The Future of Physician-Owned Orthopedic ASCs: From the Owner Perspective

Increased demand for higher quality, lower costs, and more coordinated care is driving provider consolidation across the country, including the orthopedic ASC market.  As a result, there are complex dynamics that must be evaluated in determining the future viability of independent, physician-owned orthopedic ASCs.  From the perspective of ASC owners, choices generally include:

  • Maintaining total independence.
  • Selling a minority stake, possibly to a management company, and gaining management expertise.
  • Selling a majority stake, perhaps to a hospital or health system, and strengthening the physician network – but potentially losing control.

Well-positioned ASCs are characterized by a number of key factors that will drive success and influence decisions about their future direction:

  • Diversity of the Physician and Procedure Mix – ASCs with a diverse physician base and mix of high- and low-volume services are best suited to positively respond to reimbursement uncertainty.  To succeed independently and increase their value, ASCs should consider offering complementary services and developing their clinical and operational capabilities to support new and existing orthopedic procedures.
  • Managerial Sophistication and Efficiency of the ASC – Underperforming ASCs or those that lack managerial expertise are strong candidates for selling a minority share to management companies in order to improve efficiency and lower costs.  Effective management, combined with thorough analysis of expenses and revenues, enables owners to evaluate their procedure mix and potentially increase volumes of the most profitable cases.
  • Participation in Contracting Initiatives – The low-cost outpatient environment creates an opportunity for an independent ASC to participate in a narrow network or an accountable care organization (ACO).  Network arrangements offer the potential to increase physician referrals and enhance volumes without selling ownership to a health system.  On the other hand, joint venture ASCs, in which the health system owns all or a majority of the ASC, are better positioned to participate in joint contracting initiatives that require hospital/physician alignment, such as bundled payments.
  • Dependence on Out-of-Network (OON) Revenues – Many independent ASCs have become immensely profitable through OON revenues, although industry experts expect these revenues to decline.  Potential buyers are likely to discount the purchase price of any ASC that is highly dependent upon OON revenues.  Thus, ASCs will need to seek efficiencies to counterbalance the decrease in this type of revenue.
  • Ability to Focus on Patient Satisfaction, Quality, and Outcome Reporting – Healthcare is becoming more consumer-oriented as costs shift from employers to individuals.  As more consumers price-shop, it will be critical for independent and joint venture ASCs to demonstrate the cost advantage of the ASC model and illustrate favorable outcomes relative to competitors.

Now is the time for ASC owners and investors to evaluate their market in light of reform to determine whether to pursue a strategy of independence or integration.  The following is a quick reference to help ASC owners focus their options:Freestanding_ASC_Graphic_14M01D09To learn more, read the Diagnostic on our Web site.

This entry was posted in Ambulatory Surgery Centers, Healthcare Reform, Orthopedics/Musculoskeletal, Physician Alignment, Physician Strategy and tagged , , , , , , by Krista Fakoory. Bookmark the permalink.

About Krista Fakoory

Krista joined ECG in 2007 with extensive experience in operations and process improvement, genetic and disease research, and strategic and financial planning for start-up businesses. At ECG, Krista has assisted hospitals, health systems, and medical groups with strategic, operational, and compensation planning and implementation. Her focus includes providing corporate strategic planning for hospitals and health systems, conducting financial planning for medical groups, structuring and implementing hospital/physician joint ventures, designing ambulatory delivery models, and developing management structures and policies for providers. Prior to joining ECG, she worked with the Center for Management Research in Healthcare, where she was involved in process mapping, system evaluation, and solutions analysis regarding the initiation of clinical trials in oncology groups and National Cancer Institute (NCI)-designated Comprehensive Cancer Centers. Krista has a master of business administration degree from Vanderbilt Owen Graduate School of Management and a bachelor of science degree in biochemistry and cell biology from the University of California, San Diego.

2 thoughts on “The Future of Physician-Owned Orthopedic ASCs: From the Owner Perspective

  1. Pingback: The Future of Physician-Owned Orthopedic ASCs: From the Health System Executive Perspective | ECG Management Consultants, Inc.

  2. Pingback: Major Trends Driving Change Across the Orthopedic ASC Market | ECG Management Consultants, Inc.

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