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 and health system ASC development. And to talk us through this, we have two managing directors from VMG Health joining us. We have Aaron Mirsky and Cordell Mack. Aaron, Cordell, so thrilled to have you join Becker's today. Thank you so much for making the time. Yeah. I'm very glad to be here. Thank
you. Thanks for having us, Erica. 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 health care. Cordell, would you mind getting us started? Yeah. Happy to. So I've been a a managing director. I've been in the consulting space for approaching twenty three years at this point, Erica.
So I've seen, you know, a lot of trends, a lot of kind of future predictions, and, you know, probably batting about fifty fifty in terms of, what that may mean, you know, evidenced a little bit by what we're gonna talk about with some of the future on ASC development.
My 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, you know, how that is impacting, like, how our health system clients are kinda positioning for their future and, you know, their kind of subsequent investments inside of this sector. Yeah. Cordell, it's great to have your twenty three years of consulting experience here with us today, but also love that you have that
background. As a physical therapist. You have that on the ground experience and, from a from a facilities perspective and patient perspective. So excited to learn more. Aaron, would you mind telling us about yourself next? Yeah. Great. I'm I'm a managing director that, sits in VMG's valuation transaction advisory services group, and I've been here for about twenty years now.
I work typically with health systems operators, investors, and their advisers, so sort of a motley crew across many of the health care verticals, in 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 and strategy. So the ASC space is, you know, a very busy, very active market in a number of respects and its, you know, role over time. The the place that ASCs fit continues to evolve. And so it 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,
busy, and vibrant market. So Yeah. Erin, so great to have you with us. And, again, twenty years of experience, I 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 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. Eric, I'm happy to happy to start.
I think as as I kind of evaluate that question, certainly, it's probably, if not the number one, but maybe the number two, kinda inquiries that are kinda 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, you know, kinda your your question is why. Like like, what are the things that are driving towards that?
You know, certainly, there's a, a technology and a comfort that has, you know, I think, really accelerated since COVID occurred where, you know, we are seeing probably patients that are a little higher acuity that previously were, you know, only only had surgeries inside, like, a hospital outpatient department. That's transcending to where now people are becoming more comfortable doing that care in maybe even off campus or on campus, you know, ASCs.
And so that's, you know, you know, kinda driving, your health systems to have to kinda revisit, you know, some of this. From a policy perspective, like, we're in a totally different space. Right? We have policy is is continually pushing, you know, more cases outside of the hospital to ESCs. We've had the inpatient only rule. We've had, you know, kinda like, you know, pending site neutrality legislation, you know, that's out there.
And it and it's all kinda pointing us, you know, you know, solely towards this one direction where we're gonna see kinda more more care outside the four walls of of of a hospital itself. Some payers in some markets have gotten more active and, like, in their preauthorization process of, you know, lower acuity work. You maybe think of, like, you know, colonoscopies or endoscopies where they're really kinda pushing that pre auth work for that that care to be delivered in ASCs only.
And then I'd say, like, the last, like, kind of policy kinda 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 in 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 being focused in in in getting into that. And then just, you know, the last part of it is just maybe the actually at the physician or the patient level in that you know, there's a preference. Right?
If you can if you can get your care, you know, maybe outside the four walls of of a hospital setting where, you know, you know, parking is is is potentially easier and better, You know, the the actual you know, the the peri op experience of kinda getting in, getting out, getting home, getting discharged is is potentially easier. And so there's just there's a lot of factors that are kinda driving, you know, why patients or why physicians also wanna kinda access care in ASC setting itself.
Mhmm. Aaron, I'm I'm super interested in kinda, like, like, like, what you're seeing with your clients and and what's driving this emergence. Yeah. Yeah. No. I I I check 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 you 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 as Medicare kinda 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 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 in 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 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 and then the the external market, it sort of follows some ebb and flow.
And and this is certainly a period of time where where it's 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 and we're just seeing that play out.
Mhmm. Yeah. It 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, you know, 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 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? Aaron, I'll kick it to you first.
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 one, two, or three ASCs, or is it a a more dynamic market where, you know, a health system may be trying to set up a a structure that can accommodate or respond to, you know, working with different parties and operators and
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 to sort of prioritize maybe certain other structural aspects versus having you know, knowing that you'll need to sort of have a a structure that can accommodate acquisitions and just different things. And so you really wanna 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 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. I don't know. Cordell, what do
you think? You know, when we start this, I tend to like, you know, systems or hospitals to, you know, kinda take a step back and really look at their entire kind of book of their ambulatory surgery business or their procedural business, you know, work with their clinicians, you know, really try to identify, like, those cases that have, like, a, you know, like, a low anesthesia kinda ranking or, you know, the the cases that really are likely in a site kinda new, you
know, neutral environment to be potentially pushed outside the four walls of a hospital, they really kinda know what that universe is. I think it's a good way to just kind of immediately kinda put up a a framing around that. And then, Aaron, I agree with you in you when you're evaluating, there's a myriad of options. And the myriad of options and and how do you kinda get started, how do you get to first base, you know, how do you kinda overcome some
inertia? But if you can if you can understand what carrier you're already delivering and what part of that carrier delivery potentially could migrate to an, it gives you at least a a kind of a rudder in the water. Yeah. But then most, you know, most health systems and most hospitals, I mean, they tend to run, like, a, you know, joint commission or kind of a, you know, kinda highly regulated, you know, kind of business entity.
And, you know, there needs to be a recognition that as you look at, like, your competencies, being being successful in the inventory surgical environment, it it requires some things that are a little bit different. Right? It requires a viewpoint that maybe is, you know, enterprise wide. And so you're you're getting you're using the ASC in, an opportunity to maybe go into noncore markets that you you don't otherwise have, your inpatient, you know, and and bed capacity
already in. Or it requires you to think about, you know, competencies in terms of, like, you know, how do we make decisions, how responsive can we be, can we be really a good, you know, active partner with, you know, other stakeholders and shareholders, you know, in type of this type of, you know, kind of, you know, your business model.
And then, you know, it it was said earlier, and and agree a 100%, you know, with 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, you know, opportunity.
But but because so many health systems employ so many doctors, including, you know, surgeons and proceduralists, you also really have to think your way through what is what is, you know, ASC development really mean in context to the fact that I already have a financial relationship through employment or a contract relationship with 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, you know, partnerships or joint ventures or, you know, the need for
a strategic partner to, you know, kind of fill your development. Yeah. I appreciate the advice from you both.
From what I can tell, it sounds like there's really, in those initial steps, a 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 first steps toward that. It 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? 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 and and operating rooms that have, you know, set surgery schedules.
And and so that that's one part of an ASC opportunity is is sort of impacting or disrupting that flow. But the priority really was and and over time, certainly, with all the external factors, sir, 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 and that clarity and honesty about where the where the friction might be and and where the opportunity really might sit and just prioritizing accordingly to, to to you know, it's all sort of gonna get there, but in, you know, in what order, is is critically important. Yeah. Aaron, thanks so much for the example. It's really helpful to hear how this is working for other systems, on the ground.
I just wanna check-in with you, Cordell. Before we get to closing thoughts, anything that you'd add there? I would just say, like, you know, health care remains local. Right? I think ASC distribution or, you know, ASC development, it is very uneven. You know, what works potentially in in one market is not potentially gonna be successful in another market. Maybe it's because of, you know, state level issues.
Maybe it's because of, you know, just the the local kind of payer community, you know, how they've kinda 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 kinda, you know, taking a step back and really, you 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, a 100% of space where there is really not a one size fits all.
And, being very intentional about your approach, I think, will will pay off in the in in the long run as compared to, you're making more, you know, short term, you know, opportunistic type decisions that, you know, could, you know, go against really what's in the best interest of your, community over the long haul. 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 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. Sure. I'll jump in, Eric. I'll I'll just give you a couple things. One, just maybe in the way that, like, society
is moving in general. I I do think we're gonna 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 electrophysiology. So I do think you're gonna continue to see, you know, more and more interest in 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 I think we're we're gonna see health systems that have to start thinking differently about their entire managed care strategy as a result.
And it it just intuitively, it doesn't make sense to me that I can have the same procedure in a hospital setting as compared to an ASC setting, and the ASC setting is getting paid, you know, 50¢ on the dollar of what you'd 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 and being a being a hospital, maybe, like, the idea of site neutrality for these procedures are appropriately gonna push, you know, things that can be, you know, off the hospital campus, into the community, into an ASC. It's gonna potentially make, you know, all of that, a lot a lot easier a lot easier to accept.
So I think really progressive health systems are going to look at, you know, long range financial planning. They're gonna build all of that in. And I think they're gonna take a really hard look at just their overall kind of managed care strategy, specifically for their, you know, their ED business, for their inpatient business where they really need to have
capacity. Then the last thing I'd say, and it's, you know, something that Aaron kinda started with, we're in this perpetual, like, cycle right now where no matter kind of what we do, the hardest part of this is access, workforce shortages, actually finding, you know, high quality, high value doctors to be able to deliver care. And so I do think that you're also gonna see, like, a an increasing preponderance of health systems are gonna 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 gonna use ASCs as another tool and another vehicle to be able to kind of attract high level talent to their respective communities themselves. Such great notes, Cordell. Thank you so much. Aaron, anything that you'd add as you look to the future here?
No. I you know, just one one thing to to to add, and that's, you know, the 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 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 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 sales of the the ASC market. And it's really gonna come down to to, I think, execution on how do you align with the right, you know, physician partners and the and the and the right institutional partners to to sort of deliver on an ASC strategy. 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 wanna thank you both for making the time for Becker's today and for sharing your expertise with our listeners. Thanks for having us, Erica. Thanks, Erica.
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 in to more podcasts from Becker's by visiting our podcast page at beckershospitalreview.com.