Dear Reader,
The first six months of 2011 have proven to be another interesting time in the ASC and hospital sector.
1. The ASC market remains busy. National ASC chains and hospitals are stepping up their efforts to acquire surgery centers. National chains are acquiring centers both directly and as joint ventures with hospital partners Overall, there are continued and sustained efforts by financially backed national chain buyers to acquire surgery centers, often at very good prices (i.e., 6 to 8 times EBITDA). Certain chains are acquisitive due to financial plans to grow to a certain threshold in terms of revenue and income.
Hospitals also remain active direct buyers of surgery centers. In certain circumstances, hospitals purchase 100 percent of a surgery center and convert it into a provider-based outpatient department and then bill for services at HOPD rates; such acquisitions are often coupled with service-line co-management agreements. In addition, we are seeing hospitals buy majority interests in surgery centers and then try to improve the center's managed care contracts. The success at improving the managed care contracts differs from market to market.
2. Acceleration of hospital acquisitions of practice and hospitals. There remains tremendous interest amongst hospitals and health systems as to both acquiring independent hospitals and acquiring physician practices. Increasingly, individual hospitals have great concern about their ability to thrive as a stand-alone hospital. Thus, not a month goes by without us seeing some sort of offering memorandum related to the sale of a single hospital. Independent hospitals are also struggling to compete to acquire practices.
On the vertical integration front, hospitals and health systems continue to aggressively look to acquire physician practices and employ the physician owners of the practice as well as associate physicians. According to a 2010 Merritt Hawkins Report, of 258 surveyed hospital leaders, 61 percent said they plan on acquiring medical groups in the next 12-36 months. The acquisitions run the gamut of specialties, with certain specialties more active than others. In competitive markets, there are often a couple of different hospital suitors for a specific practice. To protect against fraud and abuse, Stark Act and private inurement allegations, it is critical that health systems ensure that the acquisition price and the associated employment compensation can be defended as at fair market value.
3. Insurers buying hospitals and practices. Two related but distinct trends are emerging: insurers buying physician groups and insurers buying hospitals. This competition with hospitals is likely to cause increased tension between the insurance and hospital sectors during the next few years. The strategy also reflects the evolving concerns by insurance companies that hospital systems will be too powerful in some markets to profitably contract with. For an article on insurers buying physician practices and hospitals, please visit The Quiet Takeover: Insurers Buying Physicians and Hospitals.
4. 18th Annual Ambulatory Surgery Centers Conference – the industry's premier fall event. This year's conference focuses on improving profitability and business and legal issues and is the ASC industry's premier fall event. The conference includes more than 90 sessions, 132 speakers, and will feature key note speeches from renowned individuals such as Sam Donaldson, Bill Walton, and Adrian Gostick. The conference will be held October 27-29 in Chicago. For more information on the conference, please email sbecker@mcguirewoods.com or go to www.beckersasc.com. To register, contact the Ambulatory Surgery Foundation (703) 836-5904 or fax (703) 836-2090 • registration@ascassociation.org or register online.
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Should you any questions or if we can help you in any manner, please contact me at 312-750-6016.
Very truly yours,
Scott Becker