From: Becker Scott <>
Subject: The Top 10 Events Impacting ASCs for 2007: Change in Payment System and Rates, Physician-owned Hospitals Under Siege, Out-of-Network Crackdown; Deadline to Advertise in Jan./Feb. Issue Dec. 14


December 11, 2007
In This Issue
The Top 10 Events Impacting ASCs for 2007
News and Notes
Companies to Watch
Jan.-Feb. Issue ad
The Top 10 Events Impacting ASCs for 2007

The following is a list of the top 10 events for 2007 impacting ambulatory surgery centers. This list is, of course, subject to debate.

1. Change in payment system and rates. The event that may have the largest impact on ASCs is the change in the payment system for surgery centers. ASCs, after a long battle, have received the opportunity to bill on a comparable system as hospitals. However, comparable is in the eyes of the beholder. Rather than billing at the same rates as hospital out patient departments, surgery centers can bill at approximately 65 percent of what hospitals bill at. The system will phase in over four years. Under the system, there are clear winners and losers. Surgery centers that do higher-acuity cases tend to win. Surgery centers that handle lower-acuity cases tend to lose. In any event, the impact of the change in the system will be felt for a long time.

2. Going private. The year witnessed three important transactions that involved large, publicly traded surgery center chains going private. These included the sale of the surgery center division by HealthSouth to SCA, and the going-private transactions of United Surgical Partners and Symbion.

3. The divide between the haves and have-nots in the ASC sector. There seems to be a clearer and clearer breakdown within the surgery center business between haves and have-nots. This includes individual centers that do not have enough cases to operate effectively, and centers that do tremendously well. More and more, it seems that there is a clearer breakdown between those centers that are successful and those that are not.

4. New (old) strategies for hospitals. Increasingly, hospitals have returned to an old strategy. This is the strategy of employing physicians and is often not focused on specialties. This has left many surgery centers without enough available partners to succeed and without enough independent physicians to recruit. This has changed the environment for ASCs significantly in many communities already.

5. Physician-owned hospital politics. The physician-owned hospital industry remains under siege. Due to a few Republican leaders who do not quite grasp the concept of free enterprise and capitalism's driving innovation, and the work of some regulatory-driven Democrat leaders, there continue to be aggressive efforts to stop the growth of physician-owned hospitals. Rather than viewing this as one of the great innovations in healthcare (higher and focused quality and a potential for lower cost), it is being viewed as a competitive issue that should be stalled before it impacts the existing hospital bureaucracy. There is an absolutely tremendous quote and discussion of the original hearings on capital hill related to this issue in a book by Regina Hertzlinger titled Who Killed Healthcare. Here, Ms. Hertzlinger tells the following story on pages four and five of her book:

The real issue here is power: the less you and I know about the facts, the greater the power of those in the know-the hospitals, the insurers, and the health policy researchers.

This hearing in 2006 convinced me that some members of the American Congress were not interested in protecting the uninsured by compelling transparency. This got me really worried.

The second experience was also a congressional event, and it proved to be my personal tipping point. It was here that I saw that the U.S. Congress was even willing to suppress competition in order to protect the powerful, entrenched status quo healthcare institutions.

This epiphany occurred at a meeting set up to inform congressional legislative assistants about a new kind of hospital, a small one that specializes only in certain complex, high-tech procedures, like those for treatment of heart disease. These hospitals were partially owned and managed by doctors. It has long been my view that such specialty hospitals generally provide better, cheaper health care than the everything-for-everybody general hospital. These specialized hospitals can become really expert at the focused services they offer because they are run by knowledgeable and experienced doctors-which is often not the case with non-medical administrators in the huge general hospitals most of us frequent.

The hospital sector sorely needs innovation. Hospitals account for most of the costs and cost increases in health care, yet they provide such wildly erratic quality that hundreds of thousands of patients die yearly from medical errors that occur in hospitals. Although this innovation of small specialized hospitals was only a gnat relative to the size of the trillion-dollar general hospital sector, it potentially posed a major threat to them, and they knew it. To protect their position, the hospitals did what they always do: they ran to the legislators and tried to kill this potential competitor through politics, urging the Congress to pass the laws that would legislate this form of hospital out of existence.

The key witness at this event was the CEO of a chain of 24 non-profit hospitals who claimed that the impudent, venal 55-bed specialty hospital in his hospital chain's region would limit the ability of his billion-dollar nonprofit hospital chain to give free care to the poor and subsidize the very sick. He argued that the interloper hospital was hurting his own hospital's ability to help the uninsured because it was siphoning away his best-paying patients, hobbling his ability to help the uninsured as much as he wanted to.

Those in attendance nodded in agreement. They believed him. Most of the legislative assistants were in their 20s -- too young to be dubious. How could one argue with the charitable intents of hospitals called "St. Elizabeth's," "Swedish Lutheran," or, in this case, "Sioux Valley Hospitals & Health System" (since renamed Sanford Health)? After all, they've been cornerstones of our communities for as long as anyone can remember. The other attendees in the room knew better, but they were in their 50s, veterans of Capitol Hill, long pickled and emasculated by Beltway cynicism.

Unfortunately, the U.S. Congress bought the hospital executive's argument too. In a virtually unprecedented move, it shut down his competition with a moratorium on the expansion of specialty hospitals.

Let's peek beneath the veil of the purity and altruism in which this chain of nonprofit hospitals cloaked its argument and look at its financial results. The facts provide staggering repudiation of its expressed point of view. In 2003, while the hospital was supposedly locked in a death struggle with the entrepreneurial specialty hospital, it still managed to earn $26 million in profits after all expenses were paid, and it held another $50 million in cash and liquid investments. This is the money left over after all charitable activities have been completed. These are huge amounts of money for a supposed nonprofit. Then, in 2004, after Congress hamstrung the competitor, profits and liquid assets grew by 15 percent, a rate of growth most Fortune 500 companies would envy. Indeed, the hospital was fat enough to donate millions to activities like its local high school football league, which received nearly $200,000.

6. FASA-AAASC merger. This year marks the merger of the two largest trade associations for surgery centers. The remarkably well-led and -directed FASA merged with the viable and improved AAASC to create a much greater institution representing surgery centers. This could not have come at a better time. The surgery center association has done an outstanding job of protecting the interests of surgery centers throughout the country. To join FASA (to be named the Ambulatory Surgery Center Association -- the ASCA or the ASC Association -- as of Jan. 1) call (703) 836-8808.

7. Spine and bariatrics. These two specialties have evolved to comprise very important procedures for surgery centers. While many administrators are still struggling to figure out how exactly to make spine and bariatrics work in their centers, increasingly, these are core parts and drivers of ASCs in many places. We expect to continue to see growth of these procedures at ASCs over the next few years.

8. Out-of-network crackdown. We are seeing, in New Jersey, New York and several other states, legal actions armed at slowing down and stopping the use of out-of-network strategies. Given the small number of payors and the clout they have, this again provides incredible leverage to the payors as to price and reimbursement negotiations.

9. Codey case. Recently, a New Jersey case decided that a statute in New Jersey long held to allow physician-ownership of ASCs doesn't in fact allow physician-ownership. Since New Jersey has a great number of the country's surgery centers, this is a finding that, even though not binding, will potentially have a significant impact on surgery centers in New Jersey and throughout the country.

10. New ASC conditions for coverage. CMS, on the heels of issuing a new payment rate for surgery centers, also issued new conditions for coverage for surgery centers. Certain of these will cause significant confusion in surgery centers, including new discussions of 23-hour requirements and what kind of cases surgery centers can handle.

SMP ad
News and Notes

Jan./Feb. ASC Review's. We expect a record Jan./Feb. issue. It focuses on 40 companies to watch, an orthopedics and spine medical device market letter and bariatrics in ASCs. The advertising deadline for the issue, which will be distributed to 25,000 people, including approximately 19,000 surgeons and proceduralists, is Dec. 14. Should you have questions about advertising in future issues of the Becker's ASC Review please e-mail Jessica Cole or call her at (312) 505-9387; e-mail Emily Noyes or call her at (773) 454-7445; or e-mail Ryan Kiernan or call him at (202) 337-1893.

Acquisition activity. ASCs Inc. recently reported several completed deals and, with over 30 ASC management companies seeking investments, a significant uptick in merger and acquisition activity. The company advised the sellers in recent large transactions for a GI center in Lancaster, Pa., and a multi-specialty center in Havertown, Pa., both at premium multiples, and has six additional deals in the closing phases. Jon Vick, the president of ASCs Inc., reported a significant upturn in transaction activity for GI centers with multiples in excess of 6 being offered and for multi-specialty centers with multiples of 7 or more being offered. The key to a successful sale is growth potential of the center; centers with unused capacity are attracting premium offers. For more information, visit ASCs Inc. on the Web or call (760) 751-0250.

John Cherf. Thank you to John Cherf, MD, MBA, MPH, who spoke at our last Webinar. More than 50 people heard John's comments on orthopedics for the next several years. He did a terrific job and had outstanding information. Dr. Cherf may be the perfect board member for a healthcare company or speaker at an event; you can contact him here.

Hiring. We are seeking a very smart, very high-energy college graduate or ad sales person to work with ASC Communications in Chicago. If you know of someone who may have an interest, please let me know or have them e-mail Scott Becker or Emily Noyes. The position is challenging and will entail a variety of sales and administrative roles. The focus is expected to be on circulation management, electronic sales, and audio conference development and management.

Update on June Orthopedic- Pain Management- and Spine-Driven ASC Conference: Tucker Carlson to speak. The agenda and program for this event is nearly complete. We will have a robust agenda with approximately 70 different presentations. Further, given the proximity to the '08 presidential race, we have secured political commentator Tucker Carlson as a lead or keynote speaker. Overall, it will be a terrific event.

We will again be offering CME credit for physicians and we expect to exceed last year's attendance of 480 at this event. Aside from sizable attendance, we receive great feedback on the quality of the audience.

Three senior level sponsorships available for June Orthopedic- Pain Management- and Spine-Driven ASC Conference. We are offering a new senior level sponsorship for this event that will be limited to three companies. The senior level sponsorship will ensure complete broadcast of your company and what it does throughout the event and leading up to. For example, aside from introductions at the start of meeting and at lunch, we will have huge signage related to the senior level sponsors, pay for a suite for three nights for the sponsor to use for some entertaining, provide 10 free passes to the event (for use by sponsor personnel and colleagues), include a double exhibit booth, reserve a table at lunch for the sponsor and take several other steps to help ensure senior level sponsors maximize the marketing benefits of the meeting.

If you reserve a senior level sponsorship in the next week-and-a-half, we can also highlight this fully in the conference brochure, which will be mailed to 125,000 to 145,000 people. The exhibitor-sponsor prospectus will be out in a week or so for reservations. We will provide it to ASC Review advertisers first and then prior exhibitors and sponsors.

Should you have questions regarding sponsoring or advertising, please e-mail Scott Becker, and he will refer you to the right person; or e-mail Jessica Cole, e-mail Emily Noyes or e-mail Ryan Kiernan. For editorial ideas or news and notes, please e-mail Stephanie Wasek.

Thank you, new and returning advertisers. We are delighted to have back as full-year advertisers two of the very best healthcare valuation firms in the country. Each of Healthcare Appraisers (contact Todd Mello or Curtis Bernstein) and VMG Health (contact Greg Koonsman or Elliot Jeter) have renewed for 2008. Each are outstanding and focus heavily on work with hospitals and ASCs.

We also welcome back CIT HealthCare for another year, and Anthony Mai and his team; as well as McKesson Medical, a new full-year full-page advertiser; and McShane Medical Properties (contact John Daly, Ray Braun or Alex Hlavacek).

We are also thankful to Bruce Bright and Sanders Trust, a buyer of healthcare real estate who have renewed for a full year of advertising. And to Jack Amormino and AMB Development, thank you for returning for another year of advertising. Thank you very much!

Welcome new advertisers. Thank you to Manning Search Group, which offers middle management and executive search and recruitment with ASC-industry-specific focus, for joining the ASC Review. E-mail Roger Manning or Cathy Montgomery for more information.

And thank you to Ion Healthcare for supporting the ASC Review. Ion provides a turn-key solution for screening and management of patients with sleep apnea referred to your ASC. For more information, e-mail Steve Burton.

Free teleconference on healthcare issues in states. McGuireWoods is hosting a free teleconference on Dec. 12 targeted to state-specific healthcare issues. The program, "A Current View of North Carolina's Certificate of Need Program: Thoughts for Hospitals, ASCs & Other Providers," will be held Weds., Dec. 12, from 12:45 to 1:45 p.m. (ET). For more information about this event, or to register, please e-mail Andrea Green or call (312) 750-8896. You may also register online.

June conf ad w Emily
Companies to Watch

We are delighted to highlight the following companies in this week's E-Weekly.

Physicians Endoscopy. Physicians Endoscopy develops and manages endoscopic ambulatory surgery centers in partnership with practicing GI physicians and hospitals. We currently partner with 150+ physicians in Arizona, California, Florida, Indiana, Michigan, North Carolina, New Jersey, Ohio, Pennsylvania, Texas and Washington. The company's physician and hospital partners enjoy majority equity ownership and maintain all facets of local control, while PE holds a minority ownership position. It's 14 operating centers provide services to 125,000+ patients annually. The company has five additional centers under development. The strategy is simple: service. Physicians Endoscopy is forthright, reliable, and communicative, and we deliver upon expectations and promises. Additionally, its centers regularly deliver a greater-than-50 percent profit margin. Visit them on the Web at", or e-mail John Poisson or call him at (215) 589-9003.

Meridian Surgical Partners. Meridian Surgical Partners is an ASC company focused on partnering with physicians to reach the highest level -- the meridian -- of a joint venture opportunity. The company accomplishes this through taking the time and working with its partners to define what success means for every unique partnership, and then tailoring each joint venture to meet these defined parameters of success. The Peak Program enables every Meridian facility to achieve the right combination of performance, efficiency, achievement and knowledge to be successful. Meridian is actively seeking established ASCs that want to maximize financial performance; ASCs in need of a turnaround; and de novo opportunities. E-mail Jennifer Fuqua or call her at (615) 301-8156 for more information.

Somerset CPAs. Somerset's healthcare team is comprised of more than 20 dedicated professionals serving clients nationwide, including all types of healthcare organizations - ancillary service providers, surgery, imaging, infusion and dialysis centers, therapy facilities, other relevant ancillaries and physician groups.

Somerset has extensive experience in development and/or renovation of single- and multi-specialty ASCs, MOBs and single-specialty hospitals. Somerset prepares feasibility studies, valuation of ASC and specialty hospital ownership interests, operations reviews, accreditation, revenue cycle assessment, benchmarking and succession/strategic planning.

The company provides strategic planning, change management, income distribution design, succession planning, business process improvement and revenue cycle management, tax and accounting services. For more information, visit Somerset CPAs online.

Kaye/Bassman International. Greg Zoch is a partner and managing director with Kaye/Bassman International, a 26-year-old executive search firm. Mr. Zoch specializes heavily in the ASC world. He has served many of the industry's largest players by finding top talent at the facility and corporate level. He's also helped build start-up and early-stage ASC companies by filling key positions, as well as individual physician-owned ASCs. Mr. Zoch has been an active FASA member for years and we invite you to speak with him should you have any urgent, critical or confidential staffing needs. You can e-mail Mr. Zoch or call him at (972) 931-5242 x5290.

*           *           *

If you have any questions on any of the items listed in this letter, please contact me at (312) 750-6016 or by email at

Very truly yours,
Scott Becker

Scott Becker, JD, CPA
(312) 750-6016

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