1. It is a fascinating time in the surgery center and political arena. We cannot predict if there will be large changes to Obamacare or Trumpcare. Surgery centers largely face a situation where they have to move forward with their businesses in the face of significant policy uncertainty.
2. Changes in Industry Giants. There is great disruption and changes amongst the surgery center industry giants. Here is a quick summary of some of those changes.
a. AmSurg has heavily diversified over the last couple years. It used to be a single purpose surgery center company. Now it has diversified heavily into physician services and other types of services.
b. USPI, one of the true leaders in the surgery center business, merged and joint ventured with Tenet. It has also expanded its scope of efforts beyond just surgery centers. It still has tremendous leadership at the top.
c. SCA, probably the fastest growing and largest surgery center company, recently announced a merger with Optum. This brings together one of the largest surgery center companies with the largest payer in the country. SCA is characterized by brilliant leadership and this may provide them an opportunity for another level of growth as they partner with one of the largest payers. It also indicates one of the largest payers not feeling as held hostage by hospitals and health systems.
d. Physicians Endoscopy has grown tremendously through acquisitions. More and more of its strategy is based on acquisitions than de novo. It continues to be very active and very single specialty.
e. Nueterra has grown tremendously and is using an evolving strategy of physician IPAs and other types of structures to grow a bigger footprint.
f. Regent Surgical Health recently completed an employee stock ownership plan transaction. This is intended to help give it another shot at growth over the next several years. It is also evolving with new leadership with Chris Bishop as CEO and Tom Mallon, the founder and leader for 15 years, stepping into the role of the chairman of the board.
g. SurgCenter Development continues to grow and announced recently that it did a record number of total joints last year at nearly 7,000. This is also indicative of the movement of total joints to surgery centers.
h. ASCOA continues to attempt to grow through new development and acquisitions.
3. Tom Price. Rep. Tom Price, MD, R-Ga., has been confirmed as the Secretary of Department of Health and Human Services. It is the first time I remember an entrepreneurial physician who is an orthopedic surgeon and a surgery center owner being nominated to a place that is traditionally characterized by relatively negative feelings towards entrepreneurship in healthcare.
4. The Big Three Specialties in Surgery Centers Plus Pain Management. These specialties — ophthalmology, GI and orthopedics — remain relatively independent. This has been largely a saving grace for surgery centers over the last 5 to 10 years. The younger generation of physicians may increasingly gravitate to the hospital environment. However, the older generation of orthopedic surgeons, gastroenterologists and ophthalmologists has largely saved the surgery center business. An Epocrates 2013 survey found 69 percent of medical students reported planning to join group practices or hospitals and 17 percent said they planned to go into solo or partnership practices.
5. Spine. There has been a tremendous moving of spine procedures to surgery centers. Over the last decade there has been a movement of 45,000 procedures that are done outpatient to 300,000 done outpatient. Surgery centers still face serious challenges with payers in moving spine to surgery centers.
6. Out-of-Network. On the out-of-network side, out-of-network is getting tougher and tougher. There are less and less chains that are really built on out-of-network and we see less action in that area. Fifty-three percent of surgery center companies report ASCs with 20 percent OON volume exceed their risk tolerance, according to HealthCare Appraisers' 2016 ASC Valuation Survey Results.
7. Total Joints and Bundles. Total joints are moving more quickly to surgery centers. However, it is still difficult to get paid appropriately in many markets for total joints in surgery centers. Bundled payments seem to be taking off in part. It is very hard for us to judge how many patients are actually done through true bundles that are paid for at surgery centers.
8. With the potential repeal of Obamacare, there is a possibility that the moratorium on the growth of physician-owned hospitals will be lifted. If it is actually repealed, this would not ignite a frenzy of building of physician-owned hospitals, but it would certainly cause every surgery center to see if they can expand into a hospital particularly in non-CON states and give those hospitals that are already existing the opportunity to potentially expand further. It may also cause some further growth of micro-hospital, a newer trend.
9. The number of surgery centers in the country has remained largely flat. There is often a growth of about 100 a year but closures of about 100 a year. Thus, the total number of Medicare-certified surgery centers remains about 5,400 to 5,600.
10. In terms of legal issues facing surgery centers, we see the following seven issues as the most often discussed:
a. Share purchase pricing;
c. Anesthesia and ASCs and who owns it;
e. Physician-owned distributorships;
f. Anti-trust issues; and
g. Non-compete issues.
There are plenty of other issues that are relevant as well. Those are the issues we see that are most interesting.
11. There has been talk of tremendous payer consolidation. Typically for an ASC, payer consolidation can be a difficult thing because being too beholden to any one payer is problematic. Thus, some of the slowdown in payer consolidation may very well be welcomed by surgery centers. In two separate antitrust trials, federal judges blocked deals between Anthem and Cigna and Aetna and Humana in recent weeks. The federal judges cited anticompetitive concerns and rising prices as the primary reasons for blocking the merger.
12. In terms of high deductible plans, many surgery centers thought this would a death knell for surgery centers. So far, it appears that it has not been nearly as big a problem for surgery centers as originally anticipated. The surgery center business remains relatively healthy. There are some headwinds in the business certainly but the industry remains relatively optimistic.