2016 ASC Predictions Part 1

Hospital SignLast week The Ambulatory M&A Advisor gathered predictions from Urgent Care CEOs in a two part prediction series that gave readers a look into the 2016 urgent care market.  The predictions keep coming from CEOs, only now looking to the future from the point of view of the Ambulatory Surgery Center (ASC) space.

Robert Carrera, CEO of Pinnacle III says that as far as ASC predictions in 2016, one important area is the M&A space.  According to Carrera, the M&A landscape for 2016, despite current bills, he sees M&As continuing at a robust pace.

“Systems continue to try to expand and encompass greater geographic and service areas as they try to address efforts to reduce the cost of care and the efforts by payers, employers and the feds to reduce costs. Healthcare companies in 2016 will continue to expand as the industry changes,” Carrera says.

Glenn Cozen, founder of Physicians Surgery Centers, a company that develops and manages surgery centers alongside physicians says that yes, a major development of the budget that came through was the elimination of off campus HOPDs, and it has already had an impact on plans currently in place for their business and ASCs in general.

“We were actually planning to build an off campus HOPD, and that stopped us in our tracks.  We are now going to have to look at doing something on the campus which is what the new rule is,” Cozen says.

According to Cozen, the bill states that if the HOPD isn’t 250 yards within the campus, then there can be no HOPD.

“That is certainly a problem from a specialty hospitals point of view,” Cozen says.

“I think the lesson that we are learning is that you have got to keep your eyes open at all times, and be prepared to deal with the kindness of the system.”

Although the bill may prove difficult for hospital health systems looking to expand in 2016, Cozen believes that mergers between hospitals and ASCs will still find a way in the market because they are so beneficial.

“The hospitals are definitely looking to get involved with local surgery centers more than ever.  I think that somewhere in the hospital world the CEOs are being told that they need to have a relationship with the local surgery centers,” Cozen says.

“To be partnered and not be an adversary with the local hospitals can be very beneficial.  They can help out with getting surgery centers better contracts and I do think that hospitals having a minority interest in our centers is a good thing, and that is something that a center should always look to do under the right circumstances.”

Joan Dentler, President and CEO, Avanza Healthcare Strategies says that aside from the bill, there are some challenges that ASCs will face in 2016.  Dentler says one of the significant determination ASCs are going to have to make is how they fit in a value-based reimbursement environment, and how they can become an integral part of lowering healthcare costs.

“I think that could be challenging for many ASC owners who have been more focused on growing volume and revenue.  I think that ASCs are very well positioned to be a key player within value-based reimbursement, but it could be a real mindset shift for many current ASC owners,” Dentler says.

Dentler explains the shift is going to be difficult because some ASC owners have focused on their ASC as being an income generator. They have, historically, been able to enjoy a nice return. In the future, an ASC will be compensated on its value as a part in a bundled payment and how it contributes to reducing cost in treating a patient’s condition.

“While there is still a profit to be made, it is not based on bringing in as much volume as possible or securing the highest reimbursement per case possible. Rather, more emphasis will be placed on how well you manage your staff and supply costs; your ability to deliver high-quality care and outcomes; how well you negotiate your place within an ACO or integrated practice unit (IPU) or a bundled payment coalition; and the value your ASC brings to the patient and payer,” Dentler says.

“ASCs will be, and should be, key players in the healthcare landscape as reimbursement moves to more value-based and bundled payment types of reimbursement. As opposed to being the stepchild of the surgery portfolio, ASCs are more valuable than ever because everybody is going to be focused on lowering cost.This is an area ASCs can excel.”

Dentler believe ASCs are very well positioned to succeed in this changing healthcare environment, especially those that are able to understand what is necessary to capitalize on the opportunities presented with ASC value-based payments and ASC bundled payments.

“What concerns me is the ability of some owners and management companies that have focused more on profitability to change their mindset to one that is focused more on cost savings,” Dentler says.

Cozen agrees that there will be a shift in management.

“I think the managing of the businesses will become more and more important because of the hiking of the revenue and the fact that we have to tighten on the expense side in order to make money, he says.

Carrera says that other challenges that ASCs will face in 2016 include the challenges of finding qualified staff, efforts to reduce the cost of care by exploring procedures not traditionally done in ASCs to dislodge from more costly sites of care.

Cozen agrees, but sees this as more of an opportunity than a challenge.

“One of the things in our world that is constantly out there, is the ability to do more types of surgeries and more and more things on an outpatient basis.  That really is the key to being successful in the ASC world these days.  You are adding pieces to what could never have been done before.  Like cardiology for union needs; things that nobody used to do at a surgery center, are now commonly done.  It is very important for us to continue to grow our businesses by adding services that make sense,” Cozen 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.

 

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