Flipping HOPDs to ASCs: A new industry trend? 5 key thoughts from ASCOA CEO Luke Lambert

Hospital outpatient departments have traditionally yielded favorable reimbursement, while remaining firmly under a hospital's control. Oftentimes hospitals in the market for ASC acquisitions would buy a center and convert it into an HOPD. But, recently there have been a number of transactions completely opposite in nature.

Hospitals are now under pressure to find high-quality, low-cost settings for care. ASCs are ready-made to meet these demands, while serving as strong vehicles for physician alignment. Luke Lambert, CFA, MBA, CASC, CEO of Ambulatory Surgical Centers of America, offers five thoughts on the forces driving hospitals to convert HOPDs and ASCs and the process behind this budding trend.

1. Hospitals are rethinking an old strategy. There a significant number of HOPDs that once used to be ASCs. "The situations where we've seen hospitals interested in turning HOPDs into ASCs have represented a reversion to the facility's original status," says Mr. Lambert. "[The facilities] enjoyed high reimbursements and profits for a period of time but found after five or more years they struggled to maintain case volume. Rather than allow the HOPD to become a money loser, they decide to sell part of it to area physicians to run as an ASC again."

2. Not all struggling HOPDs will be converted. Some hospitals may seize the opportunity flip an HOPD, but this will not always be the case. Many of these facilities are not freestanding and would be more of a struggle than benefit to convert. "I think there will only be a few of these conversions each year as there are not many HOPDs that are freestanding and frequently hospitals are happy to close them if the cases will move to their other hospital ORs," says Mr. Lambert.  

3. Timing is everything. This type of conversion would likely be subject to review and approval in certificate of need states. Hospital leaders have to consider how navigating the regulatory process will impact the project's likelihood of success. "If a hospital waits too long then physicians may develop their own projects. If done too soon the hospital may unnecessarily forego profits," he says. "It varies by state but the relevant health authorities will generally approve these conversions without much hassle as they don't add new ORs, and the conversions will reduce the cost of healthcare in the community."

4. Physician involvement will make or break the project. There remains a significant pool of independent physicians, but that pool is not limitless. Depending on the market, independent groups may be considering their own ASC projects or considering partnering with a competing hospital. If the conversion is to be successful, a hospital will need to find a group of physicians willing to purchase a stake in the center.

5. ASC management companies can be valuable partners. Hospitals can flip HOPDs singlehandedly, but it is often helpful to involve an outside party that has experience in the ASC industry. ASC management companies can be key in identifying and engaging a physician group for the project. "Typically a management company will organize the physician group that purchases the facility, manage the facility after it becomes a joint venture with physicians and participate as an investor in the center," says Mr. Lambert.

More articles on transactions and valuation issues:
8 new outpatient surgery centers in June 2015
10 hospitals & health systems opening ASCs – July 14, 2015
4 recent ASC acquisitions & partnerships – July 7, 2015

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