Ambulatory surgery center transactions — Current trends and concepts for 2015

The ambulatory surgery center industry is the "wild west" of transactions, with hospitals, corporate entities and even large standalone ASCs looking to acquire, joint venture or merge with centers across the country.

Jim Jenkins of Bass, Berry & Sims examines healthcare transactions and joint ventures in the ambulatory surgery center space.

Q: Do you expect to see healthcare transactions in the ASC space increase or decrease over the next few years?

Jim Jenkins: I think transaction volume will remain fairly steady. We will continue to see consolidation in all aspects of the healthcare industry, and I think consistent with that trend we'll see continued consolidation driving ASC transactions. I think you'll also see some interesting joint venture-type transactions, with participants looking for ways to work together to deliver care in a high-quality, low-cost manner.

Finding a way to deliver healthcare in a more cost-effective manner drives transactions. ASCs are less costly than hospitals, so they are an attractive way to move procedures from the higher cost to the lower cost setting. People are looking for ways to deliver the same care in a lower cost setting.

I'm seeing a lot of collaboration among all participants in the healthcare market, including joint ventures between hospitals and surgery centers.

Q: What are the most common issues in transactions today?

JJ: Transactions are complicated and require advance work to ensure they go smoothly — in terms of things we see, the physicians not doing the advance work to get the ASC ready to sell, understanding if there are third-party consents required to close the transaction, and, in some cases, how the ASC can be separated from a larger entity or businesses. Being proactive about those types of issues leads to a more efficient transaction.

It's difficult for physicians to give up control when they sell or joint venture their surgery center. I think a lot of those control issues can be resolved, but it is important to pick the right partner with a similar vision for the surgery center.

Q: For joint venture surgery centers, what ownership structure do you usually see? Who is sitting on the board of directors? Who makes the decisions?

JJ: Some partners are very prescriptive about how the surgery center will be run and who controls decisions regarding certain issues. Other partners are more flexible about governance issues. It varies from transaction to transaction based on the participants. Some have shared governance. Some have shared governance, but one entity retains ultimate control. Others have complete control held by one party. I think there are all kinds of different structures that can work — it's up to the parties to decide. Some partners will only do the deal if there are certain terms. It is important to know your partner and know their views on those issues. You want to know on the front end to what extent you will have a role in decision-making, or are you ceding that role to the other party. I've seen people in joint ventures have different standards and desires in terms of the level of control they exercise.

Q: How can physician owners make the most out of ASC transactions?

JJ: The most important thing is to be prepared. You have to go through the process and do due diligence. It's important to get good advisers who understand transactions and know what to expect out of the transaction. They can help you prepare for the transaction, identify consents that are required or contracts that need to be amended in connection with the transaction, and ensure that the transaction goes smoothly

Q: Is there anything that often surprises ASC owners in the process?

JJ: If they have good advisers that help them run the process, things shouldn't come as a surprise. They understand what the process entails.

Q: How long does it typically take from start to finish to close a transaction?

JJ: It depends — in a normal transaction with a surgery center management company, it depends on state notice or approval requirements. You can typically complete that kind of transaction in 60-90 days. Hospital or health system transactions typically take longer, depending on the nature and complexity of the transaction.

Q: How can you tell whether your group is ready to enter into serious negotiations?

JJ: I think it's important that the physician partners are aligned about the strategic vision for the center. I've seen situations where you have a group of physicians where some want to remain independent, while others want to pursue a sale or joint venture. It's important for the doctors to talk about those issues on the front end so you can run an efficient process. You don't want to get into the middle of a transaction and run into a philosophical split among the partners.

I think it's important as a seller to get that out of the way on the front end so you don't find out you've picked the wrong partner or get into the process and become bogged down because there are ongoing discussions about what the physicians want to do.

Q: How will this consolidation impact the healthcare system over the next several years?

JJ: The healthcare industry is going to see continued consolidation. Participants are looking to provide better quality care, but at a lower cost. Potential transaction partners may have greater expertise and resources, and that will continue to be important as the healthcare industry seeks to provide care in a more cost-efficient manner in an increasingly regulated environment.

Jim Jenkins is a Member of Bass, Berry & Sims and chair of the firm’s Healthcare Practice. He carries nearly 20 years of experience in hundreds of mergers, acquisitions, strategic relationships and joint ventures

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