2Changing Landscape: Health Systems 2006Physician Challenges:Waning out of network modelPoor reimbursementExpense pressuresReduced margins, distributions and valuationsAffiliation Goals:Access to capitalStabilityGrowthContracting leverageManagement effectivenessPartial liquidity eventHospital/ Corporate Partner25%Physicians Only75%2008Hospital/ Corporate Partner37%Physicians Only63%
3Health System Perspective on ASCs Build a leading network of ASC JVsRecapture, grow ambulatory surgery volumesAccess efficient, convenient and high quality facilitiesFree up hospital-based OR capacityAlign with high quality physiciansLeverage scarce capital across wide networkExpand brand name and market presenceGrow other IP, OP, and ancillary servicesEarn strong financial returnsPrepare for Accountable Care Organization structure
4Structuring Health System Partnerships Build a scalable strategic planKnow what you’re going afterMaximize physician ownership and commitmentContract on behalf of your networkControl does not require 51%Partner for the long termAccess partner capitalNegotiate effective non-competesNegotiate effective buy-back provisionsBe flexible in approach to physician integration
5Changing Landscape: ASC Industry PastToday + Future“Flip This House” strategy – buy low, then sell to larger ASC company at high price“Build It, And They Will Come” strategyOut-of-network as corner- stone of strategyLarger companies inhibited by accounting consolidation from making minority investmentsLarger companies open to full range of deal structures – including minority investmentsSellers looking for long-term operating partner, who can bring sustained valueEconomies of scale more important than everReimbursement + cost pressure consolidation accelerating
7SCA Operating Model How We Work Value To Our Centers Focus on clinical quality and patient safetyCommitment to serving physicians and creating valueInvestment in recruiting and developing leadersData driven processes and disciplined executionEconomies of scaleBest practice sharingClinical ExcellenceAdvocacySupply SavingsVolume GrowthPayer ContractingBenchmarkingTrainingLabor Management
9SCA Health System Experience Health System/HospitalLocationSutter HealthSacramento, Santa Rosa, & Auburn, CACalifornia Pacific Medical CenterSan Francisco, CAUniversity of California San DiegoSan Diego, CARedlands Community HospitalRedlands, CALoyola UniversityOakbrook Terrace, ILBaylor UniversityHouston, TXHoly SpiritCamp Hill, PAMainline HealthPaoli, PABaptist Health SystemMemphis, TNVanderbilt UniversityNashville, TNShands HospitalJacksonville, FLFlorida HospitalWinter Park, FLOwensboro Health SystemOwensboro, KYNortheast Georgia Medical CtrGainesville, GAMuskogee Regional Med CtrMuskogee, OKNorman Regional HospitalNorman, OK
10SCA Perspective Three areas of focus: Actively acquiring centers Provide outstanding patient care + clinical outcomesCreate measurable value for physiciansRecruit + develop outstanding leadersActively acquiring centersPrivate equity partner with interest to invest more capitalMake both majority and minority investmentsBoth physician/SCA and physician/hospital/SCA structuresOpen to out-of-network centers, at appropriate priceBuilt to last – a stable partner for the long-termActive corporate citizen for our teammates + communities
11ASC 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
12The ASC industry is no longer growing. We will see as many closing ASCs this year as new openings.
13The pool of surgeons is not growing, but rather contracting as a function of the population.
14Maturation of ASCs where there are inadequate or no evergreen provisions in the documents.
17Private equity fervor for the ASC industry declining.
18Minority model gaining acceptance with private equity investors.
19ASC industry is weak politically vis-a-vis the hospital industry. This is changing with theASC Association Advocacy Committee, comprised of corporate industry leaders and the ASC Association.
20The 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.
21Capital 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.You’d be surprised how often I hear: We have to own a majority, this works from a CF perspective but not for EPS, or our investors too trend oriented to be able to buy OON centers even at ridiculously low prices.
22Keys 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.
23Payer ContractingAccept 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.
24Physician Recruitment Dwindling numbers of available physicians – musical chairs.It’s becoming uncommon to find physicians that aren’t bound by non-competitive covenants.Hospital employment is a significant limiting trend.
25Minority 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 assistanceAs in the past, there will be many more happy minority model investors than majority.
26THINK PROFITS www.ascoa.com Brent W. Lambert, MD, FACS Principal & FounderLuke M. Lambert, CFS, CASCChief Executive OfficerAmbulatory Surgical Centers of America