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  • Surgery Center Buy-In

    I am negotiating an initial employment contract in a surgical subspecialty and am stuck on the surgery center buy-in. Here are the details:

    - Buy-in eligible at ~18 mo, once I become partner (a separate buy-in)
    - Buy-in based on previous 12 mo EBITDA x multiplier (between 4 and 5)
    - Offer is to purchase 20%
    - Center is currently owned and operated at only by a single physician

    My concerns are, at 18mo into practice I will likely be accounting for well over 20% of the production at the surgery center since there is only one provider there now. My increased production at the center will likely substantially increase the EBITDA and my buy-in. The harder I work to produce, the higher my buy-in will be. Would it be reasonable to ask to get the EBITDA normalized to a longer historic value than 12 months? Without violating stark laws, is there a way to restructure this that is more beneficial to me?




  • #2
    Don't have any answers for you other than to say this seems to be a bit unfair on first glance. I just signed a contract, my ASC buy in is solely based on the value of all hard assets, not on EBIDTA. that seems unnecessarily confusing and ripe for gaming. Further, the opportunity to only buy 20% is of course unfair as well esp if you are generating close to 50%.

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    • #3
      Base the option on the EBITDA ending the date the option is granted (now) or adjust the EBITDA to back out business generated by you.

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      • #4
        We have a buyin of a rolling 5 years. That gives you a normalized buy-in versus good or bad years.

        If the other Dr owns 100% now, I would negotiate a 50% buy in over 3 years or so to make you guys equal partners. I would also stipulate min cases per year and buy-out at retirement.

        For example, you can't retire and keep your shares. Instead you are purchased out over 5 years based on the same valuation when buying in.

        This may be harder to grasp or negotiate with one physician but it's how our 15 owner asc operates.

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        • #5
          Agree with others - that's a truly bad deal. If only one doc owns the ASC, you must be given an equal share if you're going to be an equal partner. Remember that under Stark you will only get the profits based on % ownership, not volume. So to do 50% or so of the cases and get 20% of the profits, is essentially being an indentured servant. Valuing based on EBITDA is fairly standard, however the 4-5 multiple is again, way too high. Not sure what surg sub you are, but in our only-GI center and others I know, a reasonable multiple is closer to 2.5 to 3 to an incoming doc. When we brought in a corporate partner and sold 51%, that multiple went to around 10 for them; but to a partner doc we would never consider that. All docs buying in have a completely equal share.

          I would never agree to less than equal ownership if you expect you'll do fairly equal numbers of cases. I don't quite understand how an ASC can have only one owner, but nonetheless that sounds like a really bad deal. Would reassess your options.

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          • #6
            Originally posted by ScopeMonkey View Post
            Agree with others - that's a truly bad deal. If only one doc owns the ASC, you must be given an equal share if you're going to be an equal partner. Remember that under Stark you will only get the profits based on % ownership, not volume. So to do 50% or so of the cases and get 20% of the profits, is essentially being an indentured servant. Valuing based on EBITDA is fairly standard, however the 4-5 multiple is again, way too high. Not sure what surg sub you are, but in our only-GI center and others I know, a reasonable multiple is closer to 2.5 to 3 to an incoming doc. When we brought in a corporate partner and sold 51%, that multiple went to around 10 for them; but to a partner doc we would never consider that. All docs buying in have a completely equal share.

            I would never agree to less than equal ownership if you expect you'll do fairly equal numbers of cases. I don't quite understand how an ASC can have only one owner, but nonetheless that sounds like a really bad deal. Would reassess your options.
            51%—Is that amsurg? Was it worth bringing them in?

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            • #7
              It'll probably take an altruistic physician to offer you half of what they've presumably built, even if it's at a fair price.

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              • #8
                Originally posted by GastroMastro View Post

                51%—Is that amsurg? Was it worth bringing them in?
                Yes; for sure. (And it was Amsurg - they've partnered in around 250 centers I believe). I think it depends on age of docs in the group, what you plan to do with the capital you get from the sale, etc, but for a doc less than 10 yrs from retirement it was a no brainer. If you blow the money on cars or other depreciating assets it might be a mistake, or if you sell before the ASC is mature and generates a high EBITDA, it might not be the right move. We considered several times over about 7 or so years, had multiple bidders, and sold with a high EBITDA.

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                • #9
                  We have a few senior partners that have a few extra shares compared to everyone else. It's hard having the conversation to make them sell and be equal with everyone else.

                  They always bring up the years it wasn't profitable and how they lost money a few years. The counter argument is how many extra years of profits do you need to feel that you made up the difference.

                  The answer is that we just suck it up and let them have extra shares. In ten years, when only a few have extra shares, it'll be easier to vote them down to equal.

                  Another thing to talk about is the addition of the next partner and where the shares come from. If you get equal split, then equal share to next partner. If you only get your 20%, then make sure the next partners share come out of the 80% pie and not yours.

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