United Surgical Partners International Senior Vice President of Acquisitions Michael Stroup and Ambulatory Surgical Centers of America CEO Luke Lambert discuss the biggest trends in the ambulatory surgery center industry over the next five years.
1. Diversified ASCs are attractive. Multispecialty surgery centers can command a higher value because they are able to manage risk better in the volatile healthcare market. If a surgery center is dependent on one specialty, and reimbursement is cut for that specialty, the center is in trouble. "As a buyer, I'm willing to pay more for centers wit ha safer cash flow," says Mr. Stroup. "A big part of that is diversification."
2. Same-store growth is still lackluster. ASC companies used to have 3 percent to 5 percent or higher same store growth, but that has flattened out over the past few years. Now, Mr. Stroup says same store growth is coming back and companies are getting smarter about organic growth.
3. Independent physicians are still available, just harder to find. "A lot of markets have become picked over because there are fewer physicians to recruit," says Mr. Lambert. "There are a few markets we've been in for several years where we've been talking to physicians for years and when their hospital contract comes up we try to recruit them. It's been a long-term game."
Mr. Lambert has more success with this model in smaller, isolated markets, especially when hospitals recruit the physicians that go into private practice when their contracts expire. "In the isolated markets, there tends to be a more vibrant independent group of physicians in private practice," he says. "In markets where the physicians are all tied up at hospitals and nobody is working independently, we have to bring in surgeons from other markets to do cases at the ASC."
4. Hospital partnerships are the way of the future. Most of the new USPI ASCs are joint ventures, which could lead to additional affiliations down the road. "We are dealing with a risk-taking environment," says Mr. Stroup. "When our partners have ACO discussions, we make sure they view us as a strategic partner, not just the outpatient providers."
ASCOA is also looking at their affiliations and partnerships with large health systems expanding in the future. "We teamed with some systems that have very aggressive surgery center strategies where they want to develop 10, 15, 20 ASCs over the next several years," says Mr. Lambert. "Our challenge is to help it make sense for them in the short term because the system isn't ready to empty out their hospital outpatient department."
5. Old referral patterns are changing for some specialties. Primary care physicians are employed at a higher rate than in the past, and referral patterns are changing with increased consolidation. "If we have tight narrow networks, physicians feel because they are independent others aren't referring to them because they have to refer within their network," says Mr. Lambert. "Then we have to seek out alignment."
Some specialties, like ophthalmology, have dodged the referral pattern changes, while others like orthopedics and GI are feeling the pinch.
6. Spine center contracts remain difficult to obtain. Medicare added spine codes to the approved list beginning this year, but it's still challenging in many markets to achieve fair reimbursement. "If you can get spine, it's great, but it's hard to get reimbursed well," says Mr. Stroup. "If the payer sees the value in outpatient spine surgery, it pays off. But there are a lot of spine centers that don't do well because they can't get paid."
7. Hospitals that turned ASCs into HOPDs now need to reverse. There were many hospitals purchasing ASCs and converting them into hospital outpatient departments to achieve better managed care contract rates. However, as volume drops and pressure to lower prices continues, some are converting back into ASCs.
"My guess is we'll do our first couple conversions of a hospital outpatient department into an ASC over the next 12 months," says Mr. Lambert.
8. Out-of-network is less attractive to buyers. While there are still opportunities for out-of-network contracts in some states, centers relying on OON strategy are less attractive to buyers. "Our rule of thumb is until there is 30 percent or less exposure to OON, it doesn't make sense for us," says Mr. Stroup. In some markets, primarily OON centers have seen their EBIDTA drop considerably and are looking to management companies to help them go in-network before their value drops further.
"Most of these centers come to the conclusion that they need someone with expertise to take them to the next level," says Mr. Stroup.
9. Consumerism and self-insured employers are a huge opportunity. Patients are shopping for healthcare online and through third parties to find the best quality and lowest cost care settings. Self-insured employers are also looking for beneficial partnerships. "I think consumerism is exciting," says Mr. Stroup. "We are working with companies to help educate the self-insured population."
10. ASCs are in a strategic market position for the future. All healthcare stakeholders are looking for ways to lower healthcare costs; hospitals, payers and patients. This is especially true as more stakeholders take on risk ASCs have the low-cost, high quality reputation, and price transparency will prove their superiority. "I'm not worried about the next five years," says Mr. Stroup. "We are on the right side of the cost equation."
11. Consolidation among ASCs is combating underutilization. "There is tremendous underutilization across the ASC industry," says Mr. Lambert. "And that's an opportunity." Some centers are merging with one another to create a larger entity, or one center purchases another outright. There are also situations where an existing center allows a separate entity to use the space with a "center-in-a-center" model.