4 Predictions on ASC Profits and Procedures in 2012 and Beyond
1. Higher-risk centers can still be attractive. Luke Lambert, CEO of ASCOA, says riskier centers may still attract buyers — just not the typical "timid" buyer who is owned by institutional investors. Even if these riskier centers can be purchased relatively cheaply, executives find it untenable to have to explain revenue declines to their boards a couple of years after an acquisition, even if they were priced with that expectation.
"There are plenty of well-run out-of-network facilities out there, but most have risk," he says. "Just because you have reimbursement risk doesn't mean you're not well-run. Timid buyers just don't have stomach for them." Other center characteristics that contribute to center risk include physician age, one or two payors dominating the market and hospital employment of referral sources and specialists.
He says in 2012, the biggest risk factors for surgery centers will be reimbursement and physician hospital employment. If a surgery center is located in a market where the local hospital is employing physicians and buying up practices, the value of the center will be less to those entities not having a presence in the community, but may increase for those battling for share in the community.
A perennial source of risk for many surgery centers results from not having solid non-compete agreements with their physician owners. It's natural that a center's big producers look for ways to capture a greater share of the profits they generate and that can lead them to consider competitive investment opportunities.
2. Minimally invasive procedures continue to increase. Minimally invasive surgical techniques are increasing and allowing more procedures to move to the outpatient setting, and this trend is expected to continue, says, T.K. Miller, MD, of Carilion Clinic Orthopaedics and Medical Director of the Roanoke Ambulatory Surgery Center
Dr. Miller says that minimally invasive hip procedures such as arthroscopic hip reconstructive procedures are transitioning to the ASC environment. This transition will continue over the next few years. "Hips are where shoulders were 10 years ago," he says. "We start with diagnostic capabilities, evolve to debridement and clean up and, as instrumentation evolves, are moving to consistently reliable reconstructive techniques."
As with most sports-based surgeons, Dr. Miller now does almost all of his shoulder reconstructions with arthroscopic techniques and says this trend will be seen with other joints. He says hip is next on the list. Another procedure increasingly done in the ASC setting is hysterectomy — specifically laparoscopic and vaginal hysterectomies. Amy Rosenman, MD, urogynecologist, clinical assistant professor at the UCLA School of Medicine and in private practice at Saint Johns Health Center in Santa Monica, Calif., thinks there will be an increase in laparoscopic and vaginal hysterectomies performed on an outpatient basis. She sees the change depending on a good post-operative care program. "We've gotten there with midurethral slings," she says. "We can get there with hysterectomies."
The Advisory Board, a research, consulting and technology firm, predicted laparoscopic hysterectomy procedures would increase starting in 2010 and that by the end of 2010, 44 percent of all hysterectomies performed in the United States will be done laparoscopically. By 2017, this figure is expected to jump to 55 percent.
3. Private equity groups may offer higher prices than hospitals and management companies. According to Ambulatory Alliances President Blayne Rush, as management companies and hospitals continue to acquire and partner with ASCs, the ASC industry will also see increased interest from private equity groups and financial investors. Historically, ASC management companies and hospitals have competed to offer competitive prices for surgery centers — a competition that may be challenged by private equity groups. "I believe that now and in the future, financial buyers — that is, private equity groups — will outpace all of them as far as price paid," Mr. Rush says.
He says the reason for this higher price can be linked to a few factors. According to Mr. Rush, private equity groups are typically paid on a "two-and-twenty" basis, in which they receive 2 percent of their payment on the amount earned under management and 20 percent of the gain in the value of the fund. Funds are typically set up with a 10-year fund life and six-year investment duration, but if the group does not deploy the money, they are forced to repay the 2 percent management fee.
In many cases, that money has already been spent by the time the group is asked to repay the funds, so groups will be looking for new investment opportunities, Mr. Rush says. "If you get the private equity group into a bidding or auction process, sometimes they'll think, 'If I give half a point more, I'll get the deal versus staying at the bid I'm at right now and not getting the deal,'" he says. "If they have no other deals on the table, they'll give another half point to get that one." This may give the group more motivation than a hospital that seeks to acquire the ASC for strategic purposes.
4. Physician groups are combining their offices and surgical centers under one roof to maximize efficiency. More physicians want to have control over their revenue and procedures, says Robert Henry, senior vice president of Development at Symbion Healthcare, who sees an increasing amount of opportunities centered on smaller ASCs focused on the physician's own efficiency, energy and time.
"I just met with a large group of orthopedic surgeons who are considering moving into a newly proposed office complex," he says. "Structurally, they would like to have a surgery center on the first floor, and their offices and clinic on upper floors in the building — the type of model where the surgical facility and the physician's office share the same space. The hospital, as well, is in close proximity to the new center. From their viewpoint, this is a highly efficient and attractive setup. They have not broken ground and are looking at a year-long plus construction process, but they will be able to have their practice and facilities exactly where they want them."
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