Surgery Partners CFO: 5 keys for the future — payer partnerships, future acquisitions & more

Surgery Partners spent much of 2018 shifting strategy to focus on its ambulatory surgery center business instead of its ancillary business, after CEO Wayne DeVeydt came on board in January 2018.

After closing two surgical hospitals, closing or selling five ASCs and closing or consolidating 16 physician practices, the company is now taking this year to reflect and move forward, according to CFO Tom Cowhey during the Jefferies 2019 Global Healthcare Conference on June 4 in New York City. Surgery Partners also entered into its first companywide group purchasing organization last year and consolidated health plans for team members to realize financial savings.

"I really think we've done a tremendous amount to put this company on the right path," said Mr. Cowhey, who also defended the company's move toward musculoskeletal procedures and discussed plans for the future.

Five key points:

1. Although surgery centers typically see a lower volume of orthopedic procedures than GI or ophthalmology, the potential revenue from those cases is higher. Orthopedic surgeries command more reimbursement dollars than other low acuity procedures, and Surgery Partners found implant-based cases drive twice as much revenue per minute in the OR than other cases.

As a result, the company is now focused on recruiting more orthopedic physicians and driving those cases. The company almost doubled the number of total joint replacement cases in its ASCs from the first quarter of 2018 to the first quarter of 2019.

2. Despite the focus on its core ASC business, there are reasons for Surgery Partners to hold on to its other assets. "I think for the most part we're very comfortable with where the portfolio sits right now," said Mr. Cowhey, addressing whether the company would prune additional assets this year. Surgery Partners maintains a short stay surgical hospital business, an anesthesia business and optical assets.

3. Historically, Surgery Partners hasn't participated in GPOs or standardized orthopedic implants. While Mr. Cowhey said the company will not standardize implants going forward, there is an opportunity to leverage buying power when centers do have similar purchases.

"I think that the opportunity here is…how do I consolidate my buying power in like facilities and like geographies to approach the manufacturers in an organized fashion so they recognize the buying power that we have," said Mr. Cowhey. "Where we've had the most success is where doctors are willing to say we have A or B, we have some facilities that have done that and the price changes you can get there are dramatic."

4. Surgery Partners aims to spend around $80 million to $100 million on mergers and acquisitions. The company has had success doing small one-off deals that tend to be non-competitive and have low single-digit multiples. In other broker-led deals, Mr. Cowhey said the company saw deals in the 7 to 8 multiple range.

5. Payer partnerships are still on the horizon for Surgery Partners, Mr. Cowhey said. He previously served as the CFO of Aetna's health plan business and brings the payer perspective to his current role. "The opportunity to provide the same service [at the ASC as the hospital] at lower costs with a much better experience, it's crazy to me what little momentum we've seen [with payer partnerships]," said Mr. Cowhey. "We are educating payers and really working with them to drive results. We have had some good success, but we have work to do."

More articles on surgery centers:
How OptumCare aims to become a $100B business in the next 10 years
28 new ASCs in May
25 joint ventures ASCs in 2019


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