The past year has been extremely challenging for the entire healthcare sector. ASC management companies are no exception.
Industry consolidation coupled with the COVID-19 pandemic have created an environment that's been difficult for ASCs to navigate. Looking ahead, significant changes are expected to healthcare payment models, organizational structures and more. For leading ASC management companies, the current environment has made the motivation to explore new strategic alliances stronger than ever.
Becker's ASC Review recently spoke with three experts about the value of partnerships with a larger ASC management organization like Surgical Care Affiliates (SCA):
- Mark Langston, SCA's chief development officer
- Larry Taylor, former CEO of Practice Partners in Healthcare (PPH)
- Rob Carrera, former CEO of Pinnacle III
They shared how partnering with SCA can benefit an ASC management company's patients, financials and physicians, resulting in long-term growth and top-quality patient care.
Question: What initially made you consider becoming part of a larger ASC management organization?
Rob Carrera: My partners founded Pinnacle III in 1999, and I joined in 2005. As we saw industry consolidation increase, we felt that partnering with a larger ASC management company was a natural avenue to explore. Prior to Pinnacle III, my partner and I worked for a large ASC management organization; we were very familiar with the business model. It seemed like a better option for the partners in our surgery centers and our teammates than private equity firms and other potential investors.
Larry Taylor: Originally, I worked for a large ASC management organization and then founded Practice Partners in Healthcare in 2005. I built PPH on a de novo platform to a level where it would bring value to a larger organization and our partners. When we reached the end of our fund with our private equity firm, we began looking for a new home. I wanted the best company for our team, facilities and physician partners. We spoke with a high number of companies in the industry. Over the years, I developed strong contacts with the SCA team that facilitated our transaction
Q: What was important to you as you assessed potential partners?
RC: We wanted a win-win-win situation — a partner that would be great for our clients in our centers, our teammates and the leadership team. Many groups approached us, but one of my physician partners said it best: most only brought money to the table and there was no real benefit beyond the dollars. As we looked for companies to venture with, we wanted a group that would be accretive to our clients and teams.
All healthcare is local. We wanted a partner that would invest locally in our markets, innovate and drive patient flow. Pinnacle III strived to be a net driver of patient flow for its ASC partners, since that's a big component of growth.
LT: When I started Practice Partners in Healthcare, I wanted to develop a forward-looking, one-stop shop for the ASC industry and give physicians a say about how things work in the organization. Maintaining that culture and mission was a very large focus as we assessed potential partners. I felt that our philosophy aligned strongly with SCA. We found that SCA had both the human capital, knowledge and capabilities to move our platform into new territory. That was exciting for us.
Q: What made SCA a good fit and what did they bring to the table that differentiated them from other potential partners?
RC: In our business, many companies are simply chasing rates. SCA's focus was cost effectiveness for the whole healthcare continuum. We found that attractive and we thought it would be attractive to our partners, as well. It's hard to go to your partners and say, "Hey, this is a great deal for us, but we're not quite sure what the deal will be for you." You need a partner who can bring something to the table for all the stakeholders.
When you align with SCA, there's a list of benefits like a national employer presence an ability to help with rates, purchasing power, innovation and new structures. Pinnacle III had recently developed analytics internally and SCA took those to another level. The analytics made a significant difference in patient care and the economics of the business. SCA had national relationships, bench strength that added to us as an organization and an expansive view of the marketplace.
LT: Healthcare is a service industry. Trust develops from people and communications. Both of those were important aspects of our discussions with SCA. As we considered the future of our company, we wanted a landing place for all our personnel and the stability of our partnership. That was a very important aspect for a potential home. In terms of culture, SCA is a big organization that acts like a smaller company. It reacts and responds to situations quickly and in the interest of all parties.
Q: Since becoming part of SCA, what results have you seen?
RC: We sold Pinnacle III to SCA two weeks after the COVID-19 shutdown. The advantages of working with a much larger organization during this time were amazing. All our partners appreciated the guidance about navigating the shutdown, from securing personal protective equipment to analyzing different financial programs available through the federal government. As the pandemic has continued, the benefits of the partnership have been amplified.
Equally important, SCA recognized the quality of our people and our teammates are thriving. We've seen a reduction in commodity prices at the ASCs, we can cast a larger net when we hire and bring more resources to bear to enhance the business for our partners.
LT: During our initial discussions, SCA made several commitments and they have followed through on all of those. My entire team has been integrated into the SCA family with new roles, goals and pathways for professional growth. I was also impressed by SCA's response to the COVID-19 pandemic. They were proactive with regard to protocols, procedures and testing. On top of that, SCA paid, encouraged and supported employees across the board. It's a striking example of an organization living what they say they are going to do.
Q: What advice would you give other mid- and smaller-sized ASC management companies that may be looking for a partnership?
RC: The due diligence process is essential to finding a partner that's the right fit. Look first at which partnerships will give your clients the best bang for their buck. Spend time understanding the organizations that may be courting you. What's their long-term plan for your business? As you move further into the process, make sure that you've engaged your team.
LT: I think that a focus on core values is most important. I can't stress SCA's integrity enough. The promises made and promises kept were aligned. It's not luck. It's part of the SCA culture and it's an invaluable asset.
Q: When you speak to ASC management companies about becoming part of SCA, how do you describe SCA's value proposition?
Mark Langston: SCA has a very strong culture. In addition, we create strategic benefits that enable physicians and ASCs to enhance their local strategic opportunities. We make sure they get the right connectivity with health plans and primary care and enhance their ability to grow. We also ensure that employees are integrated into SCA in a meaningful way, so they can continue their great work.
Q: What are some of the biggest challenges that ASCs faced in 2020 and how have partnerships with SCA helped address them?
ML: During the pandemic, most facilities nationwide shut down. We are proud that SCA didn't furlough any employees and we paid teammates at the facility level. We implemented a level of protection that was unsurpassed in the industry. Since SCA's broader organization has multiple business lines, we could provide employees with alternate venues for work.
During the height of the pandemic, we restructured our organization into task forces to address issues like PPE. We were also on the forefront of helping the industry move forward. Dr. Dan Murrey, our chief medical officer and president of Optum Specialty Practices, helped guide the Ambulatory Surgery Center Association (ASCA) and advised federal and state agencies on best practices. Looking back on the past few months, we've learned a lot about ourselves, built credibility across the industry and discovered we can handle just about anything.
Q: How can SCA help partners realize long-term success?
ML: SCA's value proposition is differentiated and touches at multiple levels. First the ability to create models of care between primary care and surgeons is a huge differentiator of SCA, second the ability to connect with health plans and build value-based payment models that create benefit for the facility, the physician practices, the health plans and for patients is unprecedented. Last and probably most importantly, our ASCs deliver quality care in a patient focused environment.
We want physicians participating in governance at the highest levels. Physicians have a seat at the strategic table and engage in conversations about how to create a differentiated approach in the marketplace. We recognize that physicians also have financial concerns during transactions. When SCA participates in a liquidity event, we stack up incredibly well compared to competitors.
As ASC management companies consider a partnership, a common concern is their pipeline of new or future facilities. SCA structures transactions in creative and fair ways to accommodate future growth plans. In transactions when organizations have the right people, culture, physicians, specialties, geographies and clinical outcomes coming together, it creates value for all parties.
No matter what path ASC management companies choose for their business, seasoned leaders recommend taking a proactive approach to exploring different options. "It's better to plan for the future when you're in a strong position than at a later stage when you need to be reactive. If you're doing well, it's not a moment in time that should be squandered," said Mr. Carrera.