The state of the ASC industry: Key thoughts from Surgical Care Affiliates CEO Andrew Hayek


When the Affordable Care Act passed in 2010, the United States was spending more on healthcare as a percentage of gross domestic product than any other industrialized country, yet the life expectancy was below average among the developed world. The United States was second in the world for diabetes and infant mortality and a series of other startling statistics on the country's healthcare raised an eyebrow among legislators.

"The ACA was a political response to a specific set of issues," said Andrew Hayek, CEO of Surgical Care Affiliates. "It was highly imperfect and physician employment was accelerated because of it. One good thing that came out of it, there are now more people insured than before. The number of uninsured Americans has dropped. We had some trepidation about whether the patients on the exchange would be reimbursed at Medicaid rates and they are not."

At the Becker's ASC 22nd Annual Meeting — The Business and Operations of ASCs in Chicago, Mr. Hayek gave a presentation titled "The State of the ASC Industry." In his presentation, Mr. Hayek covered several key trends affecting ASCs and where he expects those trends to take outpatient surgery in the future.

These trends include:

1. Increased consolidation in healthcare. Consolidation among large for-profit and non-for-profit hospitals and local communities where regional hospitals are acquiring the smaller hospitals, we are seeing physician employment in primary care and in some markets there was accelerated surgical specialist employment after the ACA.

"But there are structures where the pendulum is halting and employed surgeons are coming out of employment," said Mr. Hayek. "The employment shift was driven by economics and now we are going to see where those economics reverse."

The hospitals are more focused on cost control now than they were even five years ago, and hospital executives are seeing the benefit of physicians coming out of employment and instead partnering with the hospital on other initiatives.

2. Insurance companies are merging. Health plans are becoming larger through transactions and the dominant payer structure could have a positive or negative impact on surgery centers depending on the market. "In some markets where we have a tight, strategic relationship with the payer, the consolidation is a good thing," said Mr. Hayek. "The pressure of health plans to bend the cost curve can drive more care to the surgery center."

Insurance companies are seeing the value of surgery centers and in some markets are beginning to drive cases there. "For a number of health plans, one of their greatest fears is that independent physician practices will go away," said Mr. Hayek. "Their motivation is quality, really cost of care and site of service."

3. Private exchanges are popping up. Inflation in medical costs is driving an increase in private exchanges. There are around 13 million Americans purchasing insurance on a private exchange today, whether through their employer or independently. A few of the big companies giving employees an allowance to shop for the plan that works best for them on a private exchange include Aon and Walgreens.

"These companies make a terrific strategic partner for us because they have so much focus on reducing cost," said Mr. Hayek. "Their incentive is very high. The majority of these networks are in the narrow-network design."

4. Meaningful growth has slowed in the ASC industry. The physicians willing to purchase ownership in ASCs are already there, and hospitals are employing the others. "There is a lot of pressure on independent practices and we're seeing ASC to HOPD conversions, and that all slows down the ASC industry," said Mr. Hayek. "But there are still great opportunities in certain case types, such as total joint replacements. We can save $20,000 to $30,000 per total joint. Our patient experience advantage is significant and we have an aging population that wants to remain active longer. We are seeing pockets of growth there in addition to spine and cardiac cases."

5. The industry is moving towards partnerships. The ASC industry is shifting from mostly standalone entities that were sustainable on their own to centers forming joint ventures and strategic partnerships across the market.

"There are three forms of strategic partnerships that can be very impactful for ASCs," said Mr. Hayek. "One of the structures is a large multispecialty group or primary care physician groups. They are becoming accountable care organizations and managing groups. These groups are becoming a major force. There are partnerships in health systems — in many markets it does make sense, but in others it does not. The third type of partnership is with health plans."

Mr. Hayek urged ASCs to consider all options and find the best one for their individual situations.

6. Large physician groups are on the rise. "The large physician groups are seeing a resurgence of power and control in their markets," said Mr. Hayek. "They incentivize PCPs to invest in the chronically ill, diabetic, hypertensive; there are lower emergency department visits and patient admissions and lower surgeries and outpatient visits. For every dollar they save, they get that savings."

The primary care physicians in ACOs are working to avoid preventable visits and incentivized to promote patient satisfaction. There are star ratings based on the customer service experience that drives revenue.

"That's where the ASC's triple-aim kicks in," says Mr. Hayek. "They want the lab, imaging and surgery all in one setting."


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