Lately, an influx of physician owners have inquired about the pros and cons of partnering with — or selling to — an ASC management company. This surge of inquiries is a direct result of the recent frenzied drive to consolidate the ophthalmology private practice and ASC industry. In this active marketplace climate, I recommend taking a step back and thoughtfully considering all options before making such an important business decision.
To reach a sound decision, it’s important to know all the facts. The following frequently asked questions and answers cover the basics of ASC management companies and should help guide you in making an informed decision for your practice.
What is an ASC management company?
As the name suggests, these companies offer services that help with the efficient management of ASCs. Not all management companies are created equal; they range in size from small, local entities to large, publicly held companies that oversee hundreds of ASCs nationwide.
For reference, I have included a table that lists some of the larger, well-known ASC management companies in ophthalmology (Figure 1). Additionally, over the past 7 years, private equity firms have created about 20 management companies that manage practices and ASCs.
|NAME||SERVICES||OWNERSHIP MODEL||COMPANY PRIVATE OR PUBLIC|
|Ambulatory Health Strategies||Management and consulting; outsource services||No||Private|
|Ambulatory Surgical Centers of America (ASCOA)||Acquisition / Management / ASCs & Hospital / De Novo||Yes||Private|
|American SurgiSite Centers||Management contracts; consulting; and management of co-owned centers||Yes||Private|
|AmSurg||Management only for co-owned centers||Co-ownership with physicians (prefer 51%)||Public - Now under Envision Healthcare|
|Constitution Surgery Alliance||Management; ownership; turnaround||Co-ownership with physicians, hospitals||Private|
|Covenant Surgical Partners||Management for co-owned centers||Co-ownership with physicians (prefer 51%)||Private (KKR bought 2017)|
|Surgery Partners (NovaMed, Symbion, National Surgical HC)||Management for co-owned centers; ancillary services management such as optical||Co-ownership with physicians (prefer 51%)||Public|
|OptumCare (formerly separate from Surgical Care Affiliates (SCA), but now combined.)||Management services; Facility joint ventures||Co-ownership and 100% ownership||Public company held by United Health Group|
|Tenet Healthcare / United Surgical Partners International||Management services; de novo ASC build support; joint venture model||Unknown||Tenet Healthcare Corporation is publicly traded|
The increasing number of ASC management companies has resulted in more centers being routinely contacted with appealing offers. To determine the potential benefits of forming an affiliation, it is crucial that center owners understand the services these companies provide, along with how they profit from those relationships.
How does an ASC management company make money?
Generally speaking, ASC management companies make money using two models. The first method is with a simple management contract wherein the ASC pays a fee (often a percentage of collections) to gain the services and support of professional management. With the second method, the company acquires an ownership interest in the surgery center, thereby aligning the goals of all owners to improve the center’s overall profitability. In most instances, the second method is the management company’s preferred profit model.
What services are provided by ASC management companies?
Depending on the type of agreement, a management company may provide the following services:
- Billing and collections
- Group purchasing
- Financial analysis
- Strategic planning
- Operations guidance and management
- Staff leasing
- Provision of compliance manuals
- Oversight of adherence to policies
- Payer contracting
- IT systems
- Physician recruitment
What are the benefits of working with a management company?
The inclusion of a third-party entity in the management process should be implemented only if the benefits justify the expense. That expense would be a direct fee, a share of profits, or both. I’ve outlined a few reasons current ASC owners have chosen to hire or partner with an ASC management company.
Increased revenue. Some ASCs find that they’re not maximizing their facility. This is especially true with smaller ophthalmic ASCs that use their surgery center an average of 2 to 3 days per week. Hiring a management company that can expertly negotiate contracts and add new physicians helps fill in the gaps, thereby increasing the center’s profitability.
Reduced expenses. Large-scale management companies often use group purchasing to negotiate better deals and support for simple infrastructure items (e.g., computer software and billing services) and obtain better prices on inventory items (e.g., intraocular lenses). Often, these savings are worth the company’s management fee and/or the surrender of some profit.
Professional management. As regulatory and operational complexities increase, many physician owners are ready to hand over the business operations. Doing so allows physicians to focus solely on the patient care aspects of their surgery centers. In most cases, physician owners find that the reduction in management responsibilities and associated stress are well worth the slight decrease in income.
Succession planning. An ASC may sell to a management company when the current physician owner is planning to retire soon (in the next 5 to 10 years) and there is no transition plan in place. To maximize the selling price, a physician usually needs to sell a few years prior to retiring. This strategy is beneficial because it allows the buyer to realize a return on the investment while simultaneously helping the physician enact an effective succession plan.
What are some potential downfalls of partnering with a management company?
While there are benefits associated with hiring or partnering with an ASC management company, there are also drawbacks. They include the following:
Reduced profits. If a management company doesn’t deliver on the services promised when entering into an agreement (i.e., increased profits, increased efficiency, reduced expenses), then the center will experience a decrease in profits.
Loss of autonomy. Because most of these agreements include a co-ownership arrangement with the company, owners with a more entrepreneurial spirit likely won’t enjoy the loss of autonomy. Adhering to new policies and procedures associated with the company may be difficult for owners who have a different set of standards they’re used to following.
Change in staffing levels. To gain economies of scale, a common practice of management companies is to centralize certain functions, such as billing and collections. This typically means fewer staff members on site. With billing staff and some administrative services centralized, the number of available people to “jump in” when someone is out sick is reduced.
Delayed decision-making. Key decision makers aren’t on site and board meetings are usually held quarterly. This limits the center’s ability to make quick decisions, such as purchasing equipment or moving forward on strategic initiatives.
Making the Choice
Beyond the facts, any good business decision is based on the needs of the individuals involved. Ensure you are making the right choice for your ASC by following these steps.
- Use your ASC’s guiding principles. Consider the company’s mission and vision, then ask yourself: How will working with the management company serve our ASC’s mission and allow us to achieve our vision?
- Speak with predecessors. Talk with other doctors who work with the management company to fully understand what you can expect.
- Conduct a financial feasibility analysis. Run the numbers to understand the immediate impact and forecast what could happen in future years. This is particularly important for younger share-holders.
- Align your values. Problems often arise when two companies with disjointed values come together. When selecting a management company, understand its values and how it aligns with your own. Find out how the company goes about making decisions and handling disagreements.
- Talk to independent owners. It is easy to get swept away when you hear “everyone is doing it.” But, there are plenty of ASCs that have made the decision to stay independent. Consider their circumstances and the thoughts that went into their decision. Is your situation similar to theirs, or is it more comparable to those who decided to sell?
An Informed Decision
There are specific circumstances that push physician owners to consider selling their ASC or affiliating it with a management company. While selling is the right decision for some, it is not a one-size-fits-all solution. Gather all available relevant information and consider the opportunity from every angle to ensure you make the best decision based on your unique situation. ■