1. Growing demands on ASC management. The responsibilities of the ASC administrator have expanded greatly since ASCs first entered the healthcare market, and the ways in which administrators must lead a facility have evolved as a result.
“In the 1990’s, administrators were basically tasked with growing market share, adding services and negotiating with payors,” says Mr. Yerden. “Today, we’re seeing more demands for strategic planning, physician relations, expense reduction in an environment of declining volumes due to competition and slowing reimbursements, in addition to expanding services, refreshing and expanding physician stakeholders and forming relationships with, not merely negotiating with, payors.”
Mr. Yerden believes ASC leaders typically fail to create a strategic plan for their centers, which he says is crucial in the increasingly competitive and challenging environment ASCs face. “They don’t strategically plan for their center 2-3 years down the road,” says Mr. Yerden. “You need to get physicians and leadership out of the ASC and into a neutral territory so they can focus on the historical, current and projected financial performance of the surgery center, positioning their center to succeed in the face of potentially declining revenues and lack of unaffiliated surgeons and evaluating the addition of new services and programs as well as leadership and governance issues.”
Mr. Yerden recommends that ASC leaders manage their organizations as if they were preparing to sell them. “You should aim to increase your enterprise value — a multiple of earnings minus long-term debt,” he says. “Administrators often simply manage a budget, which may or may not have anything to do with improving the value of the center.” A strategic plan to increase enterprise value will help ensure an ASC’s continued success, he says.
2. Flat or marginal increases in reimbursement. ASC leaders should expect to see flat or only marginal increases in reimbursements per case and plan ahead for this environment. ASCs will need to improve efficiency or look for ways to increase volume in order to grow profit, says Mr. Yerden.
“ASCs have to plan for this flatter reimbursement structure. They need to know that they are probably not going to collect more even if the quality of care is improved,” he says. “As reimbursement levels off, and variable expenses increase, surgery center profit margins may be at risk. These reduced margins result in a growing number or surgery centers falling into the ‘underperforming’ category and/or experiencing a flat growth curve.”
This flat-to-marginal reimbursement environment will also make a strategic plan even more valuable, says Mr. Yerden.
3. Increasing compliance costs. According to Mr. Yerden, compliance issues, including adherence to Medicare’s Conditions for Coverage, state and local regulatory guidelines, infection control initiatives and federal mandates, such as HIPAA and the Red Flags Rule, represent an increasing burden for ASCs. The number of compliance guidelines that ASCs must adhere to continues to grow, and the time and effort involved in documenting and reporting compliance can take away from the time an administrator can put toward improving quality of care and financial performance, says Mr. Yerden.
“Compliance issues are costly because they are a distraction and time-consuming for management. There is a true cost to complying because considerable time is put toward these efforts, which arguably creates marginal, if any, change in quality,” says Mr. Yerden. “Compliance issues take managers’ eyes off the ball.”
4. Higher number of consolidations. The dynamics of the market both outside and within the ASC industry will serve as a catalyst for further and accelerated consolidation, says Mr. Yerden. Mr. Yerden bases this prediction on the continued tightening of credit markets, growing expectations of private equity firms and other financial partners, declining profitability and organic growth among existing surgery centers and a slowdown in de novo projects.
“I see a lot of mergers for surgery centers in the future, both between existing ASCs and through joint ventures and hospital acquisition of ASCs.” says Mr. Yerden. “Hospitals view a physician-hospital joint venture of outright acquisition of a surgery center as one way to expand/protect market share and complement their physician relationship strategy.” Consolidation may also include corporate players and this, he says, is “not necessarily a bad trend.”
5. Negative impact of healthcare reform on ASCs. As healthcare reform efforts continue in both the House and the Senate, Mr. Yerden expects to see moves to cut ASC profit, through decreased reimbursement and possible limits to future ASC development. Mr. Yerden says these threats result from a weak industry presence, compared to the representation of hospitals and insurance interests on Capitol Hill. “In order to cover more people and remain budget neutral, cuts will have to be made and ASCs will not be immune from these cuts,” says Mr. Yerden
“We’re going to see a lot of change in healthcare in the next few years, and we need to preemptively represent our industry better, rather than just responding to threats,” says Mr. Yerden. “Government payors will continue to cut reimbursements, and the pressure to limit physician-ownership, which is currently challenging physician-(owned) hospitals, may eventually bleed into the ASC environment.”
Mr. Yerden says that ASC leaders might find success in promoting the benefits of ASCs directly to consumers, rather than just to legislators.
“In my opinion, we’ve done a poor job of telling the ASC story. We need to go to the consumer. We cost less, we get patients back to work sooner and we add to tax revenue,” says Mr. Yerden. “The physicians and hospitals have a strong lobby on the Hill. A U.S. Representative recently told me that when he votes to alter reimbursements to ASCs, maybe he gets four e-mails; if he threatens to alter hospitals’ or physicians’ [reimbursements], he gets hundreds, which is really telling.”
6. “Graying” of ASC industry leadership. According to Mr. Yerden, the rate at which new leaders are entering the ASC marketplace is not at pace with the “aging” of the industry’s current leaders.
“I am very concerned about the ‘brain drain’ that will take place over the next five years as the best leaders begin to exit. Who will be left to lead the [industry]?” says Mr. Yerden. “I feel we’re doing very little to develop new leaders within the ASC industry. Most current ASC leaders have come to the ASC side from other industries or hospitals. We need to expand our reach to attract new graduates and offer fellowships and internships to attract our future leaders.”
ASC industry members must look beyond the success of their center or company in order to ensure that the industry remains strong, he says. “ASC leaders must not neglect our commitment to the future health of the industry as a whole. It is completely understandable why executives of ASCs focus on their own surgery center’s success. However, we’ve got to leave the industry better than we found it, and my concern is that advocacy is lacking terribly in our industry.”
Strong leadership is critical to the ASC industry’s ability to influence public and legislative opinions, which is necessary to ensure the industry’s continued success, says Mr. Yerden.
“Challenging times really illuminate the difference between management and leadership. Now is when leaders are really needed,” he says.
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