← Becker’s Healthcare Podcast
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- [00:00]
A
Hello everyone. This is Erica Spicer Mason with Becker's Healthcare. Thank you so much for tuning into the Becker's Healthcare podcast series. Today we're going to talk about breaking barriers in health system ASC development. And to talk us through this, we have two managing directors from VMG Health joining us. We have Erin Mirsky and Cordell Mack. Erin Cordell, so thrilled to have you join Beckers today. Thank you so much for making the time.
- [00:26]
B
Yeah, very glad to be here. Thank you.
- [00:29]
C
Thanks for having us, Erica.
- [00:30]
A
Yeah, so happy to have you both on the line. And before we get into the conversation on ASC development, I wanted to give you both the opportunity just to share a little bit more about yourselves and your work in healthcare. Cordell, would you mind getting us started?
- [00:44]
C
Yeah, happy to. So I've been a managing director, been in the consulting space for approaching 23 years at this point, Erica. So I've seen a lot of trends, a lot of kind of future predictions, and probably batting about 50, 50 in terms of what that may mean evidenced a little bit by what we're going to talk about with some of the future on ASC development. My former background is actually as a physical therapist. And so it's been interesting just to see some of the care model evolution in ASCs and how that is impacting, like how our health system clients are kind of positioning for their future and their kind of subsequent investments inside of this sector.
- [01:31]
A
Yeah, Cordell, it's great to have your 23 years of consulting experience here with us today, but also love that you have that background as a physical therapist. So you have that on the ground experience and from a facilities perspective and patient perspective. So excited to learn more. Erin, would you mind telling us about yourself next?
- [01:50]
B
Yeah, great. I'm a managing director that sits in VMG's valuation transaction advisory Services group and I've been here for about 20 years now. I work typically with health systems operators, investors and their advisors. So sort of a motley crew across many of the healthcare verticals and services and insurance risk businesses. And a lot of my work focuses in business and asset valuation and consulting related to transactions as well as intellectual property data and other novel kind of assets as that comes up. A lot of it's driven by, you know, just the regulatory compliance needs, but also transaction planning, accounting and strategy. So the ASC space is, you know, a very busy, very active market in a number of respects and it's, you know, roll over time. The, the place that ascs fit continues to evolve and so it just has made so I've seen a lot of ASC transactions over time just by virtue of the fact it's a pretty, pretty active, active, busy and vibrant market.
- [03:08]
A
So yeah, Erin, so great to have you with us. And again, 20 years of experience. I know you're going to add so much to this conversation and I appreciate also how you teed up really where we're headed with this discussion, which is some of these trends that we're seeing in the ASC space. You noted it's a market that is growing quite rapidly and we are seeing ASCs emerge really as a central pillar in many health systems long term growth strategies. So I'd love to hear from both of you on what you see is driving this trend and the as well as the key barriers that systems are facing in developing ASCs that will actually deliver sustainable revenue and also expand access to care.
- [03:47]
C
Eric, I'm happy to start. I think as I kind of evaluate that question, certainly it's probably, if not the number one, but maybe the number two kind of inquiries that are kind of coming into our firm from health systems as they're trying to think through kind of their ambulatory strategy and what do they do with ASCs. And your question is why? What are the things that are driving towards that? Certainly there's a technology and a comfort that has I think really accelerated since COVID occurred where we are seeing probably patients that are a little higher acuity that previously only had surgeries inside like a hospital outpatient apartment. That's transcending to where now people are becoming more comfortable doing that care in maybe even off campus or on campus ASCs. And so that's kind of driving health systems to have to kind of revisit some of this from a policy perspective. We're in a totally different space, right? We have policy is continually pushing more cases outside of the hospital to escs. We've had the inpatient only rule. We've had kind of like pending site neutrality legislation that's out there. And it's all kind of pointing us solely towards this one direction where we're going to see kind of more care outside the four walls of a hospital itself. Some payers in some markets have gotten more active and like in their pre authorization process, lower acuity work, you maybe think of like colonoscopies or endoscopies where they're really kind of pushing that pre auth work for that care to be delivered in ASCs. And then I'd say like the last like kind of policy kind of directed maybe issue is we've seen some states, you know, Tennessee, North Carolina, South Carolina, where there's actually been like a relaxation of some of the state health plans or the certificate of need. And so ASC development is, you know, more on the forefront that we're seeing even health systems that weren't in this space and maybe they had some quasi protection because of the state health plan rules. Now you'll kind of be focused in getting into that. And then just the last part of it is just maybe that actually at the physician or the patient level in that there's a preference if you can get your care maybe outside the four walls of a hospital setting where parking is potentially easier and better. The actual periop experience of getting in, getting out, getting home, getting discharged is potentially easier. And so there's a lot of factors that are driving why Pat or wife physicians also want to kind of access care in an ASC setting itself. Aaron, I'm super interested in kind of like, like, like what you're seeing with your clients and, and what's driving this emergence.
- [06:48]
B
Yeah, yeah, no, I, I, I'd chalk all that up. That external environment, Cordell is, is really, I think the big, the big heading and maybe it speaks to a little bit to the, the last part of the question, Eric, around barriers but certainly there's a, know for, for, for a health system specifically there's a lot of inertia and momentum in the external environment. So whether that be federal, Medicare kind of changes, state based sort of relaxation, as Cordell mentioned, of, of, of things that provided some sort of barriers to, to really having an ASC strategy, you know, run. I would also add to that though, the who's, who's involving themselves in the ASC space and we continue to see private equity sponsored platforms, you know, of various sizes, shapes and contours get into the ASC space and the management company operators, you know, are still very active and pursuing their strategies and so that, you know, those, you know, as the, as the competitive landscape continues to evolve, I think it's, it's reaching more of a fever pitch maybe you know, more recently and needing to have a, a really viable ASC strategy, you know, and then, and then probably lastly their physician alignment sitting in one place and looking at how things evolve just over time, you know, there's this sort of ebb and flow of, you know, every five to ten years you sort of see both ASC life cycles as they sort of work their way through their, the physician's practice life cycle and then the external market. It sort of follows some ebb and flow. And this is certainly a period of time where it's flowing more to the benefit of, you know, ASCs in general. But that physician alignment factor is really key. You know, the ASC models in general are really good at aligning interests of payers, patients, health systems and physicians. So all the stakeholders really win in the ASC environment, and we're just seeing that play out.
- [08:59]
A
Yeah, it's so interesting to hear the number, the sheer number of factors that are shaping this trend. In just this short response, we've touched on policy changes, certificate of needs, patient preference, what's going on in private equity, sponsored platforms, competition, physician alignment. It's certainly a dynamic space that ASCs are operating in right now. And so I'm sure it's something that is difficult for those health systems that are just starting to consider or navigate an ASC strategy, I'm sure getting started is quite challenging. So for those leaders who are just starting this journey, what guidance would you offer around evaluating and structuring strategic joint ventures, acquisitions, or even partnerships?
- [09:46]
C
Aaron, I'll kick it to you first.
- [09:48]
B
Yeah, great. You know, I'd say, number one, it's, it's understanding, you know, it's, it's just getting back to the fundamentals of objectives and, and sort of the size, shape, contours of, of what the ASC strategy is going to accomplish. Meaning is the opportunity around 1, 2 or 3 ASCs, or is it a more dynamic a market where, you know, a health system may be trying to set up a structure that can accommodate or respond to, you know, working with different parties and operators and cover multiple states. And so I think, you know, just getting, getting those things defined and some clarity around them is a really good first step to figuring out exactly what you need and what structure and what strategy would really support that, the, you know, that vision that, that sort of objective, you know, you could, you could not contemplate an ASC strategy needing to make acquisitions. And so that would sort of lead you, you know, to sort of prioritize maybe certain other structural aspects versus having, you know, knowing that you'll need to sort of have a structure that can accommodate acquisitions and just different things. And so you really want to have a design that supports the, the initiative and, and I think a lack of clarity around that. Is it just as a first step? Often maybe it makes, it introduces some friction and makes things take a little bit longer because there's sort of a, you know, inability to articulate exactly what all might happen or what the needs of the strategy might require. Cordell, what do you think?
- [11:31]
C
You know, when we start this, I tend to like systems or hospitals to kind of take a step back and really look at their entire kind of book of their ambulatory surgery business or their procedural business, work with their clinicians, really try to identify those cases that have a low anesthesia kind of ranking or the cases that really are likely in a site kind of new, you know, neutral environment to be potentially pushed outside the four walls of a hospital and really kind of know what that universe is. I think it's a good way to just kind of immediately kind of put up a framing around that. And then Aaron, I agree with you. And when you're evaluating, there's a myriad of options and the myriad of options and how do you kind of get started? How do you get the first base? How do you kind of overcome some inertia? But if you can, if you can understand what care you're already delivering and what part of that care delivery potentially could migrate to, it gives you at least a kind of a rudder in the water. But then most health systems and most hospitals, I mean they tend to run like a joint commission or kind of a kind of highly regulated kind of business entity. And there needs to be a recognition that as you look at your competencies being successful in the ambulatory surgical environment, it requires some things that are a little bit different. Right? It requires a viewpoint that maybe is enterprise wide. And so you're using the ASC an opportunity to maybe go into non core markets that you don't otherwise have inpatient and beg capacity already in. Or it requires you to think about competencies in terms of like, you know, how do we make decisions, how responsive can we be? Can we be really a good active partner with other stakeholders and shareholders in type of this type of kind of business model. And then it was said earlier and agree 100% with Aaron in that so much of our provider and our physician workforce is already in employment and it is a great ascs can be a great physician alignment opportunity. But because so many health systems employ so many doctors, including surgeons and proceduralists, you also really have to think your way through. Well, what does ASC development really mean in context of the fact that I already have a financial relationship through employment or a contractual relationship with this group of doctors. And so I think, you know, kind of taking a step back, you know, organizing all the deck chairs to really, really kind of know your market, understand, you know, the volumes that are at play, understand the growth opportunities that are out there and then being really honest with yourself about what competencies do you have or don't have. I think then you'll start to inform the way in which you would start to think about your partnerships or joint ventures or, you know, the need for a strategic partner to, you know, kind of fuel your development.
- [14:55]
A
Yeah, I appreciate the advice from you both. From what I can tell, it sounds like there's really, in those initial steps a great need for clarity in general. Whether that's, you know, I think what goes into that, it sounds like, is assessing the current state, getting honest with yourselves as Cordell, as you mentioned, whether that's assessing the market, services, competencies, business opportunities, really helpful first steps. And I'm curious if you both think about whether we're talking about ASC development strategy in general or even taking those first steps toward that. Does an example of a health system come to mind who really got this right? And if so, what do you think contributed most to their success?
- [15:40]
B
Yeah, I can, I can take a crack at that one, Erica. I think I won't, I won't call. I won't name any names or call anyone out, but I think it's, it's along the lines of what, what we've said in terms of prioritization and understanding that, you know, to Cordell's point, in, in their core, for a, for a small, smaller regional health system presence, you have sort of, you know, an employed physician group with a compensation model and operating rooms that have, you know, set surgery schedules. And so that's one part of an ASC opportunity is sort of impacting or disrupting that flow. But the priority really was. And over time, certainly with all the external factors, you know, that would be, you know, part of the strategy is impacting sort of, you know, the core core market. But as the health system expanded, their ASC strategy really led with or prioritized new and getting into, you know, sort of adjacent geographies such that it was minimally disruptive to the core legacy, you know, operations and really provided a way to move into markets, align with physicians and demonstrate some the model and, and really stand it up effectively. Because while the ASC strategy really affected all of their markets over time, getting some, some wins and starting these new businesses was really important in building trust with the physicians. And so when it came time to, you know, discuss with, you know, the employed physicians and sort of more entrenched legacy operations, there was some good trust built. There were already physicians in the community that had good things to say. And so really, I'D say, you know, getting it right is, goes into that, that planning and that clarity and honesty about where the, where the friction might be and where the opportunity really might sit and just prioritizing accordingly to, you know, it's all sort of going to get there, but in, you know, in what order is critically important.
- [18:04]
A
Yeah, Erin, thanks so much for the example. It's really helpful to hear how this is working for other systems on the ground. I just want to check in with you Cordell, before we get to closing thoughts. Anything that you'd add there?
- [18:17]
C
I would just say like, you know, healthcare remains local, right. I think ASC distribution or ASC development, it is very uneven. What works potentially in, in one market is not potentially going to be successful in another market. Maybe it's because of your state level issues, maybe it's because of you just the, the local kind of payer community, you know, how they've kind of organized themselves. It could be the market dynamics of what you're in is, you know, your market's not growing, it's maybe, you know, aging and maybe you have a deteriorating payer mix that's there. And so kind of you taking a step back and really just, you know, organizing what's best for your community and you know, your system and your kind of stakeholders is this is, you know, 100% a space where there is really not a one size fits all. And being very intentional about your approach, I think will pay off in the long run as compared to making more short term opportunistic type decisions that could go against really what's in the best interest of your community over the long haul.
- [19:41]
A
Yeah, really important to highlight, Cordell, the uniqueness of each market that health systems are operating in and how that will inevitably change ASC strategy. Well, it's been great talking to you both and I wanted to end our conversation on kind of a forward looking note. I'm curious if you could share any shifts or emerging trends that you anticipate shaping the ASC landscape in the next few years and one step that health systems can take now to prepare for what's coming.
- [20:10]
C
Sure, I'll jump in. Erica, I'll just give you a couple things. One, just maybe in the way that like society is moving in general, I do think we're going to continue to see more subspecialty focus inside the ASC space. And so you know, whether we're talking about your musculoskeletal and it's musculoskeletal focused on total joints or you know, Spine related or, you know, cardiac. And now a subset of cardiac is really in electrophysiology. So I do think you're going to continue to see more and more interest in finding, you know, kind of, you know, single specialty centers. That has been a trend, but I think that's only going to kind of, you know, potentially accelerate. I think we're going to see health systems that have to start thinking differently about their entire managed care strategy as a result. And it just intuitively it doesn't make sense to me that I could have the same procedure in a hospital setting as compared to an ASC setting. And the ASC setting is getting paid, you know, $0.50 on the dollar of what you get reimbursed inside of a hospital setting. And the connection to that is, well, if hospitals and health systems were getting, you know, remunerated adequately for, you know, the excess capacity that they have to have in being a, being a hospital, maybe like the idea of site neutrality for these procedures are appropriately going to push things that can be off the hospital campus into the community, into an asc. It's going to potentially make all of that a lot easier and a lot easier to accept. So I think really progressive health systems are going to look at long range financial planning. They're going to build all of that in and I think they're going to take a really hard look at just their overall kind of managed care strategy, specifically for their ED business, for their inpatient business, where they really need to have capacity. Then the last thing I'd say, and it's something that Aaron kind of started with, we're in this perpetual cycle right now where no matter what we do, the hardest part of this is access workforce shortages, actually finding high quality, high value doctors to be able to deliver care. And so I do think that you're also going to see an increasing preponderance of health systems are going to open up syndication opportunities for employed physicians. Some already do, a lot already do, but some have been resistant to that. I think just in trying to solve their workforce issues, I think they're going to use ascs as another tool and another vehicle to be able to kind of attract high level talent to their respective communities themselves.
- [23:08]
A
Such great notes. Cordell, thank you so much. Erin, anything that you'd add as you look to the future here?
- [23:14]
B
No, just one thing to add and that's the continued migration of procedures, surgeries being right for the ASC setting, aging population and utilizers, you know, patient needs requiring more access points, the regulatory and reimbursement environment, all those things for, for some time now have been very positive tailwinds for asc. It's a growing market and really to Cordell's point, when I look at that and I say, okay, well what's the, what's the headwind? I think it's really how quick can you move? Because in Some markets more ASCs may be disruptive to sort of legacy operations. And is, is there a physician supply issue? Is there sort of a having the right high quality physician partners is, is cra. You can't have an ASC without that. And so there's, there's certainly a lot of tailwinds as we, as we look forward, things sort of blowing wind in the sails of the, the ASC market. And it's really going to come down to, to I think, execution on how do you align with the right, you know, physician partners and, and the right institutional partners to, to sort of deliver on an ASC strategy.
- [24:34]
A
Absolutely. It's been such a great conversation with you both. I appreciate you walking me and our listeners through this landscape that it sounds very exciting and challenging at the same time. A lot of opportunities ahead, but also the need to keep an eye on some shifts in policy, payer procedures and policies as well. But just want to thank you both for making the time for Beckers today and for sharing your expertise with our listeners.
- [25:01]
C
Thanks for having us, Erica.
- [25:02]
B
Thanks, Erica.
- [25:03]
A
It's been great having you both. And of course we'd also like to thank our podcast sponsor today, VMG Health listeners. Be sure to tune into more podcasts from Becker's by visiting our podcast page@beckershospitalreview.com.