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Ambulatory surgery center business overview

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overview of Ambulatory Surgery Center business- July 2013

overview of Ambulatory Surgery Center business- July 2013

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  • 1. M I C H A E L R . C A R D E N A S , M B A , C P C U , R P L U J U L Y 2 0 1 3 Ambulatory Surgery Center Business Overview 1
  • 2. Topics ASC Defined Statistics Business Justification Procedures performed in ASC setting Ownership Structure Regulatory Environment Risk Management Issues Insurance Valuation Operations Finance Dead Weight Physicians Additional Revenue Sources Trends Summary 2
  • 3. What is an Ambulatory Surgery Center? Ambulatory surgery Center ( ASC) according to CMS is, “means any distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization and in which expected duration of services would not exceed 24 hours following an admission.” Source: 42 CFR 416.2 Definitions. & ASCA.com Since 1982, roughly 5,300 Medicare-certified facilities in USA, perform 25M + procedures each year 1st ASC in USA- 2/12/70 in Phoenix AZ Founded by Wally Reed, MD and John Ford, MD. Source: David Shapiro, Ambulatory Surgery Center, NCAS 2011 3
  • 4. What is an Ambulatory Surgery Center? What are not ASC? Rural health clinics Urgent care centers Ambulatory care centers only diagnostic or primary care ASCs treat only patients who have already seen a health care provider and selected surgery as the appropriate treatment for their condition. ASCs are not physicians' offices either. All ASCs must have at least one dedicated operating room and the equipment needed to perform surgery safely and ensure quality patient care Source: Ambulatory Surgery Center Association(ASCA) 4
  • 5. ASC Statistics, Status and Settings Total number of ASCs in USA For Profit or Non-Profit Urban vs. Rural Spread Source: Medpac June 2012 Healthcare spending and Medicare program Year  2004 2005 2006 2007 2008 2009 2010 2011 Number of Centers  4,033        4,328        4,567        4,838        5,045        5,157        5,252        5,344        new centers  367            354            328            345            281            218            189            153            exiting centers  81              59              89              74              74              106            94              61              Net % growth from  previous yr 6.70% 7.30% 5.50% 5.90% 4.30% 2.20% 1.80% 1.80% Total Number of ASC Year  2004 2005 2006 2007 2008 2009 2010 2011 For Profit  3,872        4,155        4,384        4,644        4,843        4,951        5,094        5,184        Nonprofit  161            173            183            194            202            206            158            160            Profit or Non‐Profit  Year  2004 2005 2006 2007 2008 2009 2010 2011 Urban  91% 91% 91% 91% 91% 91% 91% 91% Rural  9% 9% 9% 9% 9% 9% 9% 9% Urban vs. Rural  5
  • 6. Why Ambulatory Surgery Center? Value-based healthcare delivery method, in-line with principles of A.C.A. Quality delivery method 40% less expensive than Institutional environment ASC pass along savings to patients & payer by providing services at lower price than full service hospital due to specialization and scale of operations Medicare saves $2.5 billion annually when surgical procedures are performed at ASCs instead of hospital outpatient departments. Patient: not exposed to hospital institutional environment Physician: additional source of revenue / scope of operations Sources: ASCA (What is an ASC?, 2013) and Medpac, Report to Congress, Health Care Spending and the Medicare Program, page 91-120 6
  • 7. Types of Procedures in ASC? Procedure Percentage of all procedures E.N.T 8.0% G.I. 20.4% General Surgery 8.7% OB/GYN 3.7% Ophthalmology 14.8% Orthopedic 16.1% Other 1.8% Pain 16.0% Plastic 3.4% Podiatry 2.9% Urology 4.2% Based on Multi-Specialty ASC business model Source: ASCA 2011 ASC Employee Salary & Benefits Survey 7
  • 8. Type of Ownership Entity  Percentage of USA ASC Market  Physician(s) 65% Hospital & Physician  18% Hospitals 3% Corporations‐ Physicians 8% Corp.‐Hospitals & Physicians 6% Majority owned by Physicians Trend-Hospital & Physician JV, HOPD Source: ASCA 2011 ASC Employee Salary & Benefits Survey 6% 8% 18% 2% 66% Type of Owners Corp.‐ Hospitals & Physicians Corporations‐ Physicians Hospital & Physician 8
  • 9. Physician-owned ASC Profile Number of Physicians % of physican owned ASC 1‐5 47% 6‐10 10% 11‐15 9% 16‐25 10% 26‐50 10% 51+ 6% 65% of ASC Market Number of physicians in ownership group of ASC Specific Specialties expect ownership in ASC: Orthopedic, General Surgeon & Neurosurgeons • 1-5 ownership structure issues: • Typically single specialty • Efficiencies-Operations • A.C.A. reporting requirements –Costs • Reimbursement fluctuation • Multi-Specialty Competition • Hospital-Physician JV • A.C.A. uncertainty Source: VMG Intellimaker Survey 2010 Affiliated Physicians per ASC 9
  • 10. Ownership- Hospitals Different type of hospital ownership HOPD Hospital- Physician JV Rational for Hospital ownership: Patient Care: patient not exposed to institutional setting OR Capacity at cheaper cost Eliminate ASC competitors Utilize ASC JV as a method to recruit physicians expecting ASC revenue Accountable Care Organization: component Hospital/ Hospital System Competitors Three competitors in West Los Angeles: UCLA vs. Cedars-Sinai vs. Trinity Health 10
  • 11. Management Companies 22% of all ASC are owned by management companies Top 10 management companies Source: Ambulatory Surgery Center Business Planning and Organization Formation, Christian Ellison, SVP Health Inventure, October 18,2012 Name  Ownership  AmSurg Publicly traded  USPI  Privately held: Welsh, Carson, Anderson & Stone  SCA  Privately held: Texas Pacific Group HCA  Publicly traded  Symbion Publicly traded  SurgCenter  Development Privately held Surgery Partners  Holdings  Privately held : H.IG. Capital  ASCOA Privately held Nueterra Healthcare  Privately held Health Inventures  Privately held 11
  • 12. Regulatory Environment Entities that regulate and govern ASC business CMS- Centers for Medicare & Medicaid Services JCAHO-Joint Commission on Accreditation of Healthcare Organizations Individual States AAAHC- Accreditation Association for Ambulatory Health Care AAAASF -American Association for Accreditation of Ambulatory Surgery Facilities Insurance Companies-Audits, inspections, risk management services 12
  • 13. Risk Management Mitigate the risk of loss through risk management techniques: loss control, insurance, education, process, teams Infection Control Concepts –Evidence-based best practices: Surveillance Sterilization& disinfection standards Safe Infection standard Point of care medical device standards Continuing education Environmental controls Physician Credentialing Medical Director-DON-Facility Manager Team Medical Malpractice Risk Management Services Medicare Ambulatory Surgical Center Value-based Implementation Plan –implementation – must report data in 2012, if don’t, reimbursement reductions will be implemented in 2014 13
  • 14. Insurance • Insurance is a primary tool used to hedge against the risk of a contingent, uncertain loss • Transfer the risk of loss to a third party • Premiums paid are corporate business expense • Indemnify only, no profit or gain realized • Business risks to mitigate: • Operational exposures / liability claims: malpractice, premises • Healthy & productive workforce: health insurance for employees • Workplace accidents: return to work programs • Property, Plant & Equipment: damage to P,P &E • Automobile: owned vehicles, non-owned autos • Management Liability: Board of Directors • Business interruption: eight-inch water main breaks, flood center, operations shut down for three months 14
  • 15. Insurance • Insurance distribution: agent, wholesale brokers, insurers • Selection of insurance solutions: • Agent/firm with experience in medical professional liability, largest exposure • Insurers with medical business experience/clients: malpractice underwriting, actuary, claims and risk management expertise • Risk management solutions: healthcare focused insurers with risk management solution, custom vs. boilerplate solutions • Consultants: impact of Affordable Care Act on operations, human capital, finance and insurance matters 15
  • 16. Valuation Business Valuation measurements: Market, Comparison, Capital Asset Pricing Model (CAPM), DCF, DDM, EBITDA multiplier ASC most commonly used, EBITDA multiplier 2012 and 2013 projected year: EBITDA multiplier is approximately for multi- specialty ASC is 6ish source: Jerry J. Sokol, 2012 ASC symposium, ASC mergers & acquisitions and Health Care Industry/ ASC Private Equity Update, February 24,2012 Multi-Specialty more valuable, less weighted average reimbursement fluctuation ASC not typically highly levered Payer contracts: CMS and health insurance company contracts effect EBITDA 16
  • 17. Valuation Single specialty ASC, not as valuable vs. Multi-Specialty Reimbursement fluctuation Physician uncertainty- A.C.A. Physician Retirement Hospital competition Multi-Specialty ASC competitors Hospital JV, HOPD • ASC with focus in Ortho, G.I., Pain & Ophthalmology-most attractive, contribution margin per procedure, plastic least attractive source: Ambulatory Surgery Center Business Planning and Organization Formation, Christian Ellison, SVP Health Inventure, October 18,2012 17
  • 18. Operations Maximize Contribution margin per procedure Physician Productivity Standards , MGMA standard Patient Flow Process Supply/Materials manager Marketing: on-going ASC and partner MD offices, JV, etc. Front office management: reduce turnover Time training vs. treating and recruiting patients Consistent physician and allied healthcare recruitment 1/3 rule- deadweight physicians Third party payers 18
  • 19. Finance Management accounting: cost-volume profit analysis: Contribution Margin:procedure revenue minus per surgery variable costs ( C=P-V) Utilize ASC assets to maximize Contribution Margin per procedure, while providing quality care, positive outcomes and superior customer service Objectives: increase cash, reduce A/R and working capital On average, all facilities statistics: Cash is 17.5 % of an ASC’s total assets Net A/R is 21.4 % of an ASC’s total assets Working Capital is 14.0 % of an ASC’s total assets Source: Beckersasc.com , 12 Statistics on ASC liquidity based on Number of OR units, Carrie Pallardy, June 21,2013 19
  • 20. Finance Increase CM by increasing high CM procedures, reducing low reimbursement procedures Insurance and Managed Care Contracts: negatively effect net income/ under reimbursed Increase CM, utilize assets efficiently Hours per patient benchmarks Staff to procedure ratios P,P & E Vendor financing: transfer cost to vendor, reduce WC Consignment: implants , reduce working capital , reduce WC Best Practices: material managers, join risk purchasing group and form supply volume analysis committee 20
  • 21. Deadweight Physicians (DWP) Negative effect on Net Income Deadweight physicians lowers EBITDA valuation Morale Presents business risk, going concern Negatively impacts ability to recruit new physicians Safe Harbor, Anti-Trust laws prohibit punishment for not referring Source: Buy-outs and Dealing with Physician Owner Inequities, Jeff Fox and Eric Gordon, February 24,2012, 2012 ASC Symposium presentation 21
  • 22. Deadweight Physicians (DWP) • Reallocation of ownership, remove DWP, could cause legal risks • A few justifications for removing DWP • Credentialing/ quality assurance process • Competition or Business Conflicts of interest • Retirement, Relocation, Death, Incapacity, and non-attendance at meetings • State statutory requirements • For Cause: fraud, felony, bankruptcy, unlawful behavior • Hospital employment, conflict Key: conditions for reallocation and or removal from the partnership, should be expressed in the Corporate governance documents/ should include pricing model • Pricing: Fair Market Value : not mandatory, but could significantly reduce legal risks Source: Buy-outs and Dealing with Physician Owner Inequities, Jeff Fox and Eric Gordon, February 24,2012, 2012 ASC Symposium presentation 22
  • 23. Deadweight Physicians (DWP) 1/3 medical practice income test: Every physician investor must derive at least 1/3 of medical practice income from ASC procedures at the investment ASC Medical Income: not typically ROI, teaching income, or expert witness fees 1/3 procedures test only applies to multi-specialty ASC Safe Harbor in tact if rule applied to all physicians in ASC investment 1/3 Rule: Monitoring & Enforcement Process If Safe Harbor rules violated, creates Anti-Kickback violation Sources: Buy-outs and Dealing with Physician Owner Inequities, Jeff Fox and Eric Gordon, February 24,2012, 2012 ASC Symposium presentation/The ASC Safe Harbors: an Overview and Key Considerations for Enforcement, NC Bar Association Health Law Section, 2010 Annual Meeting, Bart Walker, McGuireWoods 23
  • 24. Additional Revenue Sources Three Sources of Additional Revenue for ASC: Anesthesia services Outpatient surgical recovery suites, next to ASC Pathology services Source: Additional Revenue Sources for ASCs and their physician owners, 2012 ASC Symposium 24
  • 25. Trends Hospital employment of physicians Market consolidation Titan Health acquired by USPI, October 5,2011 Individual Physician uncertainty: Affordable Care Act Lack of De Novo development Sharp reduction in net growth of single-specialty ASC, growth in multi-specialty ASC high valuation causing physicians to sell Source: CMS and Ambulatory Surgery Center Business Planning and Organization Formation, Christian Ellison, SVP Health Inventure, October 18,2012 25
  • 26. Trends Reimbursement pressure: specialty specific Aging physician population Long-term volume growth: push procedures out of hospital Demographic Changes and Growth in procedures: Ophthalmology 26%, neurosurgery 12% and orthopedics 11% CMS increasing reimbursement in 2013 and 2014 for procedures A.C.A. compliance, increase operating costs, ASC need scale ASCs opportunities to increase EBITDA by increasing scope of operations, three additional revenue sources Sources: CMS and Ambulatory Surgery Center Business Planning and Organization Formation, Christian Ellison, SVP Health Inventure, October 18,2012, Medpac June 2012 Health Care Spending and the Medicare Program 26
  • 27. Summary Revenue growth in ASC marketplace, low cost delivery model consistent with A.C.A Hospital push procedures to outpatient setting A.C.A will increase operating cost for compliance Non-hospital setting + for patients Additional revenue sources provide opportunity to increase EBITDA Quality outcomes High employee satisfaction, not employee of hospital system Market is consolidating Flat ASC same store locations Increase revenue from CMS reimbursement in 2013 and 2014 CMS and payers incentivize outpatient surgery vs. hospital setting Hospital-Physician JV: provide OR capacity, and satisfy physicians expectation of ASC income EBITDA multiplier in 2013 @ 6ish, increase demand, increase reimbursement and flat supply of ASC locations 27