What a medical practice with its own surgery center is worth, and who buys it

Most of what we publish here is about businesses that have already sold. This one is on the market as we write.

In the early 1990s a small-town physician group opened a gastroenterology practice in Texas. In the early 2000s they added their own Medicare-certified ambulatory surgery center, in a building they bought and have held free and clear for more than twenty years. Today it is the only surgery-center-based GI provider for a wide, multi-county area, with a regional hospital nearby. The practice, the surgery center and the building are offered together, debt-free, at $10 million.

Investment Consulting USA represents the seller. The confidential profile goes only to qualified buyers after a signed confidentiality agreement, through the group’s marketplace, Kerdai Business Advisors. We are writing about it anyway, because a business like this shows, better than any closed deal, what buyers actually pay for in a medical practice. If you own one, the lessons apply whether you sell next year or in ten.

Three businesses in one building

A practice with its own surgery center is not one business. It is three, and buyers price each one differently.

• The professional practice. Office visits, consultations and the physician’s own procedure fees. Priced like most owner-operated businesses: a multiple of the earnings left after a market salary for the doctor who does the work. This is the part that depends most on the owner, and it is where buyers discount the hardest if the physician leaves on closing day.
• The surgery center. Facility fees for every procedure done in the center instead of a hospital. Medicare certification, state licensure and accreditation make these fees portable to a new owner, which is why surgery-center earnings usually command a higher multiple than professional fees. Operators and investors buy surgery centers on EBITDA, case volume per room, and how much of the volume the center can keep if a physician retires.
• The real estate. A medical building with a surgery center in it is valued on the rent the business would pay a landlord, or on an appraisal. Owning it outright, as this seller does, gives a buyer a choice: buy the building and own the rent, or let the seller keep it and sign a long lease. Either way, the building is priced on its own, not folded into the practice multiple.

Owners who have run all three for thirty years rarely think of them separately. Every buyer and every lender will.

Who buys, and how each one pays

Four kinds of buyers look at a business like this, and they arrive with different money.

• A physician or physician group. A gastroenterologist who would rather own than be employed, or a group adding a second location. They pay with a bank loan: an SBA 7(a) loan for the practice and the center, often paired with a conventional loan for the real estate. The lender underwrites the physician’s own earning power as much as the business, and will want to see cash down, usually a million dollars or more at this size.
• A surgery-center operator or management company. They are buying the center and the catchment. They pay with their own balance sheet, often keep the physician as a partner with a minority stake, and care most about how many cases stay in the building after the sale.
• A private-equity-backed platform. Gastroenterology has been one of the most active specialties for these buyers for several years. They pay for EBITDA, pay more for scale, and nearly always ask the physician to roll part of the price into the platform and stay for a few years.
• A hospital or health system. Sometimes the highest bidder, because the referrals and the catchment are worth more to them than the earnings. Also the slowest, and the most likely to restructure the surgery center after closing.

The right buyer depends on what the seller wants after the sale: a clean exit, a few more years with less administration, or a stake in something larger. That decision should be made before the business goes to market, because it changes who gets called.

What moves the number

Across buyers, the same handful of facts move the price of a practice with a surgery center. Most of them are within an owner’s control, given time.

• Whether the earnings survive the handoff. Buyers separate the fees the owner personally generates from the fees the building generates. The more the center earns from procedures by other physicians, employed or referring, the less the price depends on one person.
• Certification and accreditation. Medicare certification is the floor. Accreditation, a clean survey history and a licensed facility that a new owner can step into without re-applying add real value, because they shorten the buyer’s path to day-one revenue.
• Payer mix and documentation. Commercial contracts, Medicare and self-pay in a mix a lender has seen before, with clean collections reports. Buyers of medical practices run a Quality of Earnings review almost by default, and the center’s billing records get tested line by line.
• The catchment. Being the only surgery-center-based provider in a multi-county area is worth more than any single contract. It is also the kind of fact that must be presented carefully, because it is exactly what identifies a business.
• The transition. Buyers and lenders expect the selling physician to stay through a defined period, and to sign a non-compete that a court in that state would enforce. The length of that period and how the physician is paid during it are negotiated with the price, not after it.
• The regulatory structure. Physician ownership, referrals and the split between the practice and the center are governed by federal and state rules. A buyer’s attorney will structure the deal around them. A seller whose entities, leases and ownership records are already clean and separate gets a faster closing and fewer re-trades.

What every practice owner can take from this

You do not need a surgery center for the lessons to apply. Separate what you own into the pieces a buyer will price. Know which earnings leave with you and which stay. Keep the licenses, the leases and the entity records in a state a stranger could audit. And decide what you want the day after closing before anyone asks what the price is.

If you own a practice and have never had a straight answer on what it would sell for, start with the number. The free estimate below takes about two minutes, and nobody will know you asked. If you would rather talk first, a senior advisor will call you back within a business day.

Investment Consulting USA represents the seller of the practice described above. Qualified buyers can request the confidential profile through Kerdai Business Advisors after a signed confidentiality agreement. Nothing in this article identifies the practice beyond what is published in its listing.