Analysis of ASC Data Suggests a Mature ASC Market

Those that have been involved with this industry in recent years have heard a common theory proclaiming the ASC market as a mature industry. What does this mean and is it true? In this column we will illustrate and briefly highlight several trends that suggest this to be a valid assessment of the industry and explore the ways in which experienced ASC operators are responding.

Overall ASC growth has significantly leveled off

The number of ASCs operating in the United States expanded rapidly throughout the late 1990s through to the late 2000s (see chart below). This high growth was fueled by a number of market dynamics, including:

• physician desire to perform outpatient surgery in an focused and efficient environment;
• physician desire to participate in the management of their surgical facilities;
• physicians seeking to supplement their professional income streams;
• technological and surgical advances which made more procedures suitable for ASC setting;
• many new ASC management / development companies entering the market, providing funding, organization and expertise; and
• abundance of lenders willing to provide capital to physicians and developers.

Since 2008, however, growth in the number of ASCs has significantly declined. Essentially, what is being observed in the ASC industry is an exhibition of the economic law of supply and demand. The significant expansion in the number of ASCs was driven by a demand (from physicians and, to lesser extent, patients) that had not yet been met by the supply (of ASCs). This is no longer the case and in fact may be reversed, where supply now exceeds demand.

In addition to a decline in new ASC development, case volume levels at existing centers appear to support a maturing ASC industry.

Same-center case volume levels have significantly deteriorated

As indicated in the charts below, same center volume growth trends have turned negative. This trend is clearly evident in ASCs affiliated with the large, national ASC management companies (see chart below). Robust annual case volume growth at most ASCs has been replaced by declining same center case volume projections. Although exacerbated by the economic downturn, this trend illustrates a more profound shift in the life cycle of the ASC industry as a whole.

Excess capacity is on the rise

Based on trended data compiled from VMG's Intellimarker ASC Benchmarking Survey, average case volume levels per OR/per day have declined materially since 2007 (based on 2006 data). This 15.0 percent drop in operating room utilization supports the trend illustrated in the prior chart regarding same center volume levels and points to the likelihood of ASC consolidation in the near future.

How experienced ASC operators are responding to mature market

When ASC operators can no longer rely upon an ever increasingly supply of new physician investment and volume, they turn their focus on increasing operating efficiencies. The chart below illustrates trends observed in the VMG ASC Intellimarker related to staff hours per case. From 2007-2010 (based on 2009 data) average staff hours per case dropped by approximately 25 percent. Considering staff costs generally comprise one-quarter to one-third of an ASC's total operating expense, such a reduction is quite significant.

In addition to reducing costs by improving operating expense efficiency, many ASC operators are looking to control risk by reducing their center's debt burden. The chart below, compiled from VMG's ASC Intellimarker shows that the percentage of debt as compared to total assets has decline by nearly 30 percent. When faced with the challenges and uncertainty in today's ASC market, owners and operators are much less inclined to saddle their centers with significant levels of debt.

In summary, our attempt with this piece was to highlight some real world data trends that validate the general opinion of the state of the ASC industry – an industry that has reached a mature state and faces significant present and future challenges.

Learn more about VMG Health.

Read more from the leadership of VMG Health:

- 8 Factors That Make Your ASC Risky for Buyers

- 8 Things to Know About ASC Ownership and Development

- 10 Statistics Every ASC Should Track