathways analyzed more than 5.3 million cases across 635 surgery centers. And this is spanning from Q1 2020 to And we took a look at demographic trends and benchmarks within ases's What we'll focus on today is talking about payment share by specialty. Again, payment share by specialty. Here's the thing to understand your case mix and your revenue mix are not the same.
00:27:47
Speaker
Case mix versus revenue mix, not necessarily the same. And if you're only looking at case volume, you're probably missing what's also driving your financial performance.
00:28:00
Speaker
When we look across the industry, three specialties are consistently anchoring the majority of patients. Can you guess what they are? Ortho, ophthalmology, and gastroenterology, which you know is not a surprise if you've been around the ASC industry.
00:28:17
Speaker
But what's interesting is how differently they contribute to revenue versus volume. So when we look at orthopedics, they continue to carry a massive share of the total payments, often hovering around 30% or more of overall revenue in a lot of centers.
00:28:36
Speaker
Even when ortho case counts don't grow dramatically, payment share stays high because these are higher reimbursed procedures. And of course, if you're Familiar with orthopedics, total joint is gaining significant economic weight as well.
00:28:56
Speaker
Over the past few years, especially since 2023, total joint procedures have steadily increased in terms of their share of total payments.
00:29:07
Speaker
But that doesn't always mean more total cases. It means more revenue per case and more complex procedures. which aligns with overall outpatient shift that we're seeing in total joints.
00:29:23
Speaker
So here's a quick gut check to ask yourself, has your total joint payment share increased since 2023, if you're doing these? And if it hasn't, it's worth asking why Are those cases still being done at the hospital? Are you constrained by some factors such as anesthesia, maybe block time, hair mix?
00:29:48
Speaker
Because when you look across the industry, total joints are becoming a bigger piece of the revenue pie. So you would hope to see that in your own surgery center as well.
Specialty Revenue & Efficiency
00:29:59
Speaker
Now, the next pattern to unravel here is Shorter-turn specialties are gaining case share, but not payment share. So think about gastroenterology and ophthalmology. These specialties are fantastic for throughput.
00:30:17
Speaker
You know, it's going to keep the rooms full. Your schedules are going to look efficient. Your utilization is going to be high. But from a payment standpoint, they don't always move the revenue needle in the same way that something like orthopedics does.
00:30:35
Speaker
So what we're seeing nationally is this divergence. Case share growth is often happening in fast-term specialties like gi Payment share growth is still anchored in orthopedics, among other specialties. And that's not a bad thing. It just means you need balance.
00:30:55
Speaker
High throughput specialties drive efficiency and surgeon utilization. Higher acuity specialties drive that profit margin and can help with financial stability overall.
00:31:07
Speaker
So what are you as an ASC leader supposed to do with this data?
Growth Strategies for ASC Leaders
00:31:13
Speaker
Here's a few suggested next steps. First, look beyond just case counts. If you're celebrating rising volume, which is great, but you're not looking at payment share or seeing that shift,
00:31:29
Speaker
then your revenue growth may be flatter than you think. Second, track payment share by specialty. I'd suggest at least quarterly, not just total revenue, but percentage of payments by specialty.
00:31:44
Speaker
And then watch how that mix changes over time. Third, pressure test your growth strategy. If most of your growth is coming from those lower reimbursement,
00:31:58
Speaker
fast turnaround cases, you're going to have high utilization, but you may need to add a parallel strategy to expand higher acuity service lines, considering something like total joints or other advanced ortho procedures.
00:32:15
Speaker
Of course, these may have other costs that you have to consider, but putting together a business case for that could help your center grow profitably overall.
00:32:27
Speaker
And lastly, ask yourself a simple question. What specialties are really driving your economics? And are you considering investing in them in the future accordingly?
00:32:41
Speaker
Because, you know, in today's environment, understanding payment concentration by specialty is going beyond just a finance exercise, but it's really going to help you drive a strategic, proactive roadmap for where your ASC needs to go and grow to next.
00:33:01
Speaker
And that wraps up this week's podcast. Thanks as always for tuning in. Please subscribe, leave a review on whatever platform you're listening on and see you again next week.