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How Much Is This Surgery Center Worth?

Former physician-owner clashes with ex-partners over buyout amount.

Published: June 11, 2013

Thomas Leach, MD, decided to leave Princeton Surgiplex in 2008, 6 years after launching the surgery center with a pair of physician partners. The plastic surgeon was owed a buyout based on the fair market value of his nearly 18% ownership share. So why, he wondered, did the facility in the tony New Jersey town depreciate more than $3.5 million in 2 years?

Physicians Business Advisors (PBA), a healthcare consulting firm in Omaha, Neb., valued Surgiplex at $3.6 million in late 2004 and $5.9 million in the summer of 2006. Because Dr. Leach resigned 2 years after the most recent biannual appraisal, the partners' operating agreement mandated a reassessment of the facility's market value.

David Shuffler, a former PBA employee who had moved on to 7/49 Solutions, a healthcare practice appraisal company in Cresskill, N.J., valued Surgiplex at $2.325 million as of June 30, 2008. Dr. Leach, sensing a lowball figure aimed at reducing the value of his ownership share, sued his former partners for breach of contract, fraud, negligent misrepresentation and breach of fiduciary duties, among other charges.

A trial court granted the partners summary judgment, ruling they complied with the terms of the operating agreement by working with Mr. Shuffler to determine the surgery center's fair market value. Dr. Leach appealed the decision, claiming he was entitled to a meaningful review of the appraisal.

In all 3 valuations, court records show, Mr. Shuffler based the facility's value on adjusted net cash flow (EBITDA), debt service coverage ratio (DSCR) and amortization rate. For the 2008 appraisal, however, he altered the calculations used to determine EBITDA and DSCR. When asked about his change in approach, Mr. Shuffler acknowledged he could have adjusted EBITDA to reflect Surgiplex's financial trends, but chose not to -- and gave no reason for his decision.

Dr. Leach alleged the new math didn't account for Surgiplex's revenues during the first 6 months of 2008, which reduced the facility's value and, therefore, his buyout. Jeffrey Pollock, his attorney, also points out Mr. Shuffler met with one of Surgiplex's remaining partners on 3 occasions, when his client was technically still part of the business. Perhaps that's when the partner directed Mr. Shuffler to make the appraisal "defensible," as court records indicate.

A state superior court recently overturned the lower court's decision, ruling Dr. Leach has the right to question the methods and motives used to calculate the appraisal that impacted the value of his ownership share. The retrial should begin sometime in the fall, according to Mr. Pollock. Attorneys for Surgiplex and Mr. Shuffler did not respond to requests for comment.

Daniel Cook


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