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Combining Forces: Are ASC Mergers the Answer to the Challenging Healthcare Environment?

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James JacksonThe ambulatory surgery center market is abuzz with joint ventures and acquisitions, but these are not the only transactions coming to the fore. James Jackson, senior vice president of operations with United Surgical Partners International, discusses the strategic timing and steps to take for an ASC merger.

"While these types of transactions may appear less common than a traditional acquisition by a hospital or management company, we are expecting more activity of this nature within the ASC industry," says Mr. Jackson.

Strategic reasons to consider an ASC merger include:

•    Financial struggle. A struggling ASC may benefit from alignment with a successful center through enhanced stability and performance.
•    Payer contract pains. One center's leaders may choose to combine forces with another to gain access to more favorable payer contracts.
•    Outdated space. Leaders of older ASCs may be attracted to a merger with a facility with newer space and technology.
•    Market saturation. "As surgery centers have proliferated, de novo opportunities are increasingly rare and in many instances markets are over-developed," he says. This scenario creates the perfect opportunity for two centers to meld and use collective resources to outperform the competition.

"Overall, a merger should be considered when the respective facilities have the opportunity to pool resources, take advantage of economies of scale and position themselves positively in a rapidly changing marketplace," says Mr. Jackson.

Testing the waters of partnership
Mergers typically do not involve a capital event for physicians or other owners, unlike an acquisition, but successful mergers are considered carefully before taking the plunge. Here are three issues to evaluate before two ASCs become one:  

•    Valuation. Each center will need to be valued to determine post-merger ownership for all parties. Often, an impartial third-party firm will perform the valuation.
•    Due diligence. Each party will evaluate the other to gain an understanding of how their businesses could meld and grow together.
•    Organization. Individual ASCs are organized and operated in unique ways. Organizational documents will need to be changed or replaced to reflect the combined businesses.  

One location or two?
A merger combines two businesses into one, but which ASC moves its operations, if at all? "Typically, volume is consolidated in the larger facility in an effort to reduce duplicative overhead and operate as efficiently as possible," says Mr. Jackson. "However, we have experience mergers whereby multiple facilities in market merged and each facility continued to operate in its original location." Mr. Jackson has observed an ASC merge with a competing hospital-owned surgery center to gain access to superior managed care contracting, but remained in place to avoid the disruption of relocation. The motivation behind the merger will decide whether or not one business entity means one physical location.

Physician factors
Dilution of ownership is the biggest impact physicians can expect from an ASC merger, particularly if a hospital or health system is involved in the transaction. Aside from the financial aspect, day-to-day operations will change. Physicians will be faced with greater competition for operating room time, clinical personnel and other resources if all case volume is brought under one roof.

"Finally, it is critical physician ownership groups be prepared for and address any differences they may have of a political, cultural or competitive nature during the transaction so they can have the healthiest partnership dynamic going forward," says Mr. Jackson.

More Articles on Transactions and Valuation Issues:
ASCs vs. HOPDs: 4 Expected Unexpected Consequences of Rate Equalization
4 Recent ASC Acquisitions, Mergers & Conversions
7 Recent ASC Announcements, Expansions or Openings

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