At the 18th Annual Ambulatory Surgery Centers Conference in Chicago on Oct. 29, Scott Becker, JD, CPA, a partner with McGuireWoods in the firm's Chicago office, and Lainey Gilmer, an associate in McGuireWoods' Charlotte office, discussed five key issues currently facing surgery centers as well as elements of an ambulatory surgery center's compliance plan.
1. Increased sector uncertainty. The ASC industry is currently experiencing more uncertainty than it has in the last ten years. Increased competition for independent physicians by centers, the growth in hospital employment of physicians and uncertainties around reimbursement have all contributed to this uncertainty. An increase in the number of regulations, both by CMS and states, has also made operating a center more challenging.
While these forces will certainly impact the ASC industry, Mr. Becker remarked that the key specialties driving ASCs — orthopedics and pain, GI and ophthalmology — still have a "tremendous vibrancy of independent medicine, which is "critical" for centers without hospital ownership. However, the number of independent physicians varies greatly market-by market and specialty by specialty, said Mr. Becker.
In addition to these issues, the growth in high deductible health plans and unemployment rates have led consumers to more closely consider or delay elective surgery, which puts ASC volumes at risk.
2. Active M&A market. ASCs remain hot acquisition targets for private equity funds as well as many hospital and health systems. Several acquisitions of ASC chains by private equity investors and publicly traded ASC operators have already taken place this year, such as the acquisition of NovaMed by Surgery Partners, which is an affiliate of private equity firm H.I.G. Capital. "Today's it's a much tougher business but still better than real estate or commercial banking." said Mr. Becker.
Hospitals and health system also remain active acquirers of ASC shares, though Mr. Becker has seen some slowdown in this area. He explained that because hospitals benefit more finaically when physicians perform cases in the hospital as opposed to a joint-ventured center (i.e., the hospital retains all profits, instead of a share of the profits), many hospitals are leaning towards employment and co-management as core alignment tools. Any co-management deal should feature fair-market-value compensation and a clear understanding of the responsibilities/roles of the co-management company, said Mr. Becker. He added that hospitals with co-management deals also need to assign a manager to ensure the co-management company is performing its duties. "You actually want them to do certain things, but someone needs to facilitate that," he said.
3. Most profitable service lines. Mr. Becker said the most profitable service lines for ASCs are as follows:
• Orthopedics
• Spine
• GI
• ENT
• Ophthalmology
• Pain management
"These remain the biggest specialties for surgery centers," he said.
4. Turnaround market is more challenging. According to Mr. Becker, turning around a struggling surgery center is more difficult than ever, in part because of growing competition for physicians, reimbursement pressures and regulatory demands.
5. Unprecedented increase in government investigations. The healthcare sector is currently subject to an unprecedented level of government investigations. Mr. Becker explained that in the past, "95 percent" of government investigations involved billing and collection issues. Today, this has expanded to more significantly include improper relationships between physicians and hospitals, which can lead to false claims liability. Audit activities, such those by Medicare and Medicaid recovery audit contractors, also affect providers. Qui tam, or whistleblower, cases are also on the rise. Mr. Becker noted qui tam cases resulted in $1.6 billion in recoveries in the healthcare sector during 2009.
After Mr. Becker discussed these key issues, Ms. Gilmer shared the importance of a compliance plan. "Consistency is a large part of operating a compliant facility," she said. "Systematic processes help organizations be sure they don't do something inadvertently to put them on radar of investigator." She then explained that hospitals must cultivate a "culture of compliance" that takes reports of improper actions seriously. The most compliant hospitals also continually educate physicians and staff on compliance issues and perform regular auditing, she said.
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1. Increased sector uncertainty. The ASC industry is currently experiencing more uncertainty than it has in the last ten years. Increased competition for independent physicians by centers, the growth in hospital employment of physicians and uncertainties around reimbursement have all contributed to this uncertainty. An increase in the number of regulations, both by CMS and states, has also made operating a center more challenging.
While these forces will certainly impact the ASC industry, Mr. Becker remarked that the key specialties driving ASCs — orthopedics and pain, GI and ophthalmology — still have a "tremendous vibrancy of independent medicine, which is "critical" for centers without hospital ownership. However, the number of independent physicians varies greatly market-by market and specialty by specialty, said Mr. Becker.
In addition to these issues, the growth in high deductible health plans and unemployment rates have led consumers to more closely consider or delay elective surgery, which puts ASC volumes at risk.
2. Active M&A market. ASCs remain hot acquisition targets for private equity funds as well as many hospital and health systems. Several acquisitions of ASC chains by private equity investors and publicly traded ASC operators have already taken place this year, such as the acquisition of NovaMed by Surgery Partners, which is an affiliate of private equity firm H.I.G. Capital. "Today's it's a much tougher business but still better than real estate or commercial banking." said Mr. Becker.
Hospitals and health system also remain active acquirers of ASC shares, though Mr. Becker has seen some slowdown in this area. He explained that because hospitals benefit more finaically when physicians perform cases in the hospital as opposed to a joint-ventured center (i.e., the hospital retains all profits, instead of a share of the profits), many hospitals are leaning towards employment and co-management as core alignment tools. Any co-management deal should feature fair-market-value compensation and a clear understanding of the responsibilities/roles of the co-management company, said Mr. Becker. He added that hospitals with co-management deals also need to assign a manager to ensure the co-management company is performing its duties. "You actually want them to do certain things, but someone needs to facilitate that," he said.
3. Most profitable service lines. Mr. Becker said the most profitable service lines for ASCs are as follows:
• Orthopedics
• Spine
• GI
• ENT
• Ophthalmology
• Pain management
"These remain the biggest specialties for surgery centers," he said.
4. Turnaround market is more challenging. According to Mr. Becker, turning around a struggling surgery center is more difficult than ever, in part because of growing competition for physicians, reimbursement pressures and regulatory demands.
5. Unprecedented increase in government investigations. The healthcare sector is currently subject to an unprecedented level of government investigations. Mr. Becker explained that in the past, "95 percent" of government investigations involved billing and collection issues. Today, this has expanded to more significantly include improper relationships between physicians and hospitals, which can lead to false claims liability. Audit activities, such those by Medicare and Medicaid recovery audit contractors, also affect providers. Qui tam, or whistleblower, cases are also on the rise. Mr. Becker noted qui tam cases resulted in $1.6 billion in recoveries in the healthcare sector during 2009.
After Mr. Becker discussed these key issues, Ms. Gilmer shared the importance of a compliance plan. "Consistency is a large part of operating a compliant facility," she said. "Systematic processes help organizations be sure they don't do something inadvertently to put them on radar of investigator." She then explained that hospitals must cultivate a "culture of compliance" that takes reports of improper actions seriously. The most compliant hospitals also continually educate physicians and staff on compliance issues and perform regular auditing, she said.
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