Becker's ASC Review

9 3. Tom Price. Rep. Tom Price, MD, R-Ga., has been confirmed as the Secretary of Department of Health and Human Services. It is the first time I remember an entrepreneurial physician who is an ortho- pedic surgeon and a surgery center owner being nominated to a place that is traditionally characterized by relatively negative feelings to- wards entrepreneurship in healthcare. 4. The Big Three Specialties in Surgery Centers Plus Pain Management. ese specialties — ophthalmology, GI and ortho- pedics — remain relatively independent. is has been largely a sav- ing grace for surgery centers over the last 5 to 10 years. e younger generation of physicians may increasingly gravitate to the hospital environment. However, the older generation of orthopedic surgeons, gastroenterologists and ophthalmologists has largely saved the surgery center business. An Epocrates 2013 survey found 69 percent of medical students reported planning to join group practices or hospitals and 17 percent said they planned to go into solo or partnership practices. 5. Spine. ere has been a tremendous moving of spine procedures to surgery centers. Over the last decade there has been a movement of 45,000 procedures that are done outpatient to 300,000 done outpa- tient. Surgery centers still face serious challenges with payers in mov- ing spine to surgery centers. 6. Out-of-Network. On the out-of-network side, out-of-network is getting tougher and tougher. ere are less and less chains that are really built on out-of-network and we see less action in that area. Fiy-three percent of surgery center companies report ASCs with 20 percent OON volume exceed their risk tolerance, according to HealthCare Appraisers' 2016 ASC Valuation Survey Results. 7. Total Joints and Bundles. Total joints are moving more quickly to surgery centers. However, it is still difficult to get paid ap- propriately in many markets for total joints in surgery centers. Bun- dled payments seem to be taking off in part. It is very hard for us to judge how many patients are actually done through true bundles that are paid for at surgery centers. 8. With the potential repeal of Obamacare, there is a possibility that the moratorium on the growth of physician-owned hospitals will be lied. If it is actually repealed, this would not ignite a frenzy of build- ing of physician-owned hospitals, but it would certainly cause every surgery center to see if they can expand into a hospital particularly in non-CON states and give those hospitals that are already existing the opportunity to potentially expand further. It may also cause some further growth of micro-hospital, a newer trend. 9. e number of surgery centers in the country has remained largely flat. ere is oen a growth of about 100 a year but closures of about 100 a year. us, the total number of Medicare-certified surgery cen- ters remains about 5,400 to 5,600. 10. In terms of legal issues facing surgery centers, we see the fol- lowing seven issues as the most oen discussed: a. Share purchase pricing; b. Redemptions; c. Anesthesia and ASCs and who owns it; d. Out-of-network; e. Physician-owned distributorships; f. Anti-trust issues; and g. Non-compete issues. ere are plenty of other issues that are relevant as well. ose are the issues we see that are most interesting. 11. ere has been talk of tremendous payer consolidation. Typi- cally for an ASC, payer consolidation can be a difficult thing because being too beholden to any one payer is problematic. us, some of the slowdown in payer consolidation may very well be welcomed by surgery centers. In two separate antitrust trials, federal judges blocked deals between Anthem and Cigna and Aetna and Humana in recent weeks. e federal judges cited anticompetitive concerns and rising prices as the primary reasons for blocking the merger. 12. In terms of high deductible plans, many surgery centers thought this would a death knell for surgery centers. So far, it appears that it has not been nearly as big a problem for surgery centers as originally anticipated. e surgery center business remains relatively healthy. ere are some headwinds in the business certainly but the industry remains relatively optimistic. 6 Thoughts on the Movement from Inpatient to Outpatient. 1. e Overall Shi to Outpatient; Big Box Stores; Frogs Boiling. Whether Obamacare or Trumpcare, we expect that there will contin- ue to be substantial movement from the inpatient to outpatient arena: A. e movement to outpatient care has been gradual but signifi- cant. It has been generally at a clip of 2 to 3 percent a year. is movement from hospital inpatient to outpatient varies significant- ly. Some states have seen very little movement while others have seen substantial movement. is movement is expected to con- tinue for several more years. B. Like in big box stores, the movement from inpatient is gradual but significant. Big box stores saw gradual movement to e-com- merce that didn't immediately kill their margins and business. However, hospitals, like big box stores, have low profit margins and the gradual loss of inpatient to outpatient business ultimately has a very dramatic impact. us, even though gradual, at some point, it creeps up on margins and profits and can be very significant. See the article I co-authored with Molly Gamble titled "Do Hospitals and Health Systems Face the Same Fate as Big Box Stores? 3 Key oughts" January 18, 2017 on this issue. For a copy of the article, please email Kirsten Doell at kdoell@mcguirewoods.com. C. As an analogy there is the old story about a frog. If you throw a frog into a pot of boiling water it will jump out instantly. But if you place a frog in cold water and slowly raise it to a boil, the frog doesn't know it is in trouble until it is too late With big box stores we think this was largely the case with the movement to the internet. With hospitals and health systems, the movement started with small movements and then has accelerated to cause greater trouble. 2. Stalls and Hiccups. ere are some huge hiccups in the movement to outpatient. ere is currently a false claims case investigation with a stand-alone ER company and a large investigation and destruction of value of eranos, the outpatient lab company. ese two areas were expected to have a negative impact on hospitals. ey have not been as bad as expected. 3. SCA; Optum. In contrast to the hiccups, there was the recently announced merger of Optum, a health services company that is part

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