Becker's ASC Review

27 EXECUTIVE BRIEFING 2 EXECUTIVE BRIEFING SPONSORED BY Is your healthcare organization considering a strategic transaction? 7 Qs with Jim Freund of ASCs Inc. H ealthcare transactions increased in the last year, with physician medical group deals jumping 119 percent year over year, according to a PwC report. The COVID-19 pandemic stressed many smaller physician-owned practices, and costs to run ASC businesses aren't likely to drop any time soon. Many physicians are looking to merge with other independent physician groups, sell to a private equity firm or to a local hospital as a result. Physician-owned practices and surgery centers are attractive targets to buyers in the healthcare space because they are high- quality, low-cost sites of care, which is perfect for the emerging value-based care landscape. ASCs are also primed for growth as more complex procedures head into the outpatient setting and thus are increasing in value. Here, Jim Freund, managing partner at ASCs Inc., discusses the paradigm shift in healthcare to the outpatient setting and what potential sellers need to know before signing on the dotted line. Question: What are you seeing in the ASC and practice markets and how is that going to impact mergers and acquisitions in the space? Jim Freund: We have seen a significant shift away from hospital- based procedures to outpatient settings. The drivers have been CMS continuing to approve higher-acuity procedures that can be performed in surgery centers and payers taking a more active role in directing patients to these high-quality, lower-cost-of-care settings. COVID has certainly acted as an accelerant because physicians who were forced to move their cases to freestanding facilities now understand there are many advantages to working in this environment and patients today are much more aware of the many benefits of having their cases performed in surgery centers. This migration of cases to outpatient care has created a strong demand for independent physicians and their practices and surgery centers, in particular those associated with the most sought-after specialties, including pain, spine, orthopedics, cardiology, urology and GI. There are groups focused on acquiring interests in every specialty and type of facility and there has been a tremendous influx of capital from public and private markets driving demand and spurring competition. The buyer appetite for practices and surgery centers is thus stronger than ever, creating more opportunities than ever before for physicians to leverage their current situation. Q: Why would a practice or ASC owner sell an interest in their business? JF: The reasons that we hear most often are senior partners wanting to diversify or transition their investment and take some money off the table, the desire to offload the responsibilities and challenges that come from managing these increasingly complex businesses, the difficulty in competing with larger organizations, and getting help with recruitment, contracting, cost containment and more. For any owner, you should consider what a prospective partner could bring to your organization and if it makes sense to create a strategic alliance. The benefits can include some or all of the following: enhanced referral networks, recruitment and physician and staff retention, improved payer contracts, supply purchasing power, operational infrastructure, advanced technology, revenue cycle, finance, data analysis and accounting services, and human resources, all of which can be of real value to independent groups. For senior members, there comes a time when they need to transition ownership and responsibilities. This creates an opportunity for founding partners to realize a significant liquidity event and get rewarded for the years they have spent building their ASC business and at the same time provides junior partners with an opportunity to be part of an organization that will grow and provide them with a pathway to further success. Q: Who are buyers and what are they looking for? JF: Buyers today include hospitals and hospital systems that are actively looking to expand their outpatient footprints, national firms that continue to grow through acquisition and development and have extensive industry expertise, private equity-backed firms that are focused on acquiring and rolling up practices and surgery centers, and other investors entering the market along with joint venture partnerships between multiple parties. Buyers are looking for practices and surgery centers that can enhance their organization financially and functionally. They are seeking practices and ASCs in desirable geographic locations, that have a desirable mix of physicians, specialties and payers along with a strong staff and infrastructure with the right physical facilities. In addition, they will want to clearly understand how they can impact the center from a financial and nonfinancial perspective, ensuring that real synergies exist between buyer and seller, and clearly understand how this transaction will positively impact the buyer's organization.

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