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ASC Ownership Trends: Are Physicians Making the Investment?

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As the ambulatory surgery center market continues to develop this year, physicians who own surgery centers — as well as those who are unaffiliated — will take a hard look at whether or not surgery centers are still a wise investment.

Eric Gleichman serves as the chief development officer for Nueterra Healthcare's U.S. operations. Mr. Gleichman works closely with the ASC market, and is optimistic surgery centers are crucial to the future of success of cost-efficient healthcare.

Here he outlines what the current physician ownership market looks like and what physicians should consider before investing in an ASC.

Question: What does the current ASC market look like in terms of physician ownership?

Eric Gleichman: We still believe that ASCs provide an outstanding opportunity for physicians in terms of a great place to practice and a great place to treat their patients, as well as generally remaining a viable financial investment with reasonable return potential. We are all well aware of the many benefits of an ASC, from patient satisfaction, to lower costs and superior outcomes.

A key driver in evaluating the ASC market and investment potential is to look at the underlying foundation, meaning the role of ASCs in the future of healthcare. We all know the challenges facing healthcare in our country, specifically the rising cost of healthcare. Care provided in traditional acute care big box hospitals is expensive when compared to the same procedures performed in an ASC. As payers (government and private) look more and more to quality outcomes, patient satisfaction, as well as price to determine the most appropriate site of service, you have to believe that ASCs are well positioned to be part of the solution.

ASCs provide the right care at the right price with great outcomes. Couple these factors with the ever-increasing list of ASC approved procedures, and we believe more and more cases can, and should, be performed in an ASC and that makes ASCs part of the solution. We believe that we will get to the point where cases are required to be performed in the lowest cost, most appropriate setting, with the best outcomes.
 
Q: Is it a good time for physicians to be buying or selling ownership in ASCs?

EG: This would depend on the specific situation but, in general, we think it is a good time for physicians to be part of an ASC, and if they are not currently involved in one, to either join one, start one or affiliate and start doing cases at one.  
 
Q: What advice do you have for current physician owners to improve their investment?

EG: For an existing ASC:

•    Look to become part of a bigger network, and that does not necessarily mean a health system's network. Look to be a part of a wider network of like-minded providers and facilities to connect to other providers and the consumers. Those networks are out there, and we are building them.
•    Have a succession plan for when partners leave or retire before someone announces they are leaving or retiring.
•    Be nimble and not rigid. Healthcare is changing, reimbursement is changing, technology is changing rapidly; be ready to adapt, but also plan for the future. Look forward and think about what you can do or what might be possible, not just what you did in the past.
•    Work with a great healthcare lawyer who can guide you safely though the regulatory environment and transactions.
For a new ASC: Pick your partners carefully, whether "partners" means other surgeons, corporate partners/management companies or hospitals/systems. Look for a long term philosophical fit, not just the biggest short term payday.
•    Look for other physicians that want to support your ASC and are not in multiple other ASCs. Look for those physicians who are genuinely and passionately concerned about outstanding patient care and outcomes. Look for physicians who are not difficult to work with, even if they are busy. If they cannot or will not work well with the other physicians or the staff, they will likely become problematic at some point.
•    Look for a corporate partner or management company that has a vision for more than just your ASC, but for your practice, and your patients. Will they help your ASC grow and will they help your practice grow? Will they help you to secure your referral base and connect your practice and your ASC to consumers, be they patients, employers or others? Ask them HOW they will do that.
•    If it is a hospital/system, try to understand their real motivation for wanting to partner with you. Do they really want to be your partner or just eliminate you as a competitor? How have they treated you in the past? Think hard if the relationship will work long term.
•    Hire a great progressive thinking healthcare transaction lawyer.  

Q: What do you think will be the predominant ownership arrangement for surgery centers this year and in the next few years?

EG: The model's we have today will be the models in the next few years.

1.   100 percent physician.
2.   Physician & hospital/system joint ventures
3.   Physician & corporate partner/management company
4.   Physician, hospital & corporate partner
5.   100 percent hospital/system
 
A number of variables will determine the best fit for a particular ASC. Each group will determine which variables are most important to them but some to be considered include:

1. The level of independence desired by the physicians. Some physicians wish to remain independent and free of the local hospitals/systems, while some want the perceived security of partnering with a hospital/system.
2. Current local politics or relationship dynamic with their local hospitals or systems. If the local hospital is, or is perceived, by the doctors, to be progressive thinking and physician-friendly, they may find a way to work together. Many times the relationship with the local hospital can be chilled or even adversarial, in which case partnering with one another is not likely to produce a good long term result.

Q: Are hospitals still looking to acquire ASCs or has that acquisition trend slowed down?

EG: We are still seeing this trend. The amount of equity acquired by the hospital does vary, generally from 100 percent to 51 percent. The hospital's motivation for the acquisition often drives the percentage to be acquired. If their intent is to eliminate competition, then the hospital will usually come in and acquire 100 percent and make the ASC an HOPD (where allowed).

However, if the goal is to create alignment with physicians, particularly where the physicians may not be utilizing the acquiring hospital, then we see more of an effort for the hospital to partner and acquire less than 100 percent, still generally at least 51 percent, but in some cases less. It just depends on the hospital's motivation.
 
Q: What advice would you give to a physician who currently does not have any ASC ownership interest? Should he or she look to buy in or affiliate?

EG: For all the reasons discussed it is a good time to be part of an ASC. There are many factors to consider when deciding whether to buy in or simply perform cases at an ASC. Intangibles, such as: Do you know the other doctors? Are they a high caliber? Can you work with them? Is the location convenient for you and your patients? Do you know the clinical staff and are they good?

Tangibles, such as: How much is the buy-in amount? Can you afford it? How is the center performing financially? How much debt does it have? How much debt, if any, would you have to guaranty? What is your return on investment? Do they have the equipment you need, or are they willing to get it? What are the ages of the other physicians, and how long will they be around? What is their reputation, clinically? What are their clinical outcomes? Do they have a history of litigation (either: malpractice or lawsuits with current or former partners or employees)? There are many other factors to consider and you should engage financial and legal advisors familiar with the ASC industry.

If after evaluating these factors you do not wish to buy into in the ASC, it may still be a great place to affiliate and perform your cases. However, if you do buy into an ASC, find the best one for you and commit to it and support it. Do not buy in to multiple ASCs.
 
Q: Are there any other trends you are seeing in terms of physician relationships with surgery centers?

EG: In the last few years with the debate over healthcare reform and the passage of the Patient Protection and Affordable Care Act (PPACA), many physicians were rightly wary of the unknown, and we saw some degree of flocking to the hospitals and systems looking for a safe haven to mitigate their uncertainty, with the perceived stability of a hospital or system.

While that uncertainty is not completely gone, physicians are a little less nervous and are looking again at more options that just hospitals/systems as their safety net. There remain a large number of entrepreneurial and independent minded physicians that are open to forward thinking proactive solutions and who do not necessarily see hospital/systems as the only solution.
 
In summary we are still bullish on ASCs and believe they are part of the solution to the country's healthcare challenges.

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