8 consolidation, private equity trends for ASC leaders to know

Increasing levels of consolidation are one of the factors sparking private equity interest in the ASC industry, which in turn has driven up surgery center valuation.

At Becker's ASC 25th Annual Meeting: The Business and Operations of ASCs, which took place Oct. 18-20 in Chicago, VMG Health Managing Director Kevin McDonough and VMG Health Director Colin Park discussed consolidation trends and private equity interest in ASCs.

Here are five trends Mr. Park shared on consolidation:

  1. Mega-mergers continue to make headway
  2. Payer-provider affiliations continue to emerge and expand
  3. Transactions and strategic partnerships look to leverage non-core and intangible assets, such as brand and reputation
  4. Margin compression, which negatively influences ASCs' ability to achieve growth in reimbursement, is leading providers to seek cost containment through economies of scale
  5. Traditional power-players — such as health systems and insurers — are looking to invest in areas that are traditionally under-weighted, such as ASCs, urgent care facilities or home health care

At the same time, while "overall [payer] volume is staying somewhat stable," the ASC industry is "seeing a greater percent being government volume versus commercial," Mr. Park said. Yet "as patients are becoming more responsible with their money there is greater seasonality … and with the rise in high-deductible health plans comes a rise in bad debt," he added.

Here are three trends Mr. McDonough shared on private equity:

  1. Payers are looking for areas to diversity and are increasingly investing in the ASC space
  2. Private equity funding in ASCs has reached near record levels, and the industry has almost $1 trillion in unused capital
  3. Private equity firms will likely become more interested in investing in the ASC space as more centers open

"As far as what it takes to operate a successful surgery center and the future outlook for surgery centers, the marketplace is clearly signalling that [private equity firms] are willing to pay more for surgery center opportunities, and we are seeing more pressure for acquisition and controlling interest in surgery centers," Mr. McDonough explained.

More articles on transactions/valuation:

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