FEATURE
can struggle to bring in enough volume to cover all costs. Without significant growth in volume or reimbursement coupled with increasing expenses, margins are shrinking for ASCs that have historically had a lower level of profitability. This sometimes presents an opportunity to have two struggling centers merge and combine operations into one location.” Dentler says a merger can help address another challenge facing ASCs in some markets. “The fact that many surgeons have already aligned with one or more ASCs in their commu- nity makes it more difficult than ever to identify enough uncommitted sur- geons to support a new ASC or grow an existing facility.” While mergers between
ASCs
might look good on paper, that does not necessarily mean the transaction will proceed smoothly, Wilson says. “Competition amongst physicians and differences in physician preference can make a merger difficult to complete. If you can get past those obstacles, there can be tremendous cost savings for both ASC partnerships, but it can take quite a while to get there.” Trying to bring together an ASC and hospital in a partnership might also present significant challenges, he says. “Some hospitals understand the needs of physician groups and ASCs, and work favorably with them, but some do not. That is also market spe- cific. If hospitals do not know how to work well with physician groups, then the physicians will have no interest in merging with them.”
Drivers of Large-Scale Consolidation The factors encouraging large-scale consolidation share some similarities with the smaller-scale, in-market consolidation. “Economies of scale play an important role,” Park says. “In addition to helping with managed care contracting, the perception is
surgery center’s performance. “Some markets still have a good number of physicians that may be interested in your ASC. In markets where there are not a good number of available physi- cians, you should look at other strate- gic opportunities, such as potentially merging with another facility as the best bet for profitability growth. You have to be open to putting all options on the table and consider them.” Staying informed about what is
The ASC industry is a mature industry. As a result, in many markets, you now have situations where there are ASCs with excess capacity.”
— John Wilson, Jr. Meridian Surgical Partners
that increased size is accompanied by greater leverage with supply and service vendors and greater management and executive-level expertise.”
McDonough adds, “The ability to control increasingly large amounts of market share is viewed as essential in keeping pace with other providers, nota- bly hospitals and third-party insurers.” Dentler says, “Consolidation will continue until each market is ‘right- sized’ to meet this need. A large part of health care reform is finding ways to eliminate waste and redundancies in the system. Having multiple ASCs in a geographic area is not cost effective when you consider all of the duplicative overhead costs. Payers and patients are going to demand more consolidation.”
Be Prepared For ASCs in any market, Wilson says it is important to consider different options that might exist to improve a
occurring in a market is particularly important for independent ASCs that lack involvement with national or regional partners, McDonough says. “ASCs need to know whether hospitals in their market are actively acquiring or more closely aligning with physi- cians. If so, how will this impact the physicians your ASC is most depen- dent upon? Are you hearing from your physicians that their referral bases are declining due to hospital-aligned phy- sicians directing volume elsewhere?” Park says that independent ASCs
would be best served by being proac- tive in their market in pursuing align- ment strategies, even when the center is performing well. “This will likely provide the ASC with the opportu- nity to make alignment decisions that are both economically beneficial and able to maintain the independent phy- sician’s desire. On the contrary, those centers that are reactive are more likely to make decisions out of desperation or from a position of weakness and not achieve the desired results.” If ASCs want to survive and grow
in today’s health care environment, Dentler says they should consider new operating and partnership models. “ASCs have always touted themselves as the lower cost, efficient, flexible player in the health care industry. If you want to be around for the long term, now is the time to stand behind those words and put innovation and collaboration ahead of increasing distributions.”
ASC FOCUS JANUARY 2016 15
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