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LEGAL UPDATE
Like many other businesses, an ASC can be valued in several
ways. Perhaps the most common approach to valuation is based on
a multiple of the center's historical earnings before interest, taxes,
depreciation and amortization (also known as EBITDA). Oftentimes
an investor acquiring a majority interest is willing to pay a higher
multiple to obtain control over decision-making and other rights.
The physician-owners' minority shares are valued at a discount, in
comparison to the majority interest, because they're subject to restrictions, buyback, non-compete provisions, a lack of control over decision-making and a lack of marketability. As in any business transaction, valuation consultants typically take such factors into consideration when determining the relative fair market value of ASC equity.
But, as alleged in the Simmons case, an ASC management firm that
artificially inflates share price to incentivize existing physician-owners
to keep bringing cases, and that sells shares to new referring physicians at artificially deflated prices a few months later to incentivize
them as well, skirts the boundaries of legal valuation.
Wake-up call
The case serves to emphasize the importance of ensuring that ASCs'
equity transactions and other financial arrangements involving physician-owners and their referrals are defensible in the eyes of regulatory
agencies.
ASCs and corporate partners should carefully, conscientiously
choose — and document — the method they use for determining the
fair market value of the facility's equity at the time of the sale. They
might consider obtaining an independent fair market value appraisal
to validate the purchase price. Such validation is particularly important when a management firm acquires a majority stake with the
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O U T PAT I E N T S U R G E R Y M A G A Z I N E O N L I N E | N O V E M B E R 2013
