ASC Predictions Part 2: ASC Challenges and Opportunities
Recently, The Ambulatory M&A Advisor and CEOs of urgent care and ambulatory surgery centers have had discussions that look to the future of specific healthcare markets in 2016 and possibly beyond. Earlier this week, we covered the first wave of ambulatory surgery center CEOs where the current market was discussed and for the most part, the participants seemed confident with the new year.
With this second opinion from ambulatory surgery center CEOs, they discuss not only the market, but the challenges and opportunities these centers will face and how they can strive to succeed in a market that is extremely fragmented and currently has a major regulation that is stunting surgery center growth within hospital health systems.
Luke Lambert, CEO of Ambulatory Surgical Centers of America, a business that develops, manages and owns ambulatory surgery centers says that as far as merger and acquisition for 2016, he does not see big changes coming down the line.
“I see a continuation of this year, which has been, in my opinion, one of the years in which we have seen perhaps the highest valuations ever for surgery center transactions,” Lambert says.
Joe Zasa, managing partner for ASD Management says that the market has seen growth in the past year and has seen deal flow begin to really pick up after the last few years where things were a little bit slower.
“I think there was a lot of uncertainty after the Obama election, and I think after the election and the Affordable Health Care Act; as that settled down, I think people saw a clearer picture and it helped them realize that ambulatory surgery centers are an effective and low cost deliverer of care,” Zasa says.
Although Lambert says valuations will remain high, one of the major ASC trends in the last five years of selling to a hospital health system will definitely not be an option due to recent changes in legislation.
“You would sell it to a local hospital and they would turn it into an outpatient department. Now with those changes it does not look like those moves are going to be an option anymore for either parties involved,” Lambert says.
Zasa says that despite these regulations preventing higher pay for HOPDs, aggressive hospitals will still continue to pick up ASCs to add to their brand.
“I think as we see physicians being bought up by health systems and hospitals, those that are not affiliated with health systems are going to have a little bit more of a challenge. I still think the independent surgery centers will do quite well, but I think there are challenges, especially with recent legislation, that will perhaps be short run challenges and not long run challenges,” Zasa says.
John Goehle, owner of Ambulatory Health Care Strategies predicts a slow down in the number of HOPD conversions largely because of the new budget that came out that cuts the reimbursement from hospital outpatient departments from their HOPD rate to their ASC rate if it is an off site facility.
“So, all of those hospitals that are out there looking for ambulatory surgery centers to pick up, to eliminate the competition, and convert into an HOPD, those will go away as that advantage of doing that disappears. I think that is kind of a one year thing and somewhere along the line things will stabilize again for hospitals,” he says.
“I think we are going to see an uptake in the number of hospital physician ioint ventures as hospitals find that that is the only possible alternative to work with the physicians. I think the aggressive hospitals will still be willing to buy ASCs. A lot of the reason for conversion to an HOPD is because of the reimbursement difference. Conversion to an HOPD virtually eliminates the opportunity for physicians to participate in a joint venture with a hospital.”
Goehle thinks that the change could actually be favorable to the industry in that it will stem the movement away from ASC joint ventures; purely from a revenue standpoint of a hospital.
According to Lambert, other challenges and opportunities in the field for 2016 include a combination of both factors.
“I think one of the good opportunities is to look and see that there are a lot of surgery centers that are under pressure because of poor reimbursement, or low case volumes. Those centers might look to merge with another surgery center that has better contracts or to be acquired with a health system that could assist with obtaining better contracts for those surgery centers,” Lambert says.
Goehle says that as far as challenges, he thinks the number of changes for ASCs has increased in the past year compared to what has been seen in the past.
“We were finding less time between updates to the conditions for coverage and the interpretive guidelines. Also, I think any day now we are expecting the 2012 NFPA Life Safety Code to be implemented for CMS which will have quite an impact on the industry as now organizations are being held to that higher standard. I think we are going to see a lot of work on the regulatory side. Certainly the issues with regard to sterilization processes. That is a real hot topic right now within regulation. That could put some pressure on the smaller and older ASCs to look for a partner, look to get out of the industry, look to sell completely,” Goehle says.
Zasa says that although there are clear challenges facing ASCs in 2016, he thinks that adding on new services and bringing on new physicians is important for these independent centers in order for them to remain relevant.
“I think they need to be proactive, and need to do three things. I think we need to make sure that their house is clean, meaning they need to be sure that they are operating efficiently and effectively and not just trust that they are making money and that makes them effective. They need to benchmark the actual centers and use objective data to verify what they are doing. I think they need to go out and recruit and be very proactive when it comes to that aspect of improvement. I think thirdly, they need to look for new programs that could be integrated into the surgery center,” Zasa says.
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.