ASCs: The Latest Trends in Strategy & Operations

Ready to learn about the dynamic world of ambulatory surgery centers?

In this episode, host Jen Johnson explores the rapidly evolving ASC landscape with experts Debra Stinchcomb and Taryn Nasr. Tune in to hear their discussion on the latest trends in M&A, operational challenges, and the impact of private equity in ASCs.

Some topics covered in this month's dose of the business side of healthcare include:

• Key issues and areas ASC clients are currently focusing on
• What activity and M&A strategy looks like in the ASC space
• Trends in 2023 that stand out when compared to past years
• Operational advice for ASC clients
• PE strategy in the ASC space

This episode provides valuable insights for anyone interested in the ASC industry, whether you're a healthcare professional, investor, or industry observer. Don't forget to subscribe to the Healthcare Download with VMG Health to receive new episodes every month. 

You can also visit vmghealth.com for more resources and stay connected with VMG Health's newsletter. Thanks for listening!

Want to learn more about this topic?

Read more about health system strategy here: VMG Health's 2023 Physician Alignment: Tips & Trends Reports

Transcript

Intro 0:06 Welcome to the Healthcare Download with VMG Health. We are the leaders in strategy and transaction advisory dedicated to finding solutions for the healthcare industry. In each episode, we will leverage our expertise to provide trends and timely updates about what is happening on the business side of healthcare so you can move your strategy forward.

Jen Johnson 0:33 In this episode, “ASCs: The Latest Trends in Strategy and Operations,” we will be interviewing two leaders who are experts in the highly active space of ambulatory surgery centers. What I've tried to do for this podcast is highlight areas representing what our clients are talking about most in the ASC sector. So, I've pulled experts from VMG Health’s transaction and strategy operational divisions. These two guests work extensively with ASCs on everything from M&A strategy to staffing optimization. I'm going to start with Debra Stinchcomb, who is a senior consultant in our Progressive Surgical Solutions division. Debra, can you tell us where you're officing from, and a little bit about your background?

Debra Stinchcomb 1:14  Sure. Thank you, Jen. And actually I office from home, we were actually remote before the pandemic where we worked from home in airplanes and in ASCs, so it’s been a long time. I've been in the ASC industry for about 30 years, I've worked for both the corporate entities as well as independent physicians. I've been an administrator, RVP, Director of Operations Preparation, and of course, most recently consulting. I've been lucky enough to enjoy working within the industry as a whole. I have been a AAAHC surveyor, I was able to chair the Joint Commission PTAC, and I've also served on the ASCA board. I am the current chair of BASC, which administers both the CAIP and the CASC certifications within the ASC industry. So, very happy to be in this industry. It’s a lot of fun.

Jen Johnson 2:07 Yeah, that is a ton of experience. So now, you know, now that you're at this current role, what type of things do you do as far as helping your ASC clients today?

Debra Stinchcomb 2:18 Sure, Jen, we really do everything related to ASCs. For example, we'll start out with a group of physicians who might want to build a surgery center with doing a pro forma to let them know what that process looks like. We take facilities all the way from the beginning all the way through that licensing, certification, and accreditation process. That, of course, involves policies and procedures, training their clinical directors, their administrators, their business office, also including a mock survey. We also do a lot of efficiency studies where we look at a center from both a clinical and a financial standpoint. And we also have eSupport, which is an online support for our clients that provides all of the mandatory education they need, in addition to a tremendous amount of resources for them to use in their day-to-day jobs. And lastly, we have a nurse leadership conference. So, this will be coming up on our fourth one in April 2024. And it really is geared to grow the leadership of that nursing team, of that clinical team, and clinical administrators at the surgery centers.

Jen Johnson 3:32 That's awesome. I've heard that is a sold-out event every year and does very, very well. People love it.

Debra Stinchcomb 3:37 Yeah, we had to squeeze in extra people last year.

Jen Johnson 3:41 That’s awesome. I've heard nothing but good things. Well, this sounds like you can provide some really important insight on current operational issues that our ASC clients are facing. And I know everyone's gonna find this really helpful. So, thank you for being here. Now I'd like to introduce Taryn Nasr, who's a director in VMG Health’s Transaction and Advisory division. Can you tell us where you're officing from and a little bit about the work you do for your clients?

Taryn Nasr 4:03 Sure. Thanks, Jen. I'm coming from our Dallas office where we are experiencing probably day 100 of triple digits, it feels like. Sure, so my team's clients cover all subsectors in healthcare, but we do have quite a bit of focus on ASCs just due to the high transaction volume coming from that area. A fair amount of my work is performing fair market value opinions to be used for any variety of reasons, that be acquisitions, joint ventures, physician syndication. We also have experience valuing service arrangements between facilities and providers. We do consulting and operational assessments for, again, a variety of reasons. Other areas of expertise for our division would include financial due diligence, that's buy-side diligence, sell-side diligence, quality of earnings, as well as fairness opinions, financial reporting, litigation, revenue consulting, you name it.

Jen Johnson 4:54 Right, great. Well, that's perfect and a really good complement to Debra’s insight, as we touch on some of the big-picture strategies out there going on in the ASC market today. So, I'm excited to have you both. Before getting into the latest and greatest out there, I'd like to note that this industry is highly fragmented with 70% of ASCs independently owned, and the remaining owned by larger conglomerates. So Taryn, I'd like to start with you, in your valuation and transaction work, are you seeing more requests from the independents, the larger companies, or both? In other words, is everyone active right there?

Taryn Nasr 5:28 Yes, everyone is active. Our team specifically sees more requests from larger companies, but we are seeing activity from both those independent centers, as well as the centers that are owned and operated by larger players. The major operators are continuing to look to consolidate, find new opportunities in the space. USPI, parent company Tenet, that continues to lead the pack right now with their ASC acquisition plans. Intermountain is also expanding its ASC strategy, opening new centers, joining forces with Surgery Partners. From the independent side, those centers may be looking for some reprieve from some of the staffing and supply pressures that they're seeing right now, and that solution could be a transaction. A couple of factors that continue to make this area attractive would be continued shift of those higher acuity inpatient cases to the outpatient setting. You have the specialties like cardiology and total joint that increase margins and command some higher multiples. And then there's just a level of certainty with an ASC investment, ASCs are known to have consistent cash flows.

Jen Johnson 6:24 Yep. Well, it's always been a very active space for us for literally over 25 years. So, I see it continues to be that which is pretty awesome. So yeah, lots of activity out there. I do think it's important to recognize that although both independents and larger conglomerates are using our strategic insight, as it relates to transactions and compliance, and operations, on the fair market value request front, we're seeing more of those requests coming from larger conglomerates, compared to the independents. So, this client base is just more focused on compliance, such as the fair market value issue. Plus, we're even seeing fair market value requests for ASC management agreements, which is an interesting insight because it shows activity is happening, and there's more partnerships in the space right now. But Debra, I know you do a lot of work with independent groups. So, I'm wondering what type of work you're seeing, is it more compliance requests, de novo work, or both?

Debra Stinchcomb 7:18 A little bit of both we are seeing de novo, we have really since the pandemic has been over. There are some challenges to that, of course, there are delays in equipment, certainly higher costs per square footage, as well as that higher interest rate that everyone is having to deal with. But we do have several that are under construction right now. We've also seen an uptick in cardiac, that seemed to start with the peripheral vascular diseases a few years ago. We're seeing more cardiac cath facilities at this point in time. And it really is dependent on the CPT code and where that CPT code is covered, we see a lot of hybrid ASCs, where they build it to ASC specs, but perhaps they're open, for example, three days a week as an ASC two days as office-based. We are seeing an uptick in efficiency requests, I think because people are being squeezed with supply costs, staffing costs, so they're looking to see if there's any way they can become more efficient. We've also seen an uptick in office-based surgery centers, which of course don't require state licensure for the most part, or Medicare certification. The majority of those are cosmetic, but we've seen some ophthalmologists try to get into that space as well. Certainly financial is always something that's needed, and we do work with a lot of centers to train them on measuring and tracking their key performance indicators.

Jen Johnson 8:51 Okay, perfect. Well, you guys have a lot going on out there. What I'd like to do is move on and start providing listeners with some insight on really the latest trends in strategy and operations. I want to ask you both about new trends you're seeing in client work, and specifically ones that you really expect to continue into 2024. So, I'm going to start with Taryn. Taryn, from an M&A strategy perspective, what are your clients talking about most that stand out differently from previous year trends?

Taryn Nasr 9:18 Yeah, that's a great question, Jen. So, something that stands out right now is the adoption of value-based care. The healthcare industry as a whole is seeing movement to value-based care, and we're seeing that start to pop up in our ASC analyses as well. Surgery centers are increasingly participating in these bundled payment programs, as well as other value-based initiatives, in order to have that focus on quality and achieving positive patient outcomes. The professionals, the industry experts believe that ASCs are in a position to really succeed in this environment because they have that known history to deliver that high quality and cost-effective care that you want to see from value-based care entities. Something else that we're seeing this year is some focus on de novo centers. So, in the most recent earnings call, USPI mentioned that they have over 30 de novo centers that are currently in syndication stages and Surgery Partners also mentioned 15 de novo centers, where historically that's not been a focus. These de novo investments seem to be prioritized by management because they have the ability to essentially reset, payor negotiations in order to focus on some value creation. And they're also usually fully syndicated with physicians already, so you have some case volume that is already known prior to facility construction, which just limits some risk factors within the operations. Another trend we're seeing, that Debra has already kind of focused on a little bit, is that focus on single specialty centers. Orthopedics remains the most popular specialty, but we're also seeing GI, ophthalmology, and cardiology, make up large portions of the market. In January, we had Lee Equity Partners completed a buyout of Cardiovascular Institute of the South, you have Blue Cloud Pediatrics, United Urology Group, also recent examples of pretty significant single specialty transactions.

Jen Johnson 11:02 Yep, yep, we are actually seeing single specialty trends within hospitals as well. So, we do a lot of work with their strategy and moving their physician strategy overall towards single specialty versus the multispecialty approach. So, that's been a trend throughout all of healthcare. And on that note, if anyone's interested, we did discuss health system strategy in our 2023 Physician Alignment: Tips & Trends Report that we just released, and that talks a little bit more about the service line level, single specialty strategy. So, getting back to this topic with the latest trends for ASCs, I'd like to turn to Debra, on what's new with ASCs for more of an operational perspective. Like what are your clients dealing with and what advice do you give them?

Debra Stinchcomb 11:45 Really we’ve seen an exacerbation of previous trends versus new trends. Supply chain issues, those certainly are not new, but they're certainly not getting any better either. Combine that with a turnover of staff and inventory management is a huge challenge. So, that's definitely an operational challenge for people, delays, shortages, and just overall management of costs. Also, quality reporting is going to be increasing next year and many staff members at ASCs are not really fully aware of that because of the turnover. So, that is a trend that people need to watch because the reporting is increasing. And one thing that has become new, which I've just recently learned more about, many thanks to Misti Hill at Careplus Anesthesia Management is the impact of the No Surprises Act on anesthesia. As an ASC, we're more focused on those clients that might be self-paying and letting them know of any charge. But according to Misti, prior to 2022, anesthesia providers, similar to labs and ambulance companies, were known as “ghost providers.” And as long as the other providers were in-network, those anesthesia providers were paid a fixed amount. With the No Surprises Act, that all went away. So, right now there really is not a contracted rate for anesthesia, nor can anesthesia balance bill. Now this is not affected if they are doing case patients with Medicare or Medicaid or Medical, that all has a published list. So, this is really commercial payers. So, from a patient standpoint, they might be responsible for the self-pay amount, they would never have an issue with balance billing. But anesthesia might bill a certain amount, the insurance company may arbitrarily agree with them or not agree with them. If it's not agreed upon, they have to go to an independent entity for a review. So, the provider gives their case for why they should be paid a certain amount, the insurance company gives their side, then there's a decision made. So, could be $45 a unit, could be $110 a unit. So, very difficult for them to gauge their income, cash flow, because of that review process. So, it is a challenge for the anesthesia providers. We really haven't heard a lot of chatter about it that much within PSS. But Taryn, I think you've heard a lot more on your side of things with this impact of the No Surprises Act.

Taryn Nasr 14:32 Yes, that's right, Debra. We've had quite a few of our clients come to us with questions regarding these changes in anesthesia that we're seeing. We know that there's a shortage of anesthesiologists and we know that the No Surprises Act as well has changed some of the billing that is happening in those anesthesia-necessary procedures. I don't know what the solution is, I'm not sure anyone knows quite yet what the solution is, but it is having a large impact on surgery centers specifically. It's causing quite significant increases in their contract fees, as well as decreases or related decreases in cash flows. I do have one client who is considering acquiring an anesthesia practice in order to employ those physicians instead of contracting. So, maybe that's the solution, maybe it's not, we'll have to see.

Jen Johnson 15:22 Well, big, big shifts. Well, very insightful, and you know, from my lens, you know, once again, we've got healthcare regulations coming into play, stirring up the business side of healthcare and this is something we see in all sectors. So, it sounds like you guys have some good insight here. Also, just from my end, we do a lot of compensation valuation work, and we've seen a big surge in requests for coverage arrangement fair market value opinions. So typically, they historically would not have to pay an anesthesia group, but now they're having to come up with a stipend to cover the shortage. So, new things are happening everywhere due to the No Surprises Act. So, what I'd like to do now is stick with Debra and the topic of operational challenges, moving to the most obvious of these challenges, which everyone's talking about staffing shortages. So Debra, could you talk about which staffing shortages are really hitting the ASCs and advice you give your clients on how to handle this?

Debra Stinchcomb 16:16 Yep, the staffing shortages really are in every single position, whether it's the receptionist, biller, business office manager, techs, nursing, etc. Just like every other industry, it's impacted us. The largest need is that of nurses and clinical directors, that's where we see typically the biggest shortage. There's certainly a bigger need for nurse extenders. So, if people are hiring medical assistants, or nursing assistants, maybe even LVNs, to help the RNs, the key there is to make sure that as the ASC administrator, you check with the Board of Nursing in your state, or the medical board to make sure you fully understand the scope of practice for the MA, or for the LVN, because it's different everywhere. Quick example, in some states, LVNs are not allowed to teach. So, they would not be able to do any of your discharge teaching, other states they are, so it really gets granular. The other item that we've seen a little bit of is trying to substitute for a nurse to augment that, and EMTs might be something that you look at. Depending on your state, a paramedic may be able to do some of the work of an RN, they might be able to work in PACU. I'm even aware of one state where they are allowed to circulate cases. So, again, I think we need to think a little bit outside of the box, see what we can do, and still provide safe patient care.

Jen Johnson 17:47 Awesome. That is excellent advice. Thank you very much for that, because I know it's a huge deal and it's great that you guys have solutions. Finishing off, this really, I mean, we've hit it y'all. We've hit M&A, we've hit strategy, we’ve hit operations, but I want to hit a topic that basically all of healthcare sectors are dealing with right now, which is private equity companies. We've seen this in the ASC space from the perspective of new funds coming in, and new strategies. So, Taryn, what can you tell listeners about PE strategy in the ASC space?

Taryn Nasr 18:17 Sure, PE is a topic that pops up frequently in healthcare these days. PE in healthcare has slowed down recently, in general, just due to some of those macroeconomic issues that we're seeing across the board. However, there is still interest and an expectation for increased attention as interest rates start to stabilize and the uncertainty kind of eases. Within the ASC setting, PE investors have historically focused more with the physician practice portfolios and how those practice portfolios tie in to the ASCs. What we've seen in the most recent years is the PE investors focusing more intentionally in the ASC space regardless of their portfolios. Two of the largest players in the ASC industry, AMSURG and Surgery Partners have PE ownership. And we're just starting to see a lot of PE interest outside practice. So, while PE slowed down with healthcare in general, we do expect that when it picks back up, ASCs will be included in that conversation. 

Jen Johnson 19:09 Yep. And it's definitely going to pick up I think. 

Taryn Nasr 19:11 Right, just a matter of when.

Jen Johnson 19:13 Yeah, exactly, but it's happening. They're not going anywhere. So are you guys, I know you've got more independent group-type work in your practice, but are you working with PE companies at all?

Debra Stinchcomb 19:21 We are, Jen. We do a lot of due diligence. From a clinical and a physical plant standpoint, where we'll have an RN go in, our engineer goes in, and they assess that facility so the buyers understand exactly what they're buying, and if there are any looming issues that they're going to have to deal with. We also assess them from a financial standpoint, that might be a revenue cycle management audit or some sort of a forensic audit as well. There's one large PE firm where we did a training session for them, actually several training sessions, for the ASCs and the practices. BSM was involved in the practice training, for how to work with these entities and their entire corporate executive team also sat in on that, which was great to have everybody in one room. So yes, we do work with the PE firms as well.

Jen Johnson 20:15 That makes a lot of sense, no matter who you are, if you're in the space, you need operational help, right? So you guys are the ones to do it. So, thank you for that, I do have a feeling. You know, these two big themes, staffing issues, and PE strategy are going to be important topics for many years to come. Not only in this sector, but other sectors as well. So you guys, y'all did a great job providing important insight to our listeners on the ASC space. What I always like to do is recap our episodes just real briefly:

1. First, we know there's a lot of M&A activity in the ASC sector from all sorts of players.
2. Second, operators should be spending time developing plans to curtail issues generated by staffing shortages, and be aware of potential changes coming from anesthesia contracts, huge financial impact.
3. And third, it's important to understand PE firm strategies and new trends, such as the single specialty focus when looking at your ASC plans.

So I also want to make sure everyone knows that VMG Health has a tremendous amount of resources related to ASCs specifically. This includes our Intellimarker, which is the most robust financial benchmarking study around for ASCs. And lastly, our firm has ASC experts to help clients with transactions, strategy, compliance, and all areas of operations. So Debra and Taryn, we appreciate you both for the excellent insight and want to make sure listeners know they can reach out to either of you anytime with questions. Everybody, take care.

Taryn Nasr 21:35 Thanks, Jen. 

Debra Stinchcomb 21:36 Thank you, Jen.

Outro 21:42 Thank you for listening to the Healthcare Download with VMG Health. Make sure you subscribe to the show wherever you listen to podcasts to receive new episodes when they release the first Wednesday of each month. You can also go to vmghealth.com or visit the episode notes to follow VMG Health’s monthly newsletter and to learn more about this conversation.