Healthcare has been in flux over the past five years, creating new opportunities for ambulatory surgery center owners and operators focused on providing high quality, low cost care. Navigating this terrain requires a keen eye on the healthcare landscape and focusing on the operational efficiency essentials.
"How does your ASC remain profitable and viable? By making sure you are doing every case you possibly can at the ASC and trying as hard as you can to get fair compensation for these cases through continual contract renegotiation," says Jeff Péo, Chief Development Officer for Ambulatory Surgical Centers of America. "Know which cases are profitable and which cases you are losing money on, and then have a laser-like focus doing these cases more profitably."
The key to success is much the same as it was a decade ago: relentless attention to patient care and optimizing return on each case. However, there are outside market factors making an impact on ASC success:
• Payer markets
• Accountable care organizations
• ASC saturation
• Physician employment levels
"If the hospital employs surgeons and primary care physicians in the market, that really makes a difference for opening a new ASC or turning around an existing ASC," says Mr. Péo. "From the outside, a market might look great and then we go in and there are challenges that shut down our plans. Or we might see a market that looks challenging but once we go in there's a good opportunity for us. It really boils down to case volume and what the payers are willing to pay."
Turnaround opportunities
ASC success depends on attracting case volume and new physician investors. People are now reaching out to independent physicians more regularly and offering investment opportunities more quickly than in the past, says Mr. Péo.
"It's amazing how many independent physicians are available that aren't ASC owners already. In most cases, you may have to turn over a few leaves to find them," says Mr. Péo. "The medical staff at your ASC can ask around among their colleagues about physicians who might be interested. It can't just be up to the development company and administrator to get those cases; the physicians have to be intimately involved."
Orthopedic and spine surgeons are among the largest group of specialty physicians independent of hospitals. "Orthopedics and spine are still great for surgery centers," says Mr. Péo. "You can also approach neurosurgeons, especially the younger surgeons, about doing cases at the center. The older neurosurgeons aren't used to doing cases at the ASC and might say they can bring volume, but when push comes to shove they often aren't comfortable with it. The younger surgeons were trained in these techniques and more comfortable with doing these procedures in an outpatient setting."
ASC owners may also consider taking on a corporate partner. ASCs typically seek corporate partners for one of three situations:
1. The ASC needs an injection of capital to keep their doors open. "This is happening to ASCs around the country," says Mr. Péo. "They lose surgeons, sign a bad contracts, see rent go up or have trouble keeping up with their debt payments. The owners are not doing well and need someone to give them a jolt to survive."
2. The ASC is doing well, but foresees issues in the future. "They see the writing on the wall and hospitals are coming in to talk to their surgeons about employment," says Mr. Péo. "Or the hospital is employing primary care physicians so referral patterns are changing. They are looking to partner with an ASC company and/or joint venture with a hospital. Oftentimes, the surgery center would like an ASC management company to act as a buffer between the ASC and the hospital."
3. The ASC is running fantastically and physician owners are looking for an equity event. "They might want to take equity off the table and one of the publicly traded companies will pay a six, seven or eight times multiple," says Mr. Péo. "Then they can also take advantages of the company's services."
Hospital partnerships
An increasing number of ASCs are partnering or aligning with hospitals for various reasons, including the potential managed care contract rate increase or preparation for accountable care organizations. However, Mr. Péo believes there will always be a place for independent ASCs and de novo activity.
"I think there are way too many surgery centers for every one of them to have a hospital partner," he says. "And not everyone wants a hospital partner. A lot of physicians formed the ASC because they didn't want a close relationship with the hospital. However, it may make sense to partner with the hospital, if you are willing to give up control, in exchange for better reimbursement rates."
Mr. Péo has seen hospital partnerships work well when the hospital executives realize their strengths and weaknesses. The day-to-day ASC operations are often one of their weaknesses, but a strength for the physician owners.
"Hospital partnerships are definitely on the rise, and I've seen some fantastic partnerships," says Mr. Péo. "I've also seen some terrible ones. You have to be very careful in choosing your partner."
Physician employment
Some specialists previously under hospital contracts may become independent, either because the hospital overspent and didn't renew the contract or the physician isn't satisfied with the hospital's second contract offer. These surgeons are great sources for potential partnerships in the future.
"There are some surgeons rolling of their employment contracts looking for investment opportunities," says Mr. Péo. "We've seen a number of surgeons reaching out to us, saying they're rolling off their contracts in a few months, and would like to join our center."
ASC leaders should proactively reach out to physicians at the end of their employment contracts. However, as specialists may trend back toward private practice, primary care physician employment remains an issue.
"The primary care physician employment is a big question mark to me," says Mr. Peo. "Primary care physicians are struggling on their own and groups are scooped up by the hospital."
Narrow networks
Narrow network — including plans on the health insurance exchanges — are designed to drive down costs as much as possible. Going in-network provides increased volume from the payer at a reduced payment rate. That can be advantageous for ASCs as a low cost provider, but there are also downsides to participating.
"You have to know what you're getting into with the narrow networks," says Mr. Péo. "So far they aren't reaching out to us. If you are interested, reach out to them and position yourself as the low cost provider. There is case volume there, especially if your physicians are in the narrow networks. But most people are still trying to wrap their heads around everything going on."
Patients may push back on narrow networks in the future in favor of personal preference. There are people willing to pay extra to choose their providers and there could be a similar migration away from those networks as the HMOs.
"It will be interesting to see how patients react to this if they don't like their options and are willing to pay extra for their choice," says Mr. Péo.
More Articles on Surgery Centers:
ASC Payer Contract Negotiations: Key Concepts for Best Results
4 ASCs Performing Rare Orthopedic Procedures
ASC Company Services & Ownership: 7 Things to Know
"How does your ASC remain profitable and viable? By making sure you are doing every case you possibly can at the ASC and trying as hard as you can to get fair compensation for these cases through continual contract renegotiation," says Jeff Péo, Chief Development Officer for Ambulatory Surgical Centers of America. "Know which cases are profitable and which cases you are losing money on, and then have a laser-like focus doing these cases more profitably."
The key to success is much the same as it was a decade ago: relentless attention to patient care and optimizing return on each case. However, there are outside market factors making an impact on ASC success:
• Payer markets
• Accountable care organizations
• ASC saturation
• Physician employment levels
"If the hospital employs surgeons and primary care physicians in the market, that really makes a difference for opening a new ASC or turning around an existing ASC," says Mr. Péo. "From the outside, a market might look great and then we go in and there are challenges that shut down our plans. Or we might see a market that looks challenging but once we go in there's a good opportunity for us. It really boils down to case volume and what the payers are willing to pay."
Turnaround opportunities
ASC success depends on attracting case volume and new physician investors. People are now reaching out to independent physicians more regularly and offering investment opportunities more quickly than in the past, says Mr. Péo.
"It's amazing how many independent physicians are available that aren't ASC owners already. In most cases, you may have to turn over a few leaves to find them," says Mr. Péo. "The medical staff at your ASC can ask around among their colleagues about physicians who might be interested. It can't just be up to the development company and administrator to get those cases; the physicians have to be intimately involved."
Orthopedic and spine surgeons are among the largest group of specialty physicians independent of hospitals. "Orthopedics and spine are still great for surgery centers," says Mr. Péo. "You can also approach neurosurgeons, especially the younger surgeons, about doing cases at the center. The older neurosurgeons aren't used to doing cases at the ASC and might say they can bring volume, but when push comes to shove they often aren't comfortable with it. The younger surgeons were trained in these techniques and more comfortable with doing these procedures in an outpatient setting."
ASC owners may also consider taking on a corporate partner. ASCs typically seek corporate partners for one of three situations:
1. The ASC needs an injection of capital to keep their doors open. "This is happening to ASCs around the country," says Mr. Péo. "They lose surgeons, sign a bad contracts, see rent go up or have trouble keeping up with their debt payments. The owners are not doing well and need someone to give them a jolt to survive."
2. The ASC is doing well, but foresees issues in the future. "They see the writing on the wall and hospitals are coming in to talk to their surgeons about employment," says Mr. Péo. "Or the hospital is employing primary care physicians so referral patterns are changing. They are looking to partner with an ASC company and/or joint venture with a hospital. Oftentimes, the surgery center would like an ASC management company to act as a buffer between the ASC and the hospital."
3. The ASC is running fantastically and physician owners are looking for an equity event. "They might want to take equity off the table and one of the publicly traded companies will pay a six, seven or eight times multiple," says Mr. Péo. "Then they can also take advantages of the company's services."
Hospital partnerships
An increasing number of ASCs are partnering or aligning with hospitals for various reasons, including the potential managed care contract rate increase or preparation for accountable care organizations. However, Mr. Péo believes there will always be a place for independent ASCs and de novo activity.
"I think there are way too many surgery centers for every one of them to have a hospital partner," he says. "And not everyone wants a hospital partner. A lot of physicians formed the ASC because they didn't want a close relationship with the hospital. However, it may make sense to partner with the hospital, if you are willing to give up control, in exchange for better reimbursement rates."
Mr. Péo has seen hospital partnerships work well when the hospital executives realize their strengths and weaknesses. The day-to-day ASC operations are often one of their weaknesses, but a strength for the physician owners.
"Hospital partnerships are definitely on the rise, and I've seen some fantastic partnerships," says Mr. Péo. "I've also seen some terrible ones. You have to be very careful in choosing your partner."
Physician employment
Some specialists previously under hospital contracts may become independent, either because the hospital overspent and didn't renew the contract or the physician isn't satisfied with the hospital's second contract offer. These surgeons are great sources for potential partnerships in the future.
"There are some surgeons rolling of their employment contracts looking for investment opportunities," says Mr. Péo. "We've seen a number of surgeons reaching out to us, saying they're rolling off their contracts in a few months, and would like to join our center."
ASC leaders should proactively reach out to physicians at the end of their employment contracts. However, as specialists may trend back toward private practice, primary care physician employment remains an issue.
"The primary care physician employment is a big question mark to me," says Mr. Peo. "Primary care physicians are struggling on their own and groups are scooped up by the hospital."
Narrow networks
Narrow network — including plans on the health insurance exchanges — are designed to drive down costs as much as possible. Going in-network provides increased volume from the payer at a reduced payment rate. That can be advantageous for ASCs as a low cost provider, but there are also downsides to participating.
"You have to know what you're getting into with the narrow networks," says Mr. Péo. "So far they aren't reaching out to us. If you are interested, reach out to them and position yourself as the low cost provider. There is case volume there, especially if your physicians are in the narrow networks. But most people are still trying to wrap their heads around everything going on."
Patients may push back on narrow networks in the future in favor of personal preference. There are people willing to pay extra to choose their providers and there could be a similar migration away from those networks as the HMOs.
"It will be interesting to see how patients react to this if they don't like their options and are willing to pay extra for their choice," says Mr. Péo.
More Articles on Surgery Centers:
ASC Payer Contract Negotiations: Key Concepts for Best Results
4 ASCs Performing Rare Orthopedic Procedures
ASC Company Services & Ownership: 7 Things to Know