4 reasons consolidation likely won't win out in the ASC industry

The pandemic accelerated consolidation in healthcare with more physicians becoming employed and practices selling to hospitals or corporate entities. But the ASC industry remains fragmented, with 72 percent of surgery centers still independent, according to VMG Health.

The ripple effects of COVID-19 stifled mergers and acquisitions within the field, according to a VMG Health report, because of the uncertainty and revenue lost when centers shut down.

Industry experts have been predicting the death of small and independent ASCs for the past decade as healthcare consolidates, but the mix of independent and non-independent ASCs hasn't meaningfully shifted. Here are four reasons the ASC industry will likely remain largely independent.

1. Large ASC companies often are looking for rapid growth, which means acquiring smaller ASC chains to amass market share quickly. For example, in 2020 Surgical Care Affiliates acquired Practice Partners in Healthcare and Pinnacle III as part of its growth strategy. United Surgical Partners International more recently did the same, acquiring SurgCenter Development and multiple Compass Surgical Partners ASCs last year.

Even as USPI aims to grow from 430 ASCs to more than 600 by 2025, the company plans to add only 77-90 ASCs through acquisition; the rest will come from new center development.

2. Hospitals see ASCs as a major aspect of their strategic growth as more procedures go outpatient, but instead of investing in existing centers, they are opting to develop ASCs internally. Health systems even partnered with a few high-profile ASC companies, including ValueHealth and Regent Surgical Health, in 2021 to help them build their networks.

3. It is in the best interest of the healthcare system, and insurance companies, for ASCs to remain independent. It has been well-documented that prices go up when ASCs and physician practices are bought by hospitals or corporate entities. As costs for running surgical groups and physician practices increased in the last year, insurers took notice and created programs to financially support physician independence in some areas. Some insurance companies are also creating policies to drive members to independent ASCs based on their high-quality, low-cost reputation, which could prove an important lifeline as the market consolidates.

4. Although more physicians are choosing hospital employment right out of training, there is still a desire for independence among surgical specialists. Large independent physician groups with fellowship programs show physicians how to run a practice outside the hospital, and the potential for autonomy as an ASC owner is attractive.

The emphasis on eliminating noncompete agreements could also spark an exodus from hospital employment of midcareer physicians who now have the means to invest in private practice but previously thought they did not have a path out of that employment.

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