2014: A Promising Year for De Novo ASC Activity?

Is there still room for new ambulatory surgery centers to open their doors in increasingly saturated markets? CEO of Physicians Endoscopy Barry Tanner and Reed Martin, COO of Surgical Management Professionals, offer a forecast for the future of de novo activity.  

"The industry has to face the reality that the double digit growth we saw in the early 2000s is not likely to continue," says Mr. Martin. Though de novo ASC growth may not be as robust as it once was, there remain opportunities to support moderate growth.

Opportunities vs. Challenges

Independent physicians are the backbone of the ASC industry, but that well is no longer as full as it once was. Hospital employment of physicians is on the rise and many of the physicians that remain independent are already established in ASCs. "The standard challenge is organizing the physicians, gaining their commitment and investment, before the facility actually exists," says Mr. Martin.

Barry TannerPhysicians that prepare to open a new ASC may underestimate the breadth of the project they have undertaken. There is a significant financial investment and time requirement; Mr. Tanner points out that developing a single-specialty GI center can take more than 3,000 hours of personnel time from beginning to end. "CMS certification can take up to ninety days and third-party payer contracts weeks beyond that. Many physicians fail to fully understand this aspect of the development process," says Mr. Tanner.


Physicians opening de novo ASCs may be able to find a measure of payer support.
"Third-party payers realize that the cost of performing a GI procedure in a hospital outpatient setting is far greater than having the same physician perform the same procedure in a freestanding ASC," says Mr. Tanner.

Mr. Martin has found one of the most promising areas of de novo activity lies with existing facilities, whether a hospital, ASC or clinic. Existing facilities may view an ASC as an opportunity to expand into different markets or to extend reach in a particular region.

CON vs. Non-CON markets
The absence or presence of a certificate of need program is one of the most influential factors in an ASC's market. "Some of the best opportunities are in states where there has been a relaxing of the CON regulations thereby making it more possible for physicians to develop their own ASC," says Mr. Tanner.

For states that remain strictly regulated by CON regulations, physicians may find ample opportunity in cities just beyond those state's borders. Location in a non-CON state lowers the number of regulatory hurdles to clear and offers an attractive option for patients in the nearby state that may have limited access to such a service within their own borders.

Joint venture vs. standalone
Two of the three de novo ASC projects SMP has planned for 2014 are joint ventures with hospitals. Though a joint venture partner has not become necessary to open a successful de novo ASC, the right partner can provide an extra level of support. Mr. Martin envisions the right management company as an experienced partner that holds a minority share in the center.

"The right hospital partner views the ASC as a win, as a way to further grow roots in community for the hospital and specialists rather than as a source of lost cases and revenue," he says.

Standalone, physician-owned ASCs remain a viable model, as long as physicians are prepared to dedicate the time necessary to develop and open the ASC and commit to the work needed to run a quality center. "A joint venture partner is not an absolute must but it should be viewed as an insurance policy," says Mr. Tanner.

More Articles on Transactions and Valuation Issues:
ASC Management & Development Companies: A Growing Market Power?
5 New & Expanded Joint Venture Ambulatory Surgery Centers
40 Ambulatory Surgery Center Acquisition Agreements in 2013

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