Outlook for the ASC space: How to position for the next big opportunities

There are several ways ambulatory surgery centers can continue growing their business today, including looking for new partnerships, procedures and payment models for the outpatient setting.

Hospital partnerships — Time is running out
Joint ventures between hospitals and physician owners are becoming commonplace. "There are more physicians today reaching out to bring in hospital partners," says Jeffrey Simmons, CDO of Regent Surgical Health. "Old businesses need to grow to survive and ASC owners are looking to bring in more physicians to their medical groups and ASCs."

But the hospital partnership window won't be open forever, and in some markets it's already drying up. The best hospitals for partnership are those with experience partnering with physicians, but don't already have an outpatient center presence.

"We see hospital partnerships as an opportunity for the next three to five years," says Tom Mallon, founder and CEO for Regent Surgical Health. "After hospitals get networks built out and achieve the shift toward value-based payment, we think the number of ASCs will flatten out and remain that way for the next 10 to 15 years."

The best places for potential growth are in the Northeastern United States, Mr. Mallon says, where hospitals haven't yet embraced the joint venture model and states have certificate of need legislation. The hospital partnership could have several benefits, including:

• Leverage for managed care contracts
• Alignment for future narrow networks
• Allowing employed physicians to perform cases there
• Referring patients to their partners

These benefits could help the ASC survive, particularly as the financial climate changes in healthcare. Insurance companies are limiting out-of-network opportunities and many ASCs are now looking for in-network contracts.

"Unless your surgery center was in a market where payers pay a lot for your cases, the low hanging fruit has been out-of-network contracts. But now payers aren't paying for non-contracted cases as easily," says Mr. Simmons. "We saw this coming years ago and while out-of-network still exists in certain markets, I think the future is going to be all contracted cases. Hospital partners can play a role in achieving good contracted rates."

ASC company M&A
Mergers and acquisitions at the ASC management company level are growing. Last year, Surgery Partners purchased Symbion and AmSurg acquired Sheridan Healthcare. In March, United Surgical Partners International acquired Tenet Healthcare's outpatient services business, showing companies are looking past just the outpatient surgical center model.

"Health systems are going to look for a one-stop shop for ambulatory care centers, and they are increasingly important in the future," says Mr. Mallon. "The question is whether the hospitals will go with companies that own all the parts of the outpatient services or to companies where the model is to assemble best-in-class services in the region and develop a group of joint ventures. That's what we see as the question for the market to decide."

Over the past several months, Regent Surgical Health has expanded their scope to include outpatient services beyond surgical care, such as imaging, urgent care and therapy. Hospitals and health systems are now looking to develop outpatient medical campuses that include multiple services.

"We see ourselves growing into the role of coordinating more than just ambulatory surgery in the outpatient centers," says Mr. Mallon.

Procedure evolution — Looking upstream
Another huge opportunity for ambulatory surgery centers will be bringing new procedures and technology into the outpatient setting. At the same time, procedures are also moving out of the ASC into the office-based setting.

"We continue to move upstream," says Mr. Mallon. "We saw pain cases decrease dramatically as Medicare increased the in-office differential in 2012. Then in 2013 and 2014, Medicare dramatically decreased the differential, but this year they increased it again. As that happens, we're reaching upscale to do more total joints and spine procedures."

Commercial payers are spending $45,000 to $60,000 for total joint and spine procedures in the hospital while ASCs charge $12,000 to $15,000 for the same procedures. As a result, for the appropriate patients, payers are supporting the move to the outpatient setting.

"As technology increases, the inpatient procedures will continue to move outpatient," says Mr. Mallon. "Right now, 60 cents out of every dollar is spent on outpatient procedures; it used to be the other way around. I think inpatient beds will decrease as outpatient beds increase."

Time will tell what the next big procedures to move outpatient are. One could be pacemaker placements, which have been done successfully in ASCs and reimbursed well, but haven't become common for ASCs, potentially due to the high volume of hospital-employed cardiologists.

"We'd like to see the business model that includes pacemaker change-outs increase, but it just hasn't," says Mr. Simmons. "They are done successfully in a few of our centers but haven't really taken off."

More articles on surgery center:
14 ASCs taking on price transparency
How much does it cost to build an outpatient surgery center?
ASC leaders: Beware of benchmarks


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