Transcript www.beckersasc.com

Health System Partnerships
May 3, 2010
Changing Landscape: Health Systems
2006
Hospital/
Corporate
Partner
25%
• Physician Challenges:
Physicians
Only
75%
–
–
–
–
Waning out of network model
Poor reimbursement
Expense pressures
Reduced margins,
distributions and valuations
• Affiliation Goals:
2008
Hospital/
Corporate
Partner
37%
Physicians
Only
63%
–
–
–
–
–
–
Access to capital
Stability
Growth
Contracting leverage
Management effectiveness
Partial liquidity event
2
Health System Perspective on ASCs
• Build a leading network of ASC JVs
• Recapture, grow ambulatory surgery volumes
• Access efficient, convenient and high quality facilities
• Free up hospital-based OR capacity
• Align with high quality physicians
• Leverage scarce capital across wide network
• Expand brand name and market presence
• Grow other IP, OP, and ancillary services
• Earn strong financial returns
• Prepare for Accountable Care Organization structure
3
Structuring Health System Partnerships
1. Build a scalable strategic plan
2. Know what you’re going after
3. Maximize physician ownership and commitment
4. Contract on behalf of your network
5. Control does not require 51%
6. Partner for the long term
7. Access partner capital
8. Negotiate effective non-competes
9. Negotiate effective buy-back provisions
10. Be flexible in approach to physician integration
4
Changing Landscape: ASC Industry
Past
Today + Future
• “Flip This House” strategy –
buy low, then sell to larger
ASC company at high price
• Larger companies open to full
range of deal structures –
including minority investments
• “Build It, And They Will Come”
strategy
• Sellers looking for long-term
operating partner, who can bring
sustained value
• Out-of-network as cornerstone of strategy
• Larger companies inhibited by
accounting consolidation from
making minority investments
• Economies of scale more
important than ever
• Reimbursement + cost pressure
 consolidation accelerating
5
SCA Overview
• 126 facilities
• Strong clinical results
• 5,000 teammates
• 2,000 physician investors
• $700 million revenue
• Strong financial results
• Significant capital
• Flexible deal structures
– Acquisitions
– New builds
– Hospital partnerships
6
SCA Operating Model
How We Work
• Focus on clinical quality and
patient safety
• Commitment to serving
physicians and creating value
• Investment in recruiting and
developing leaders
• Data driven processes and
disciplined execution
• Economies of scale
Value To Our Centers
• Clinical Excellence
• Advocacy
• Supply Savings
• Volume Growth
• Payer Contracting
• Benchmarking
• Training
• Labor Management
• Best practice sharing
7
SCA Performance
Prior Company
New Company
8
SCA Health System Experience
Health System/Hospital
Location
Sutter Health
Sacramento, Santa Rosa, & Auburn, CA
California Pacific Medical Center
San Francisco, CA
University of California San Diego
San Diego, CA
Redlands Community Hospital
Redlands, CA
Loyola University
Oakbrook Terrace, IL
Baylor University
Houston, TX
Holy Spirit
Camp Hill, PA
Mainline Health
Paoli, PA
Baptist Health System
Memphis, TN
Vanderbilt University
Nashville, TN
Shands Hospital
Jacksonville, FL
Florida Hospital
Winter Park, FL
Owensboro Health System
Owensboro, KY
Northeast Georgia Medical Ctr
Gainesville, GA
Muskogee Regional Med Ctr
Muskogee, OK
Norman Regional Hospital
Norman, OK
9
SCA Perspective
• Three areas of focus:
– Provide outstanding patient care + clinical outcomes
– Create measurable value for physicians
– Recruit + develop outstanding leaders
• Actively acquiring centers
– Private equity partner with interest to invest more capital
– Make both majority and minority investments
– Both physician/SCA and physician/hospital/SCA structures
– Open to out-of-network centers, at appropriate price
• Built to last – a stable partner for the long-term
• Active corporate citizen for our teammates +
communities
10
ASC Strategies for the
Foreseeable Future:
National Landscape as Viewed Through
the ASC Prism
Brent W. Lambert, MD, FACS
Principal and Founder
Luke M. Lambert, MBA, CFA, CASC
Chief Executive Officer
Ambulatory Surgical Centers of America
The ASC industry is
no longer growing.
We will see as many closing
ASCs this year as new openings.
The pool of surgeons is
not growing, but rather
contracting as a
function of the
population.
Maturation of ASCs
where there are
inadequate or no
evergreen provisions
in the documents.
Consolidation
of payers.
Elimination
of OON.
Private equity fervor for
the ASC industry
declining.
Minority model gaining
acceptance with private
equity investors.
ASC industry is
weak politically vis-a-vis
the hospital industry.
This is changing with the
ASC Association Advocacy Committee,
comprised of corporate industry
leaders and the ASC Association.
The Squeeze is On
• Now reaping the effects of dramatic
cost inflation.
• Reimbursement has been flat or
down over the course of many years
for most centers.
• Large numbers of centers are not
delivering positive returns.
Capital Driven Growth
Will Disappoint
• Capital is relatively abundant
compared to good management.
• Companies and capital providers
that ignore accounting presentation
in favor of business logic will
prevail, others are handicapped.
• Good operators don’t need capital.
Keys to Future Success:
Efficiency
• Schedule consolidation delivers good
old fashioned labor productivity and
margin improvement.
• Surgeon preference drives supply cost.
• With financial returns threatened
surgeons willing to make hard
decisions.
Payer Contracting
• Accept what you’re offered and you’ll
struggle financially.
• Surgeon direction of surgical venue
key to negotiating success.
• Hospital partnerships can enable
centers to maintain profits while going
in network.
Physician Recruitment
• Dwindling numbers of available
physicians – musical chairs.
• It’s becoming uncommon to find
physicians that aren’t bound by noncompetitive covenants.
• Hospital employment is a significant
limiting trend.
Minority Model will Continue
to Deliver Superior Results
• Level of surgeon participation impacts:
schedule, supply costs, and recruitment.
• Accounting driven business models compete
with one arm tied behind their back.
• Corporate partners do deliver value with
expertise and assistance
• As in the past, there will be many more happy
minority model investors than majority.
THINK PROFITS
Brent W. Lambert, MD, FACS
Principal & Founder
Luke M. Lambert, CFS, CASC
Chief Executive Officer
Ambulatory Surgical Centers of
America
www.ascoa.com
Question and Answer
Session
Hospitals and Surgery Centers
Key Thoughts on Strategic
Planning
David Fleisch
Partner
Healthcare Practice
Bain & Company
[email protected]
312.629.4070
Andrew Hayek
Chief Executive Oficer
Surgical Care Afiliates
[email protected]
205.545.2755
Luke Lambert
Chief Executive Officer
Ambulatory Surgical Centers
of America
[email protected]
781.826.6610
Brent Lambert
President & Owner
Ambulatory Surgical Center
of America
[email protected]
781.258.1533
Scott Becker, JD, CPA
Partner
McGuireWoods, LLP
[email protected]
312.750.6016