How are ASC strategies and operations changing in a post-pandemic climate?
February 2023 – The Journal of Healthcare Contracting
By DANIEL BEAIRD
A large amount of private equity (PE) capital is ready to be deployed within healthcare services. Partnerships between PE firms and physician groups can result in significant benefits to boost the financial strength of orthopedic groups, as just one example, and other clinical group ownership businesses, especially after the pandemic upset the climate.
Transaction activity in the physician group sector has accelerated rapidly in the post-pandemic atmosphere. A panel discussion at Share Moving Media’s First Annual Ambulatory Surgery Center Meeting in Atlanta last November tackled this issue for ambulatory surgery centers (ASCs) as well as ASC strategies and operations, and how GPOs and suppliers work with the non-acute supply chain.
Share Moving Media is the parent company of The Journal of Healthcare Contracting and Repertoire Magazine.
PE firms’ entry into the ASC market
PE firms are increasingly acquiring ambulatory surgical centers (ASCs) across the nation. But what are the implications for clinicians and patients? A recent NIH study identified 91 ASCs acquired by PE and 57 ASCs acquired by non-PE entities from 2011-2014 that found “no statistically significant observed change in the probability of an unplanned hospital visit, total costs, or total encounters after acquisition by PE relative to acquisition by non-PE entities.”1
And when PE-acquired ASCs were compared to matched ASCs that were never acquired, it found the same – no statistically relevant change of an unplanned hospital visit, total costs, or total encounters. But as more physicians sell to PE firms, it has raised apprehension about costs and quality.
The next three to five years will be an important period to watch, according to Robert Mayhew, director of procurement and contracting at Revo Health, which is a management services organization that partners with physicians in business and clinical intelligence, ASC development and management, and professional services. Mayhew spoke about the ASC market in the U.S. at Share Moving Media’s First Annual Ambulatory Surgery Center Meeting last November. He was joined by Sanchia Patrick, vice president of strategic marketing for Henry Schein Medical, and Hilary Grittner, vice president of non-acute sales for Provista Distribution on a panel discussion.
“There are so many ASCs and independent physician groups that there isn’t a one size fits all. It will be different depending on the group,” he said.
There are groups that want the money and the freedom that comes with it, and there are groups that want to build something generational. Minnesota-based Revo Health works with the latter. It is owned by physician partners, Twin Cities Orthopedics (TCO), and isn’t a PE-backed company. It has a management agreement aimed at providing services, lowering costs and making ASCs more efficient. But it isn’t just ASCs, according to Mayhew. It’s the entire circle of care as the management company is involved closer to the practice level today.
“There’s a resurgence of single specialty and that is PE’s focus. You see it with ophthalmology centers,” Mayhew said. “Eventually, groups merge and sell to bigger players.”
PE firms are creating new strategies and consolidation in the market. But who will help them understand the market?
“It’s a great opportunity to start working closely with PE firms,” Grittner added. “And to help them understand the pressures of the healthcare supply chain. There’s a lot going on in the non-acute space. We’re trying to create a partnership with them to say, ‘let us be at the table with you and educate you on how you can operate in a timely manner and get what you’re looking for.’”
The healthcare industry is trying to fully grasp PE firms as buyers as they put pressure on each player in the field.
“It’s real,” Patrick said. “PE leaders are competitive and driven to ensure that the operating line is profitable and will grow. It’s an intensity to respect and it puts pressure on everyone to be relevant. Constructive tension causes the best of us to rise.”
PE firms are focused on states like Florida, Texas and California with large retiring populations and dense ASC locations.
ASC strategies
For suppliers, developing an ASC strategy is specialty specific, according to Patrick. “Pick a specialty and master that specialty, and then pick another,” she said. “Ask ‘what’s your value proposition by specialty?’ That’s a worthy exercise for your go-to-market strategy.”
The ASC market is threefold. There are national groups, independent physician groups and hospital-owned groups and those three segments require different go-to-market approaches.
“You need unique points of differentiation and value props for each of those segments,” Patrick said. “How you sell to a C-suite buyer for a large group is very different from a GI center, for example. What are your SEO strategies for ASCs? Where do you rank when a customer googles you? Be informed about that because it’s so much of it. So many decisions are already made before you even have an opportunity to get in front of them.”
Grittner said Provista, a leader in group purchasing in non-acute healthcare, partners closely with its distributor and supplier partners to prospect together and understand where they are going in the market.
“We’re not marketing specifically to specialty because we know from a GPO and contracting perspective which contracts go into which ASCs, and the majority are multispecialty,” she said. “We have ophthalmology groups, oral surgery groups and orthopedic groups, but when you look at what they’re spending, it’s consistent across the board with some subsets of specialty.”
Provista has made a large investment in technology for ASCs to make data-driven decisions with its proprietary materials management software platform Envi®. It provides end-to-end procurement expertise, data-driven processes and modern technology.
“This market is a little behind on understanding their data,” Grittner said. “Some groups do it better than others, but we need transparency in the market. Technology is a goal of ours. How do we get it to each of our members so that we can help them make more data-driven decisions? It’s a broader discussion around total value.”
Grittner is challenging her team to ask ASCs what their strategy is: where they are trying to go and explaining their headaches. “We layer solutions in,” she said. “Maybe it is a technology play to help create efficiencies and become more profitable. We have to be gamechangers.”
Supply assurance programs coming out of the pandemic can also help create a valuable partnership with ASCs and Provista has invested heavily in additional programs that allow for supply assurance.
“We’re buying product, as well, for our members to house it and have it in the U.S.,” Grittner said. “We’re enhancing programs around drug shortages as well. That’s a value add as we partner together.”
Provista is asking for a three-sided relationship between the customer, the GPO and the supplier partner. “It’s not about beating up the supplier for the right price. It’s about having enough to go around and how we get there together,” Grittner said. “We all have to be at the table having the same conversation. The cost is going up and reimbursement isn’t. They’re not getting paid more for the patient. It’s our job to bring solutions to what we’ve provided in the past.”
ASCs run lean
ASCs run lean, regardless of their ownership structure. There’s typically one person who is scrubbing, trading and ordering, according to Mayhew.
“I laugh at conferences when there are five of us who manage 250 surgery centers and there are 50 people from one health system,” he said. “We are grossly outnumbered. But when Covid happened, we were fighting the same battles. We needed gloves too, but the hospitals got first dibs, and it exposed a lot of weaknesses within the ASC supply chain because we don’t always have the data.”
When faced with these challenges, ASCs don’t always know where to turn, especially the independent groups.
“It’s being able to rely on the distributor rep,” Mayhew said. “The independent ASCs need help. They have a sliver of the resources that acute care has but the same expectations and demands.”
“The clinical managers at independent ASCs are worn out,” Patrick added. “We need to help them and buoy them. They’re doing the cases and the ordering and more.”
She asked suppliers to implement voice of the customer (VoC) programs to hear the passion and problems along the customer journey at ASCs. “There are different customer journeys. A supply customer journey is different than technology and different than a solution,” she said. “There are questions about workflow and efficiency. How can we help solve that? That’s where ASCs are focused whether PE-backed or not.”
1 Private Equity Acquisitions of Ambulatory Surgical Centers Were Not Associated With Quality, Cost, Or Volume Changes