As we look to 2016 at the surgery center universe, here are six thoughts and observations.
1. ASCs are remaining successful. Notwithstanding the movement towards physicians being employed by health systems, and changes in healthcare delivery, surgery centers remain successful. The ASC market is a $24 billion market and independent ASCs make up 63 percent of the market. As we talk to surgery centers, more and more continue to stay the course and maintain profitability in the face of several challenges.
Some of the most successful ASCs are adding service lines including orthopedics, total joint replacements and spine to capture high acuity cases. They are also adding 23-hour stays where possible to accommodate new cases and joining national ASC chains for additional support. ASCs in a larger organization have resources such as benchmarking, data management, payer contracting expertise and group purchasing organizations to maximize center profitability.
2. Self-pay is becoming more of an issue. After years of discussion of transparency and high deductible plans, self-pay and patients paying for care is becoming more meaningful. Increasingly, patients with high deductibles are actually thinking about what the cost is to go to one venue versus another for surgery and services. This is actually beginning to benefit surgery centers more and more.
In 2014, 36.9 percent of people under age 65 with private insurance were enrolled in a high-deductible health plan, according to the National Center for Health Statistics. Among those with high deductible health plans, 13.3 percent were linked to health savings accounts. The Employee Benefit Research Institute reported 2.9 million accounts in the HSA database with total assets of $5 billion to begin 2015.
Patient revenue is greater than 41 percent of the total revenue in 9 percent of ASCs; however, most ASCs see 21 percent to 40 percent of total revenue coming from patient collections, according to Navicure's "Ambulatory Surgery Center Patient Collections Survey: Key Survey Findings and Action Items" report.
3. The big companies are diversifying. There are very few large, large ASC companies left that are truly single strategy pure play surgery center companies. Companies like AmSurg have moved heavily into anesthesia, especially after acquiring Sheridan Healthcare for $2.35 billion. Sheridan continues to acquire anesthesiology practices, and AmSurg also acquired its first radiology group last year.
Companies like USPI are doing several different things beyond just surgery centers and doing them successfully. Tenet acquired 50.1 percent of USPI last year for $425 million with plans to assume full ownership over the next five years. Other companies have large pain management businesses or work with surgical hospitals. All in all, there are less and less companies that are solely surgery center companies.
4. In many situations partnering can be helpful. Many companies and surgery centers have greatly benefited from a hospital partner who has invested in their success. Hospitals run 13 percent of the ASCs in the market. Of course, the dichotomy is some hospital partners don’t really want your surgery center to succeed. Others are heavily invested in the success and view it as a critical part of business. There are some hospitals today allowing employed surgeons to perform cases at a jointly-owned ASC to free OR space for the higher acuity and more profitable hospital cases while other hospitals won't allow physician referrals there. It is an evolving issue. However, market power helps.
5. Some markets remain better than others. There are still markets in the country that are considered "good reimbursement markets" and not unbelievably tough healthcare reimbursement markets. All things being equal, a surgery center, whether managed well or not, does better in a market that is great for surgery centers. ASC reimbursement from commercial payers varies widely but plays a big role in ASC payer mix; around 59 percent of gross charges come from commercial payers while 24 percent come from Medicare, according to VMG Health. There are out-of-network reimbursement opportunities in some markets while providers in others are forced in-network and in some cases into narrow networks for survival.
6. Surgery centers must keep an eye on the career longevity of their key specialists. Many surgery centers are built around a handful of specialists. The time to do a transaction with a surgery center is not when those specialists are ready for retirement or pass away. Rather, a good transaction must be done several years before that spot to maximize future productivity and longevity. ASC management companies typically prefer acquiring single-specialty centers with six to 15 physician owners and multispecialty centers with 11 to 20 physician owners. In the 2013 report, the most desirable specialty was orthopedic and sports medicine followed by spine and ENT, with more than 90 percent of ASC companies looking for those specialties, according the HealthCare Appraisers ASC Valuation Survey - 2013.
There may not be a perfect time to do a transaction. However, there is probably a more optimal time given the amount of life left in the current investors, the amount of independent surgeons in the community, the growth of the individual practices and several other issues.