Evolve or Die: Growing Your Ambulatory Surgery Center Business
In 1970, the first ambulatory surgery center (ASC) was opened in Phoenix, AZ by two physicians who wanted to provide timely and convenient surgical services to patients in their community. Within one year, a second facility was opened. By 1976, there were 67 ASCs in the United States. Since then, the number of outpatient surgical facilities has grown to over 6,000 across the US. However, that growth has slowed down dramatically over the last few years.
Every growth market will naturally become a mature market at some point; the ASC market is at that point. Consolidation by some of the leading management companies is reducing competition. While there are some innovators and new entrants, they are slow to gain shares and only do so gradually. With that being said, there are opportunities for innovation and value creation in front of you. It will require you to dig deeper, think outside of the box and be more strategically creative in how you conduct business. As the industry continues to mature, new operating models and a paradigm shift are a must if you want a bigger piece of the slow-growing market.
A small percentage of the current players in the ASC industry is doing well in spite of mature conditions, while many hang on, stuck in denial. The majority of the players in the industry will not execute any significant restructuring or experimentation. They will merely ‘rearrange the furniture.’ This equates into opportunity for you.
The Ambulatory M&A Advisor will list out some of the growth areas that it sees. If applied correctly, each of these themes will have value. If they’re applied loosely, they will have plenty of pitfalls.
As an add-on or a business model in and of itself, there are niches: surgeries and procedures that are still under supported and that present opportunities. For example, the cardiovascular and endovascular markets are ripe for the picking. These procedures provide comprehensive diagnosis and treatment for a wide range of cardiovascular and peripheral vascular disease. With the advent of minimally-invasive, vascular procedures which formerly required a hospital setting, vascular surgeons, cardiologists and interventional radiologists are now able to deliver vascular care in an ASC.
Placement, maintenance and care of hemodialysis, vascular access procedures, outpatient cath labs, vascular surgery and peripheral vascular and lucrative vein treatments such as varicose vein ablation and sclerotherapy, and other peripheral artery disease will help increase procedure volumes in your ASC. These will allow you greater access to interventional radiologists, vascular surgeons or other specialists that are involved with diagnostic, endovascular, and medical therapies for urgent, acute, and chronic conditions of the venous and arterial system in an outpatient setting that have not traditionally been targeted for recruitment.
Urgent Care Center Aggregation
Urgent Care Centers (UCCs) treat otherwise healthy patients for episodic and acute conditions, many of which seek care for injuries such as musculoskeletal pain and injury. As it pertains to ASCs, creating a joint venture or strategic alliance with UCCs would serve to increase access to patients for surgery centers that provide orthopedic, neurosurgery and interventional pain, among other specialties.
Blayne Rush, a healthcare investment banker and publisher of The Ambulatory M&A Advisor, says that the UCC/ACS combination is becoming more and more common.
“Since I work in both of those markets, I have actually introduced the concepts to a few of my clients and executed those concepts,” Rush said. “It is a winner for all parties.”
Rush says that many of the smaller operators of urgent care centers lack the ability to incorporate more sophisticated management tools. ASCs need an entry point for patients and increased patient flow. The ASC management company provides management to both of the entities and the urgent care owners get to take money off of the table and treat patients from the surgery centers.
“For example, say an ASC does a knee surgery and later in the evening the patient calls in pain,” Rush says. “The surgery center can then refer the patient to the UCC for care.”
Physician Employee Model
There has always been a trend of surgeons being employed by hospitals, and physician groups often view that type of employment as more stable. Looking back on this trend though, it also shows that when a hospital becomes unhappy or unsatisfied with the situation, so do the physicians and surgeons. Deteriorating financial models have made private practice less rewarding, administrative costs are increasing faster than reimbursement and the generation of physicians as entrepreneurs has shifted. Younger physicians are less interested in managing the business of a private practice and want to just practice medicine or just do surgeries. Your ASC can develop a model whereas the practice can be the employer and own a sizeable piece of the ASC. This creates a model where you can satisfy all of those desires and concerns while allowing surgeons to also have access to passive income. The practice has more influence where the surgeon does their surgeries and the non-competes hold more weight.
Practice Management Company
Some doctors want to remain independent, no matter what. They would rather keep beating their heads against the wall until they go under, rather than join a large group or be employed by a hospital. Additionally, some doctors want to be independent/not employed by a hospital, but recognize that they do not have the capacity to pull it off. These doctors eventually succumb to being employed by a hospital. We all know that the level of administrative and management expertise in small practices in generally low, and that if an ASC, or doctors in an ASC, wanted to extend a helping hand to a potential partner or struggling partner, it would be frowned upon. Even if it is a primary care doctor or a group of referring physicians, giving away something for free cannot be done.
Because of the upfront costs, some smaller ASC management companies are not able to employ certain physicians. An alternative is to create a Practice Management Company (PMC) that can manage primary care, as well as surgical practices. By sharing some resources, the combination of practices will lead to economies of scale. This is a form of practice aggregation, which allows the costs of more expensive practice management expertise to be spread among multiple physicians. It will also help standardize the processes around the best demonstrated practices, which is especially important in billing and collections. This can also eliminate the isolation, headaches, risks and expenses associated with independent private practice while preserving physician independence.
“If you created a physician management company, which could just be an expansion of current personnel that manages primary care and surgeons’ practices, this would help create a relationship with the physicians that are not open to being purchased or employed (yet),” Rush says. “This would give you a seat at their table, and you would get paid for it.” Additionally, Rush says that those physicians would have ample time to see the quality of services that your specialists provide to patients, as well as the quality of the surgery centers. This would open up significant access that would otherwise not be there.
Rush says he believes that a hybrid model of ownership structure is one way to go. “The management company owns a controlling interest in the ASC, and then the practice of employed physicians and the managed physicians own minority interest,” Rush says. “I believe that this is the future, and the direction that some my clients are going in and have already gone.”
While some of the larger surgery center management companies will have a tough political go with this because of their relationships with their partner hospitals, this is a great opportunity for the ones without those constraints.
“He who controls the patient, controls the physician,” Rush says. “This mantra is well-known by hospitals, primary care, payers, etc.” While there are many definitions as to what direct-to-patient marketing is, Rush knows that this strategy works. “Just look at the chiropractors, Lasik surgeons and pharmaceutical companies,” Rush says. “They are going directly to the patients.”
Some ASC companies are realizing this and are investing in, or buying companies that provide this service, or are purchasing smaller ASC companies that employ this. Employing physicians without the ability to attract a patient is just an expensive way to fail. In order to make your employed physician practice model work, you will need to have an established direct-to-patient marketing program in order to feed those expensive physicians.
Paradigm Shift in Physician Recruitment
In the beginning, if someone wanted to build an ASC, they would send out recruitment letters or go around recruiting physicians that would invest in the ASC and do cases there. However, those simple methods will no longer suffice. Tougher times call for more creativity, discipline and execution. If you are recruiting surgeons that are not interested, take a look at where their referrals are coming from. Peel back the layers, go a lawyer or two back and work to break that referral pattern. There are tools available where you can identify and map the downstream and upstream referral, and then execute a plan to siphon them off.
Overall, one ASC’s shortcoming is another ASC’s golden opportunity. By correctly and thoroughly following these themes, you have a leg-up on other competitors. Take advantage of underserved niches, UCC aggregation and paradigm shifts. Adopt a direct-to-patient marketing strategy and consider consolidation or aggregation with a UCC. Look for the physicians that want to remain independent and don’t want to work for a hospital. If you’re not afraid of experimentation and innovation, use these themes to change the way ASCs are run. You will put yourself in a great position to acquire a larger slice of the ASC market, and you’ll stay ahead of other competitors.
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