Industry Leaders Discuss Top Trends in ASC Startups

We surveyed several ASC management and development companies to get their observations and opinions on the current trends and developments in de novo (startup) ASCs.

Q: Over the past year or so, would you say that you are seeing many new, startup ASCs or have there been more turnarounds or improvements with struggling ASCs?

Of the companies surveyed, most say that turnarounds are more prevalent, although de novo projects are still happening but on a much more limited frequency.

Thomas Michaud, chairman and CEO of Foundation Surgery Affiliates, says, "We have seen less and less 'quality' (projects that should happen) de novo projects each year over the past 2-3 years and expect this trend to continue. There are a larger number of distressed properties needing re-syndication and new management."

Barry Tanner, president and CEO of Physicians Endoscopy, says the economy has caused ASC startups to slow down. "Since last summer and even more so since the fall of last year, the economic climate has had a huge negative impact upon physicians' willingness to invest and banks' willingness to extend credit to new unproven ventures," he says. "We do see more consolidation in the ASC market; however, there is a disconnect between the physicians' perception of ASC values and the market. When leverage was available at 3.5-4.0 times, cash flow purchase multiples were higher. Today, with leverage multiples between 1-2 times lower than a year ago, multiples should have also retracted. Physician perception of purchase multiples have not contracted for the most part."

Tom Mallon, CEO of Regent Surgical Health, says that Regent has seen about an even split between turnarounds and de novos for their current projects. Going forward, he says, the company's prospects are leaning more toward turnarounds.

Larry Taylor, president and CEO of Practice Partners, says, "We continue to see startup opportunities as well as an up-tick in turnaround situations. De novo situations continue to have strong inquiries and interest from surgeons."

Jeff Leland, managing partner of Blue Chip Partners, says, "We see a combination of de novo and underutilized ASCs — the number of de novo projects seem to be fewer in number than in the past."

However, some companies have not seen startup projects in quite some time. Richard Pence,  president and chief operating officer of National Surgical Care, says that his company has not been involved in a de novo project since 2007.

Q: Of the start-ups you have seen, what kinds of management have you seen (such as, joint-venture, physician-owned, hospital-owned, etc.)?

Most of the companies surveyed say that their projects have tended to be joint ventures, either between a management company and a group of physicians or a hospital. However, some companies see a variety of projects, including physician- and hospital-owned.

Bill Southwick, president and CEO of HealthMark Partners, says "We have seen slightly more physician and management company opportunities, but physician, hospital and management company transactions are a close second."

Luke Lambert, CEO of the Ambulatory Surgical Centers of America, says that most of ASCOA's projects have been joint ventures between physicians and a management company. Dan Connolly, vice president of development and payor contracting for Pinnacle III, agrees that his company has seen mostly physician-owned and joint-venture projects.

Q: Of the ASC startups, have they been mostly single- or multi-specialty? What kinds of specialties are most common to new ASCs?

Among the companies surveyed, there is no clear trend between single- and multi-specialty ASCs. Some management and development companies focus solely on single-specialty ASCs, whereas others have seen a wide variety of multi-specialty centers opening in recent years. Still others say that their companies have seen an even amount of single- and multi-specialty centers opening up.

Kenneth Hancock, president and chief development officer of Merdian Surgical Partners, says, "We’ve seen a few single-specialty centers (mostly orthopedics), but most have been multi-specialty with the usual specialties including orthopedics, pain, ENT, ophthalmology, GI and general surgery."

Contact Renée Tomcanin at renee@beckersasc.com.