ASC Acquisition Due Diligence Checklist for Physicians
Buying an ambulatory surgery center is a major investment, and thorough due diligence is an important part of the acquisition process. Before completing a purchase, physicians should carefully review the ASC’s financial performance, operations, equipment, contracts, staffing, and other important areas.
For physicians considering ambulatory surgery center financing, completing due diligence can also help provide a clearer understanding of the transaction and the total capital that may be required.
1. Review the ASC’s Financial Statements
Financial performance is one of the most important areas to evaluate before purchasing an ASC.
Buyers should review historical financial information and look for trends in:
- Revenue
- Operating expenses
- Profitability
- Cash flow
- Accounts receivable
- Accounts payable
Understanding historical performance can help the buyer determine whether the asking price is supported by the business’s financial results.
2. Examine Revenue and Procedure Volume
Buyers should evaluate where the ASC’s revenue comes from and how many procedures it performs.
It can be helpful to examine procedure volume by specialty, physician, and payer where appropriate.
A significant decline in procedure volume or heavy dependence on a small number of physicians may warrant additional consideration.
3. Evaluate the Payer Mix
The ASC’s payer mix can affect revenue and reimbursement.
Buyers should understand the types of payers generating revenue and review relevant reimbursement arrangements and historical trends.
Changes in reimbursement or payer relationships could potentially affect future financial performance.
4. Inspect Medical Equipment
Medical equipment should be carefully reviewed before purchasing an ASC.
Buyers should determine:
- What equipment is included in the purchase
- The age and condition of major equipment
- Maintenance history
- Remaining useful life
- Upcoming replacement needs
Significant equipment replacement costs should be considered when evaluating the acquisition.
5. Review Real Estate and the Facility
If the facility is included in the transaction, buyers should evaluate the property and its condition.
If the ASC operates from leased space, the buyer should carefully review the lease terms, renewal provisions, rent obligations, and other relevant conditions.
Facility improvements or renovations that may be required after closing should also be considered.
6. Examine Contracts and Agreements
An ASC can have numerous contracts and business relationships.
Depending on the transaction, buyers may need to review agreements involving:
- Physicians
- Employees
- Vendors
- Equipment
- Property
- Billing services
- Other business services
The terms of these agreements can affect the ASC’s ongoing expenses and operations.
7. Review Staffing and Employee Costs
Staffing is an important component of ASC operations.
Buyers should understand the current staffing structure and evaluate whether staffing levels are appropriate for the center’s procedure volume.
Employee compensation and other labor-related expenses should also be incorporated into the financial analysis.
8. Evaluate the ASC’s Operational Performance
Financial statements do not tell the entire story.
Buyers should also understand how the ASC operates on a day-to-day basis.
Important considerations can include:
- Operating room utilization
- Procedure scheduling
- Staffing efficiency
- Patient volume
- Administrative processes
- Technology systems
Operational inefficiencies can potentially create opportunities for improvement after an acquisition.
9. Review Existing Debt and Liabilities
Buyers should determine whether the ASC has existing debt or other financial obligations.
Understanding outstanding liabilities can help the buyer determine the center’s overall financial position and how those obligations will be handled as part of the transaction.
10. Analyze the Asking Price
The purchase price should be evaluated against the ASC’s financial performance, assets, cash flow, and future prospects.
Buyers should understand exactly what is included in the transaction and whether additional capital will be required after closing.
This can help provide a more accurate picture of the total investment.
11. Consider Post-Acquisition Capital Needs
The amount needed to purchase an ASC may not be the only capital required.
A buyer may also need funding for:
- Working capital
- Equipment upgrades
- Facility improvements
- Technology
- Staffing
- Other operating expenses
Including these potential expenses in the financial plan can help prevent underestimating the total capital requirement.
12. Build a Complete Acquisition Budget
Before completing the purchase, physicians should develop a comprehensive budget that accounts for the purchase price and expected post-acquisition expenses.
This can provide a clearer picture of the total investment and help the buyer determine what financing may be appropriate.
Final Thought
ASC acquisition due diligence should go well beyond reviewing the asking price.
Physicians should carefully evaluate financial statements, procedure volume, payer mix, equipment, real estate, contracts, staffing, liabilities, and potential post-acquisition expenses.
A thorough due diligence process can help buyers make a more informed decision and better prepare for the financial requirements of acquiring an ambulatory surgery center.
