As 2018 begins, physician-owners are developing strategic plans and examining their long-term options. More and more, the importance of private equity’s interest in specialty medical practices and surgery centers is being considered and discussed by physicians throughout the United States. What is going to happen in 2018? Should I consider a sale to private equity? How do these transactions work? Is private equity my best long-term option? Is this the best time to make a deal?
EBITDA is a key component to the accelerating consolidation trend within specialty physician practices. It is the single biggest determinant in valuing practices, and subsequently the purchase price paid by private equity firms. But what does it mean? Officially, EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is intended to represent the firm’s actual pre-tax cash flow before financing and investing activities. Essentially, it is the cash flow that an acquirer is “buying” from the practice’s current owners.
Private equity is buying physician practices and surgery centers, and its hunger for healthcare provider businesses continues to boom. Today, it was announced that KKR is acquiring Covenant Surgical Partners, a leading operator of ambulatory surgery centers and physician practices in ophthalmology and gastroenterology.
Private equity firms are showing increased interest in physician-owned assets including medical practices. This article dives deeper into how PE firms operate and what they hope to accomplish.
What are Private Equity Firms?
With the healthcare trend turning toward lower-cost services and specialization, physician-owners of profitable and successful ambulatory surgery centers (ASCs) and medical practices will soon be approached by buyers looking to
Medicare and Medicaid are important aspects of the healthcare system. However, in order for healthcare organizations to participate in and receive federal payment, they are required to meet the government prerequisites for program participation called Conditions of Participation (CoPs) or Conditions for Coverage (CfCs).
These certifications are obtained based on either a survey conducted by a state agency on behalf of the federal government, or by a national accrediting organization. These organizations include the Centers for Medicare & Medicaid Services (CMS), The Joint Commission (TJC) and the Accreditation Association for Ambulatory Health Care (AAAHC).
Certain specialties are more suitable for ambulatory surgery centers than others. Typically, ASCs focus on ophthalmology, dermatology, and endoscopy. Therefore, it comes as no surprise that within the top 10 procedures performed by ASCs in 2016, the majority fall within one of those categories.The data, according to Becker’s ASC Review, shows that the top 10 procedures accounted for more than 50 percent of the total Medicare ASC spending last year.