Historically, the ambulatory surgery center business has been fragmented, but in recent years a number of larger companies have positioned themselves as key players in market consolidation. This week, Tenet Healthcare and United Surgical Partners International announced the formation of a joint venture ambulatory business, ultimately forming the largest ASC company in the market today.
The company will own interests in 244 ASCs, 20 imaging centers and 16 surgical hospitals in 29 states. This new ASC industry powerhouse, though a strategic leap forward for both partners, can be traced back to a single word: culture. "Brett Brodnax and I have gotten the opportunity to talk about our companies," said Kyle Burnett, Tenet's senior vice president and, following closing, USPI's ambulatory services president and chief integration officer. "We found the companies have a similar culture and could be combined to develop a first class ambulatory platform."
Private equity firm Welsh, Carson, Anderson & Stowe, along with USPI's other investors, will own 49.9 percent of the venture, while Tenet will own 50.1 percent. Over the next five years, Tenet is on track to acquire 100 percent of the company through a put/call structure.
The first goal of the newly formed partnership will be to focus on expanding its ASC business. USPI has been very active in markets in which it has health system partners, and Tenet and USPI have both demonstrated a national footprint in the ASC market. Combined, the companies will be able to pursue opportunities neither would have been able to take on as a single entity. Additionally, the partnership hopes to expand its surgical hospital portfolio. But, the company's ambitions don't stop at the surgical market. "To continue to grow, we are going to need to increase our scale and capabilities," says Brett Brodnax, president and chief development officer of USPI. "We want to transition from a pure surgical facility company to an enterprise ambulatory solution for our health system partners."
USPI has built its business on the three-way partnership model with health systems and physicians, but now many of its competitors are offering the same model. In response, the USPI and Tenet joint venture is looking to broaden its scope. Tenet has contributed its imaging business to the partnership, and leadership is already looking to expand further. "We are going to evaluate multiple sectors. Other outpatient services such as urgent care centers and freestanding emergency departments are attractive. We are going to talk to our health system partners and see where they see the opportunity for us to help," says Mr. Burnett.
Leading companies in the ASC space are demonstrating commitment to consolidation and diversification. Surgery Partners absorbed Symbion last year. AmSurg acquired Sheridan and swept up two radiology services groups. Now, USPI and Tenet have stepped up. "We will have the nation's largest ambulatory platform," says Jason Cagle, chief financial officer of USPI. "Everyone is trying to better themselves. This move transforms us and gives us broader scale and capabilities." The joint venture is positioning itself as the full suite provider of ambulatory services for its non-profit health system partners. How this ambitious move will alter the ASC landscape, as it undoubtedly will, remains to be seen.