Here are what three ASC leaders outlined as pros and cons of private equity in the ASC industry:
Editor's note: Responses have been lightly edited for clarity and length.
Sean Gipson. Division CEO and President of Remedy Surgery Center in Hurst, Texas: The private equity invasion of the ambulatory surgery center market has both positive and negative positions. The pros include the provisions of large capital injections enabling ASCs to grow and expand facilities, acquire advanced equipment and implement technology to enhance operational efficiency. PE backing can potentially open doors for new locations, form strategic partnerships and pursue mergers/acquisitions to compete more aggressively with their larger groups. PE firms often bring a wealth of management experience and best practices; automatically improving things like operational efficiency, streamlining processes and optimizing supply chain management. These tend to be advantages that hospital systems have over independent ASCs, helping to level the competitive advantages a bit. Cost-control standards are used with PE backing expertise by pressuring ASCs to focus on tightening administrative costs, renegotiating vendor contracts and optimizing supply chain management. Network resources within PE structures are used to help navigate regulatory changes, staffing needs and handle efficient and effective reimbursement procedures that drive obtaining financial targets, incentive bonus structures and overall improved profitability. Let's face it, when the stakeholders win, the system also tends to win. With private equity "wins," there are also some disadvantages that should be considered with PE. Many reasons that people come to the private sector is to be in the "feel good" mom-and-pop company. PE can quickly disrupt that feature causing the system to lose autonomy. This often takes place with centralized management practices that involve operational and leadership restructuring. Goal structures are often completely changed, putting an emphasis on short-term profits, possibly at the expense of long-term sustainability. An aggressive drive to a quicker profitability may impact the quality of care, staff morale, physician volume targets and patient satisfaction of your center.
Jonathan Murphy. CEO of Murphy Medical in Indianapolis: As with anything, there are pros and cons to private equity in the ASC space. Something that is both a pro and a con is the line that I have heard multiple times from people building an ASC. "We are PE-backed so we have a big budget for this project." While this can be great at the beginning, the larger spend upfront with the thought that you have a ton of money, may lead to issues if revenue does not back up those previous expenses. As the saying goes, "more money, more problems," we can see this in the ASC space as well. A pro of PE is it allows in some cases physicians who may have not put up the investment themselves into a new facility, to partner with a PE group to open a new facility and provide more access to care to the residents of that area. There are more rural areas where individuals may have to drive an hour or so away to receive the care they need. A PE investment may allow for those people to get the care they need closer to home and with a local physician that they are more comfortable and familiar with.
Robert Nelson, PA-C. Vice President of Business Development of EyeProGPO in Watkinsville, Ga: There is much that can be said about the impact of PE on the ASC industry. In many ways, PE has been a disrupter to the ASC industry. Not to say that that is a bad thing. In many cases, the PE model brings organizational improvements to their acquisitions that result in enhanced contracting opportunities, streamlined business processes and improved bottom line revenue. All good! But, sometimes the PE process comes with an unexpected cost. A cost to the "culture" of a facility. Too often, the acquisition team feels the need to impose a "my way or the highway" approach when implementing change. That can be a recipe for disaster, as many ASC administrators who have been involved in that process will tell you. The smarter (but less often implemented) PE approach comes from companies who take the time to carefully evaluate the current organizational culture. Those who talk to facility administrators, managers and staff to determine what is working and what is not. Then create a collaborative plan to build on the successes while also addressing the weaknesses. ASC administrators, managers and staff are smart, knowledgeable and resourceful. Tapping into that knowledge makes a lot of sense, but is all too often ignored. New ownership always comes with trepidation and fear. It doesn't have to be that way!