Ambulatory surgery centers (ASCs) are increasingly important to health systems’ long-term growth strategies. ASC partnerships or purchases can increase a health system’s revenue and capacity and improve the organization’s reputation and patient experience, while meeting consumer demand for convenient care.
In an executive roundtable sponsored by ECG Management Consultants held at Becker’s 31st Annual Meeting: The Business & Operations of ASCs, Emily Lopez, associate principal at ECG Management Consultants, moderated a discussion with three ECG Management Consultants colleagues: Sean Hartzell, principal, Karen Kole, principal, and Jared Langus, partner.
The group engaged roundtable participants in a discussion about the optimal ASC models for a health system’s goals and market position.
Three key takeaways were:
- Financial and capacity issues are driving health systems to explore ASC partnerships. Increasingly, many payers are demanding that health systems move cases from hospitals to outpatient or ambulatory settings. Mr. Langus explained that site-neutral payment policies result in organizations receiving ASC-level reimbursements for procedures, even if surgeries are performed in the OR. “This is a huge factor affecting hospitals,” he said.
Another key driver of migration of procedures to ASCs is limited hospital capacity. Many health systems are looking at partnerships as a way to shift volume to ASCs, tertiary and quaternary facilities. ECG supports health systems with site-of-service analyses to determine which cases end up in the OR and whether they should be performed there.
Ascension’s recent acquisition of AmSurg illustrates how ASC partnerships can increase health system speed to value. Mr. Hartzell described this transaction as a “game changer.” By purchasing AmSurg, Ascension now has national reach through hundreds of surgery centers across the country, increasing its distribution and patient access channels.
- ASC operating agreements must cover key equity and ownership considerations. These include equity thresholds, vesting periods, capitalization, valuation determination and ownership qualification criteria. The structure of operating agreements can impact ASC purchase and partnership deals. According to Ms. Kole, a one-time event, such as purchasing a surgical robot, can make an ASC’s EBITDA significantly higher or lower. Applying a multiple to the EBITDA can dramatically change the purchase price. Operating agreements must define what to do in those situations.
Successful surgery centers that have operated for a long time can be prohibitively expensive for newer owners. Transactions are often a good time to amend or restate operating agreements with unit caps, vesting schedules and buy/sell triggers that require people to sell at a certain age or if they can’t keep up with a minimum case volume from a quality perspective. It can be helpful to bring in outside experts to help with this work.
- ASC valuations aren’t etched in stone. On the revenue side, the specialty, payer mix and demographics can affect ASC valuations. “The multiple offered is dependent on how stable the cash flow is,” Ms. Kole said. “The more stable it is, the higher the multiple.” On the expense side, ASCs need line of sight and transparency into clinical operations and compliance, finance and business operations, as well as business development and strategy.
ECG helps clients improve their valuations through operating assessments and payer contract analysis. “Our payer team can help renegotiate payer contracts,” Mr. Langus said. “Once EBITDA increases, we recalculate the valuation.”
