1. Financing is tougher to obtain.“With less equity available and banks tenuous, it’s going to be harder to obtain de novo startup financing,” says Ms. Deno. And whether an established center is successful or unsuccessful, corporate partners are going to be more selective and are going to scrutinize more closely during due diligence because, “if they’re going to come in and buy 51 percent, it’s going to be harder for them to justify spending the capital on a facility that has only a minimal chance of survival or turnaround.”
2. There are still opportunities for joint-ventures and mergers with hospitals. With funding for purchasing shares in successful surgery centers difficult to come by and higher valuations tough to obtain, “I think we’re going to be seeing more ASC joint-ventures with hospitals,” says Ms. Deno. “The payor market is shrinking to a few major payors, meaning there’s less ability to negotiate even marginally profitable contracts in a lot of cases, payors are coming back with take-it-or-leave-it offers that would result in ASCs losing money on cases they perform.”
In other words, ASCs face serious financial challenges on more fronts than ever before, and this may prompt them to join with hospitals to present a stronger unit to payors and financial institutions alike.
“For ASCs, a JV brings negotiating power, stability, less vulnerability,” says Mr. Deno. “ASCs can bring a large volume of cases under the hospital’s wing. If physicians and hospitals are open and receptive to what they can bring to each other, they will be able to provide better healthcare. Really, they need to band together to get through this time and a lot of strong symbiotic relationships can come out of it.”
3. Another rough year or even two is on the horizon. There are two key reasons that the industry will likely remain in this trough before improvement is seen.
First, “Payors are probably losing money on the funds they’ve invested, so we’re going to see a lot of slow pays, and that hits down at the facility level,” says Ms. Deno. “More facilities counting on those day-to-day dollars may begin to fail. Those making marginal profits or hanging in there and doing well may want to look to a corporate partner or JV in order to spread their risk around.”
Second, it may take that long for things to settle at the consumer end.
“The banking and stock market situations are trickling down to patients; if they are losing jobs and insurance coverage and homes, unless it’s a very emergent situation, they won’t be spending co-pay and deductible dollars on elective surgery in the ambulatory setting,” she says. “Those with no insurance may look at ASCs as a lower-cost method for getting necessary procedures done, but they still may have a hard time paying. Until the whole job situation is turned around for the end users of healthcare, it’s going to be rough time.”
Ms. Deno (jdeno@regentsurgicalhealth.com) is the COO, Eastern Region, for Regent Surgical Health, which buys, develops and manages outpatient surgery centers and physician-owned hospitals, and specializes in turnaround situations. Read more about Regent.
