Publisher’s Letter: March/April 2010

ASCs, Hospitals, Physician-Owned Hospitals, Healthcare and Insurance Reform; 8th Annual Orthopedic, Spine and Pain Management Driven ASC Conference: Special Discount Offer; June 10-12, 2010; Chicago

We are excited to announce our 8th Annual Orthopedic, Spine, and Pain Management Driven ASC Conference: Improving Profitability Business and Legal Issues Conference scheduled for June 10-12, 2010, to be held on North Michigan Avenue in Chicago at the Westin Hotel. We have 90 sessions, 120 speakers, 30 physician speakers and an outstanding agenda.

2009 was an interesting year. Many businesses weathered the storm better than expected. Others really struggled. We saw a number of ASC transactions close (spine as well as multi-specialty, portfolio diversification-driven and turnaround-driven) and several hospital transactions (specialty and acute care) close, far more later in the year than early in the year. We also had a long-term ASC client bring an antitrust suit that survived a motion for summary judgment. Finally, the healthcare community saw (1) tremendously increased effort by the government to collect on false claims ($2.4 billion collected in 2009; $1.6 billion from healthcare) and (2) a substantial decrease in private equity investments in healthcare — 125 in 2009 compared to 233 in 2008. Overall, it was a challenging year but a much more interesting year than expected.

This letter briefly discusses surgery centers, physician-owned hospitals, hospitals, the status of healthcare reform, upcoming conferences, complimentary publications and white papers, and upcoming speeches.

1. ASC transactions heat up. The transaction market for ASCs is quickly heating up. Many companies are again interested in acquiring surgery centers. Multiples for purchases are moving back in the right direction. There is also significant interest from hospitals in acquiring surgery centers. On the flip side, the long-term uncertainty in the healthcare economy is leading certain surgery centers to have more interest in examining transactions than we have seen in a couple of years. Finally, the fact that surgery center revenue and reimbursement per case has normalized (as opposed to high out-of-network payments) in many places has led buyers to be more comfortable with the predictability of the revenue flow from surgery centers. For a copy of an article entitled “Buying and Selling of Ambulatory Surgery Centers — Pricing by Tier,” please e-mail me at sbecker@mcguirewoods.com.

Certain companies are particularly active in the majority investment acquisition sector. These include, for example, Surgical Care Affiliates, United Surgical Partners, Meridian Surgical Partners, Symbion, AmSurg, RMC Medstone, NovaMed, Medical Facilities Corp., National Surgical Care and Covenant Surgical Partners. We are also seeing several companies that are active in the minority investment interest area. These include Ambulatory Surgical Centers of America, HealthMark Partners, Regent Surgical Health, Practice Partners in Healthcare, Blue Chip Surgical Partners, ASD Management, Pinnacle III, Health Inventures, Physicians Endoscopy, Orion, C/N Group, Foundation Surgical Affiliates, Nueterra, Titan Health Corp, Surg- Center Development, Surgical Management Professionals and others.

For a brochure for our June 10-12 Orthopedic, Spine and Pain Management Driven ASC Conference, please turn to p. 25, e-mail sbecker@mcguirewoods.com or visit www.BeckersASC.com.

2. Physician-owned hospitals continue to be targeted. Physician- owned hospitals, which are gaining a reprieve as the main healthcare bills have stalled, should not take too much comfort. We expect that the House and Senate will continue to target physician-owned hospitals and that the president will remain unsympathetic to their plight. Thus, it remains a good time to look very closely at long-term options for physician- owned hospitals, whether existing hospitals or those that are under development. For those under development, we advise that hospitals pay the extra money to contractors and labor, if possible, to assure the facilities get opened as soon as possible. There were several concepts in the bills that were set forward that would have had an immediate impact on existing physician-owned hospitals. These concepts include that a facility could not condition ownership on any level of referrals to the facility, that a hospital must notify patients if it will not have physician on staff 24/7, as well as a few other concepts, and it will require action the day such a bill is enacted. Some of these actions may involve amending the operating agreement and bylaws of a facility. Other concepts such as prohibiting the expansion of operating rooms, procedures rooms and beds were also quite rigid as drafted and draconian.

3. Hospitals focus on service line dominance and physician alignment. Leading hospitals continue to really focus on a number of service lines and assuring that in addition to general depth that the hospital can absolutely excel and be considered the lead provider in certain key areas. Hospitals also continue to move forward with aggressive physicianalignment strategies. Increasingly, these strategies revolve around acquiring and employing physician practices. This gives hospitals greater comfort — at the risk of higher operating expenses and debt — that physician cases will continue to come to their hospitals. At the same time, this increased emphasis on employment provides challenges for physician-owned facilities and independent practices. Finally, we expect that hospital/payor negotiations will get much more difficult over the next couple years as employers look to payors to reign in healthcare costs. For a copy of the white paper entitled “Accelerating Physician-Hospital Collaboration,” please e-mail me at sbecker@mcguirewoods.com.

Some of the most active acquirers of hospitals include HCA, Community Health Systems, LHP Hospital Group, Health Management Associates, Life Point Hospitals, National Surgical Hospitals and Universal Health Services.

4. Healthcare vs. insurance reform. Healthcare reform itself has become so polarizing, based on the number of missteps and over reaches by the House and Senate, that it will be very interesting to see whether any level of healthcare reform (or what should possibly be focused on certain aspects of insurance reform) can be accomplished this year. Healthcare costs remain a problem for many in this economy, and the inability to gain coverage if you have a pre-existing condition is a grave problem. To learn more about the current state of healthcare reform, request a copy of “Republican Wins Senate Seat in Massachusetts: 8 Quick Thoughts” by emailing me at sbecker@mcguirewoods.com.

5. 8th Annual Orthopedic, Spine and Pain Management Driven ASC Conference: June 10-12, Chicago. We have on June 10-12, in cooperation with the ASC Association and Ambulatory Surgery Foundation, the 8th Annual Orthopedic, Spine and Pain Management Driven ASC Conference. For this event, we have the best agenda we have ever had. We have 120 speakers and 90 sessions. We have great political and general session speakers, 30 physician leaders and several great administrators speaking about how to improve profitability, and a number of speakers providing advice that can be used immediately to improve a center. Last year nearly 600 people attended the conference. To register, call (703) 836-5904, e-mail registration@ascassociation.org or visit https://www.ascassociation.org/june2010.cfm.

If you desire to join this conference, please deduct $200 as an early registration discount. Note, “$200 discount per Scott Becker” when you register. Please register by May 1 to take advantage of this offer.

If you would like a brochure for this event, please e-mail me at sbecker@ mcguirewoods.com or call me at (312) 750-6016.

6. Publications. If you would like to receive a free subscription to any of the following, please e-mail me at sbecker@mcguirewoods.com.

• Becker’s ASC Review E-weekly (twice weekly);
• Becker’s Healthcare Daily Alert (daily);
• Becker’s Hospital Review E-weekly (once per week); and
• Becker’s Orthopedic & Spine Review E-weekly (once per week).

We would be happy to sign you up for any of these four free of charge.

7. Free white papers. If you have an interest in either of the following white papers, we would be happy to provide these free of charge: (1) 11 Things to Know About the False Claims Act, or (2) Pricing by Tier in the ASC Market. Please e-mail me at sbecker@mcguirewoods.com or call me at 312-750-6016.

Should you have any questions, please contact me at sbecker@mcguirewoods.com or (312) 750-6016.