INTELLIMARKER. Ambulatory Surgical Center Financial & Operational Benchmarking Study

Transcription

1 2012 INTELLIMARKER Ambulatory Surgical Center Financial & Operational Benchmarking Study

2 Chateau Plaza 2515 McKinney Ave., Ste Dallas, TX The Pinnacle Building 150 3rd Ave. South, Ste Nashville, TN

3 Ambulatory Surgical Centers Financial & Operational Benchmarking Study 2012 Study based on analysis of over 201 licensed freestanding ASCs and one million cases SEVENTH EDITION Published December 2013

4 MULTI-SPECIALTY ASC INTELLIMARKER 2012 No part of this publication may be reproduced or retransmitted in any form or by any means, in whole or in part, without written permission from VMG Health, LLC. Violators risk criminal penalties and civil damages for each offense. We prosecute copyright violations vigorously.

5 MULTI-SPECIALTY ASC INTELLIMARKER Table of Contents Overview... 1 Data Interpretation - A Report User s Guide... 5 Industry Analysis... 7 Aggregated Statistical Analysis Regional Analysis Facility Size by Operating Rooms Facility Size by Case Volume Facility Size by Net Revenue Facilities with Greater than 50% in Orthopedics VMG Health, LLC Rights Reserved. i

6 MULTI-SPECIALTY ASC INTELLIMARKER Index of Charts Section 4 Aggregated Statistical Analysis...15 Income Statement...16 Common Size Income Statement...17 Balance Sheet...18 Common Size Balance Sheet...19 Liquidity Analysis...20 Accounts Receivable Analysis...21 Case Volume Mix as a percent of Total Cases...22 Case Volume Summary...23 Payor Mix as a percent of Gross Charges...24 Revenue per Case...25 ENT Revenue per Case...26 GI/Endoscopy Revenue per Case...27 General Surgery Revenue per Case...27 OB/GYN Revenue per Case...28 Ophthalmology Revenue per Case...28 Oral Surgery Revenue per Case...29 Orthopedics Revenue per Case...29 Pain Management Revenue per Case...30 Plastic Surgery Revenue per Case...30 Podiatry Revenue per Case...31 Urology Revenue per Case...31 EBITDA Margin Analysis...32 Staffing Summary...33 Hourly Salaries & Wages...34 Staff Hours per Case...35 Operating Expense Analysis...36 Facility Statistics...37 Leverage Ratios...38 Section 5 Regional Analysis...39 Income Statement...40 Common Size Income Statement...41 Balance Sheet...42 Common Size Balance Sheet...43 Liquidity Analysis...44 Accounts Receivable Analysis...45 Case Volume Mix as a percent of Total Cases...46 Case Volume Summary...47 Payor Mix as a percent of Gross Charges...48 Revenue per Case - West...49 Revenue per Case - Southwest...50 Revenue per Case - Midwest...50 ii ii VMG Health, LLC Rights Reserved. VMG Health, LLC 2010 Rights Reserved.

7 MULTI-SPECIALTY ASC INTELLIMARKER 2010 MULTI-SPECIALTY ASC INTELLIMARKER Revenue per Case - Southeast...51 Revenue per Case - Northeast...51 ENT Revenue per Case...52 GI/Endoscopy Revenue per Case...53 General Surgery Revenue per Case...53 OB/GYN Revenue per Case...54 Ophthalmology Revenue per Case...54 Oral Surgery Revenue per Case...55 Orthopedics Revenue per Case...55 Pain Management Revenue per Case...56 Plastic Surgery Revenue per Case...56 Podiatry Revenue per Case...57 Urology Revenue per Case...57 EBITDA Margin Analysis...58 Staffing Summary...59 Hourly Salaries & Wages...60 Staff Hours per Case...61 Operating Expense Analysis...62 Facility Statistics...63 Leverage Ratios...64 Section 6 Facility Size by Operating Rooms...65 Income Statement...66 Common Size Income Statement...67 Balance Sheet...68 Common Size Balance Sheet...69 Liquidity Analysis...70 Accounts Receivable Analysis...71 Case Volume Mix as a percent of Total Cases...72 Case Volume Summary...73 Payor Mix as a percent of Gross Charges...74 Revenue per Case - Facilities with 1-2 ORs...75 Revenue per Case - Facilities with 3-4 ORs...76 Revenue per Case - Facilities with 5 ORs...76 ENT Revenue per Case...77 GI/Endoscopy Revenue per Case...78 General Surgery Revenue per Case...78 OB/GYN Revenue per Case...79 Ophthalmology Revenue per Case...79 Oral Surgery Revenue per Case...80 Orthopedics Revenue per Case...80 Pain Management Revenue per Case...81 Plastic Surgery Revenue per Case...81 Podiatry Revenue per Case...82 Urology Revenue per Case...82 VMG Health, LLC Rights Reserved. iii

8 MULTI-SPECIALTY ASC INTELLIMARKER 2010 MULTI-SPECIALTY ASC INTELLIMARKER EBITDA Margin Analysis...83 Staffing Summary...84 Hourly Salaries & Wages...85 Staff Hours per Case...86 Operating Expense Analysis...87 Facility Statistics...88 Leverage Ratios...89 Section 7 Facility Size by Case Volume...91 Income Statement...92 Common Size Income Statement...93 Balance Sheet...94 Common Size Balance Sheet...95 Liquidity Analysis...96 Accounts Receivable Analysis...97 Case Volume Mix as a percent of Total Cases...98 Case Volume Summary...99 Payor Mix as a percent of Gross Charges Revenue per Case - Facilities with 2,999 Cases Revenue per Case - Facilities with 3,000-5,999 Cases Revenue per Case - Facilities with 6,000 Cases ENT Revenue per Case GI/Endoscopy Revenue per Case General Surgery Revenue per Case OB/GYN Revenue per Case Ophthalmology Revenue per Case Oral Surgery Revenue per Case Orthopedics Revenue per Case Pain Management Revenue per Case Plastic Surgery Revenue per Case Podiatry Revenue per Case Urology Revenue per Case EBITDA Margin Analysis Staffing Summary Hourly Salaries & Wages Staff Hours per Case Operating Expense Analysis Facility Statistics Leverage Ratios Section 8 Facility Size by Net Revenue Income Statement Common Size Income Statement Balance Sheet iv VMG Health, LLC Rights Reserved.

9 MULTI-SPECIALTY ASC INTELLIMARKER Common Size Balance Sheet Liquidity Analysis Accounts Receivable Analysis Case Volume Mix as a percent of Total Cases Case Volume Summary Payor Mix as a percent of Gross Charges Revenue per Case - Facilities with < 4.5 million in Net Revenue Revenue per Case - Facilities with million in Net Revenue Revenue per Case - Facilities with > 7 million in Net Revenue ENT Revenue per Case GI/Endoscopy Revenue per Case General Surgery Revenue per Case OB/GYN Revenue per Case Ophthalmology Revenue per Case Oral Surgery Revenue per Case Orthopedics Revenue per Case Pain Management Revenue per Case Plastic Surgery Revenue per Case Podiatry Revenue per Case Urology Revenue per Case Staffing Summary Hourly Salaries & Wages Staff Hours per Case Operating Expense Analysis Facility Statistics Leverage Ratios Income Statement Common Size Income Statement Balance Sheet Common Size Balance Sheet Liquidity Analysis Accounts Receivable Analysis Case Volume Summary Payor Mix as a percent of Gross Charges Orthopedics Revenue per Case Staffing Summary Hourly Salaries & Wages Staff Hours per Case Operating Expense Analysis Facility Statistics VMG Health, LLC Rights Reserved. vv

10 MULTI-SPECIALTY ASC INTELLIMARKER ASC Financial & Operational Research and Production Team Publisher Research Analysts Design & Production VMG Health Aaron Murski Chance Sherer, CVA Jonathan Tyroch Colin Park David LaMonte Nikolaus Melder Sean Skellenger Marc Sooter The Multi-Specialty ASC Intellimarker for 2012 was developed by Value Management Group, LLC d/b/a VMG Health. If you have comments about how this report or the study methodology could be improved, you can contact VMG Health at (214) or by to vi

11 MULTI-SPECIALTY ASC INTELLIMARKER 2012 About the Publisher VMG HEALTH Providing insight. Creating value. The healthcare industry is an intricate web of services, affiliations, and legal mandates that grows increasingly complex every day. For healthcare organizations seeking to grow, maximize profita-bility or form new strategic partnerships, having a relationship with financial experts who thoroughly understand the value drivers in today s healthcare industry is absolutely essential. VMG Health is recognized by leading healthcare systems as one of the most trusted valuation and transaction advisors in the U.S. Unlike most firms, which generally serve a wide variety of indus-tries, healthcare is our only area of focus. Our client list includes virtually every type of healthcare service provider in markets throughout the U.S. and around the world from hospitals and healthcare networks to standalone facilities and ancillary service providers. Our primary practice areas include: Business Valuation Services VMG Health performs more than 250 healthcare valuations each year in support of mergers, ac-quisitions, asset sales, joint ventures, divestitures, reorganizations, and litigation activities. Beyond providing an assessment of the value of the business, our process helps providers gain more in-sight into value and profitability drivers, which ultimately help them enhance their operational and business potential. Transaction Advisory Services Markets evolve, new technologies emerge, relationships change and opportunities arise. VMG Health helps buyers and sellers plan proactively or quickly adapt by providing thorough and objective financial insights at a strategic level, including valuations, financial projections, market and investment analyses, and assistance with financial structures, terms, and documentation. Joint Venture Relationship Development Healthcare is a business based on relationships but the limits and definitions of those relationships can be as varied as the myriad number of specialties in the industry. Whether the joint ven-ture involves a hospital, surgery center, cath lab, or any other facility relationship, VMG Health provides strategic and financial services to help ensure a mutually beneficial outcome, from initial analysis and strategy development to assistance with terms, planning, and documentation. Professional Services Valuations The current healthcare environment is characterized by a diverse array of physician relationships with healthcare organizations. From consulting agreements to call coverage, the relationships are vital to enhancing product and service quality. To ensure compliance with regulatory guidelines, including federal and state anti-kickback statutes, VMG Health values these relationships to ensure that these relationships are established at fair market value. vii

12 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Tangible Asset Appraisals Healthcare transactions are being watched closely in today s environment. To ensure compliance with regulatory guidelines, including federal and state anti-kickback statutes, and to ensure proper tax treatment for all parties, asset purchases must be conducted at the purchased assets fair market value. VMG Health s healthcare and valuation expertise allows us to understand all potential issues when establishing fair market value for assets by any healthcare organization. Real Estate Valuations Real Estate assets have been and continue to be critical assets within the healthcare arena. The certified real estate valuation team within VMG Health has over 50 years of combined experience and was established to provide expert real estate valuation and consulting services to healthcare facility owners, operators, lenders and their advisors. The special nature of healthcare real estate assets requires a firm understanding of the business, financial and legal environment in which our clients work. The professionals at VMG Health are valuation experts who are focused on the unique characteristics of the healthcare field. Notices and Disclaimer The information in the Multi-Specialty ASC Intellimarker is intended to provide readers with information regarding ranges of financial and operating results of ASCs around the country as provided by participants in the study conducted by VMG Health. Improper use of this information, including but not limited to, limiting competition, restricting trade, reducing or stabilizing salary or benefit levels, is expressly prohibited. Such improper use is prohibited by federal and state antitrust laws. Violators risk criminal penalties and civil damages for each offense. The material contained herein is based upon information that we consider to be reliable, but neither VMG Health nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Any assumptions, opinions or estimates used in connection with the analysis and preparation of the Intellimarker constitute our judgment as of the date of this material and are subject to change without notice. Neither VMG Health nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results. This report contains valuable information of VMG Health which is licensed to purchasers of the study for internal review only. No other use is permitted. Requests for permission to make copies of any part of this publication or to arrange for additional user licenses should be directed to: VMG Health Chateau Plaza 2515 McKinney Avenue Suite 1500 Dallas, TX viii

13 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Confidentiality Information furnished by participants in our research, including but not limited to, information regarding the business, financial condition, customer lists, marketing strategy, names of employees, compensation amounts and formulas, billing amounts, operations, and prospects shall be treated as confidential. VMG Health will not disclose or reveal any of the confidential information to any persons or entities other than to those employees, officers or directors or affiliates who need access to actively and directly participate in the evaluation of the information and the production of such research. No individual facility information is disclosed in our research and all data is used in a form that makes it impossible to determine the identity of an individual facility. information is presented in the aggregate and as summarized statistics. iv

14 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Section 1 - Overview INTRODUCTION The Multi-Specialty ASC Intellimarker (the Intellimarker ) provides detailed financial benchmarking information and analysis on ambulatory surgical centers ( ASCs ) around the United States. The Intellimarker is designed to help you better understand the relative financial and operating performance of ASCs. By comparing an ASC s results to other similar facilities, you can identify areas where a facility might be excelling as well as target areas for improvement. The Intellimarker data can help pinpoint issues and provide a basis for developing actionable strategies for improving financial performance and creating value. The Intellimarker provides detailed information and analysis on all of the significant areas of financial and operational performance. The report includes detailed revenue analyses including gross and net revenues per case by specialty. Benchmarks and analyses are provided on case mix and volume, payor mix, staffing, supplies and other expense items. Balance sheet analysis includes accounts receivable agings, information on assets, working capital and the financing of centers. The study is based on the actual detailed financial and operating performance information from over 200 centers around the country representing an aggregate case volume of over 1.2 million cases. INSIDE THE INTELLIMARKER STUDY METHODOLOGY Data Collection: Experts from VMG Health formed a research oversight committee to set the standards for participation, for information included in the report, and for the analysis and presentation of the information. Our analysts and research team aggregated, compiled and analyzed all of the data provided by participants. Participants in the study were asked to contribute actual financial and operating reports from their facilities. The information included in this study is taken directly from the detailed income statements, balance sheets, accounts receivable aging reports, operating reports, staffing reports, and other information from all of the centers participating in the study. The raw data, provided to our analysts was gathered and immediately reviewed for accuracy and completeness. In the evaluation of each center s information, we identify missing data, inconsistencies and other reporting errors. As a part of our protocol, we contact each center to reconcile errors and secure any omitted data. In an effort to ensure the highest quality data, centers contributing incomplete data or with irreconcilable reporting errors have been excluded from the analysis. The research was conducted using 2010 and 2011 information. Participants in the Multi-Specialty ASC Intellimarker include only in-network, multi-specialty ASCs. Data Compilation and Analysis: The accuracy and reliability of the Intellimarker metrics is a direct function of the quality of the data gathered. As a result, the compilation of accurate and complete information is critical to ensuring the quality of the reported data. 1

15 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Aggregated data on each center is then analyzed and uploaded into our proprietary database. By using the actual detailed data provided by participants in the study, we are able to directly categorize and input data to ensure consistency and comparability. The resulting database is then used in the preparation of the final analysis and reports presented in the report. Throughout the data collection process, the research oversight committee served to refine performance measurements, benchmarking metrics and the other important information specific to the successful operation of ASCs. Data Presentation: In order to use benchmarking data effectively, it is important to use information that is as closely comparable as possible. The information in the Intellimarker has been divided into multiple sections each presenting the ASC data in a different grouping in order to enable users to ensure comparability. Each section in the report is identified by the vertical color tab on each page. Virtually every page is dedicated to a different analysis. The benchmark information and analysis summarizes the relevant data with a table and a chart or graph. The sections include an aggregated statistical analysis, a regional analysis, an analysis of facilities by size by number of ORs, by case volume, and more. Each section provides information and analysis on all of the significant areas of financial performance in a slightly different grouping. There are approximately 35 different analyses and groupings of information in each section showing over 100 different performance indicators. The statistics presented on each page allow report users to evaluate and compare ASC financial and operating performance to the industry. The Aggregated Statistical Analysis section includes data from all of the participants in the study. The statistical breakdown of the data provides additional detail on the reported information. The data is presented as an average, or statistical mean. The standard deviation illustrates the variance of the data around the mean. The quartile and decile information is also provided to show how the data is distributed. Similarly, the other sections, as detailed in the chart above, report the data in a variety of ways to enable user to isolate groupings that might be most comparable. The Regional Analysis section provides a breakdown of the data from participants by region (see Participation for additional detail on each region). Facility Size by Operating Room groups the participant data into centers with one and two OR facilities, three and four OR facilities and greater than five OR facilities, and so on. 2

16 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Participation: The study includes the analysis Multi-Specialty of over 201 ASC freestanding Intellimarker ASCs 2011 across the United States, representing over one million surgical cases across specialties. The information received from participants Participation: in the study included financial and operating information from calendar years 2010 and The study includes the analysis of over 240 freestanding ASCs across the United States, representing over one million surgical cases across specialties. The information received from partici The study is based on twelve months of operations using the detailed financial and operatinpants performance in the study reports included of these financial facilities. and operating information from calendar year 2009 and The study is based on twelve months of operations using the detailed financial and operating performance of the reports facilities of these submitting facilities. data were excluded from the study based on incomplete or Certain otherwise questionable data. The charts, tables and analysis included in Sections 4-9 in this report Certain are of based the facilities on a final submitting count of data 201 were freestanding excluded from ASCs, the representing study based on a incomplete total case or volume otherwise questionable cases. A detailed data. The breakdown charts, tables of centers and analysis and case included volume in included Sections in 4 - the 9 in study this report is below. of 1,241,348 are based on a final count of 243 freestanding ASCs, representing a total case volume of 1,676,688 cases. A detailed breakdown of centers and case volume included in the study is below. West 36 Midwest 40 Northeast 26 Southwest 63 Southeast 36 VMG Health, LLC 2011 Rights Reserved 7 3

17 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Multi-Specialty ASC Intellimarker 2012 Ophthalmology Orthopedics Oral Surgery 14,216 27, , ,131 6,218 81,983 80,581 4,223 Pain Orthopedics Management 50,220 22, , ,642 65,334 65,638 Plastic Pain Management 44,462 4, ,195 26,785 54,207 23,624 Podiatry Plastic 4,704 3,955 26,371 17,883 22,340 17,520 Urology Podiatry 4,890 3,800 41,631 20,040 13,068 24,914 Other Urology 3, ,455 6,600 18,226 10,650 Total Cases 234, , , , , ,962 Multi-Specialty ASC Intellimarker 2012 Multi-Specialty ASC Intellimarker 2011 The following The table following details the table details the case volume by specialty Multi-Specialty case volume by ASC specialty Intellimarker included 2011 in the The study. following The chart following illustrates the chart participation illustrates the participation in the Formatted: Font: in Arial, the Not study Highlight by facility size by case volume. included in the study. study by facility size by case volume. The following table details the case volume by specialty included in the study. Formatted: Font: Font: Arial, Arial, Not Not Highlight Highlight Aggregated Statistical Analysis Facility Size by Case Volume Formatted: Font: Arial, Not Highlight < 3,000 3,000-5,999 > 5,999 Number Aggregated of ASCs Statistical Analysis Number Cases by of Specialty ASCs Cases by Specialty Cases ENT by Specialty 8,724 41,037 61,471 ENT Number of ASCs 111, , ENT GI 6,059 8,024 27,081 73, , ,808 GI Cases by Specialty 236, ,219 GI General Surgery 8,597 7,596 46,070 24, ,552 55,831 General ENT Surgery 133, , ,994 87,591 General OB/GYNSurgery 5,245 3,742 22,405 15,534 28,309 84,344 OB/GYN GI 375, ,713 47,585 61,343 OB/GYN Ophthalmology 10,336 3,756 13,983 54, ,291 43,604 Ophthalmology General Surgery 111, , ,173 87,591 Ophthalmology Oral Surgery 6,682 1,478 61,035 6, ,456 3,395 Oral OB/GYN Surgery 61,343 47,585 10,914 13,130 Oral Orthopedics Surgery 21, ,142 4, ,345 8,688 Orthopedics Ophthalmology 247, , , ,949 Orthopedics Pain Management 24,134 16,936 69,093 56, , ,722 Pain Oral Management Surgery 200, ,779 13,130 10, ,949 Pain Plastic Management 17,846 5,567 57,624 14, ,309 24,261 Plastic Orthopedics 217,976 44,421 56, ,779 Plastic Podiatry 6,820 5,016 12,185 13,937 17,955 37,426 Podiatry Pain Management 200,316 36,908 47,988 56,431 Podiatry Urology 3,261 2,650 15,456 16,582 33,026 29,271 Urology Plastic 44,421 52,258 73,614 47,988 Urology Total Cases 91,558 1, ,587 12, ,815 59,823 Other Podiatry 36,908 14,388 18,120 1,676,688 73,614 Other 1,417 2,140 14,563 Total Urology Cases 1,241,348 52,258 Other 18,120 14,388 Total Cases 85, ,684 1,247,566 Total Cases 1,676,688 1,241,348 Multi-Specialty ASC Intellimarker 2012 Multi-Specialty ASC Intellimarker 2011 The following chart illustrates the participation in the study by regional location. Formatted: Font: Arial The following chart illustrates the participation in the The following chart Formatted: illustrates Font: Arialthe participation in the The following chart illustrates the participation in the study by regional location. The following chart illustrates the Formatted: participation Font: Arial in study by facility size by revenue. study by regional location. study by facility size Formatted: by revenue. Font: Arial Regional Analysis Regional Analysis W SW MW SE NE Cases Number by of Specialty ASCs W SW MW SE NE ENT Cases by Specialty 19,701 31,463 26,787 21,641 11,640 Cases Number by of Specialty ASCs GI ENT 19,502 41,497 35,187 24,115 13,647 Cases by Specialty 34,814 83,863 39,506 45,353 33,177 ENT 19,701 31,463 26,787 21,641 11,640 General GI ENT Surgery 12,179 36,250 19, ,511 31,834 41,497 35,187 15,941 50,401 24,115 14,752 98,650 13,647 12,885 49,407 GI 34,814 83,863 39,506 45,353 33,177 OB/GYN General Surgery 10,482 43,412 18,536 24,950 14,614 General GI Surgery 12,179 36,250 4, ,511 17,182 31,834 50,401 15,941 11,264 98,650 14,752 6,845 49,407 12,885 8,225 Ophthalmology OB/GYN OB/GYN General Surgery 24,072 10,482 4,050 4,069 75,054 43,412 17,182 23,617 18,536 11,264 23,973 14,026 24,950 32,988 11,677 6,845 14,614 24,959 8,225 7,973 Oral Ophthalmology Ophthalmology OB/GYN Surgery 45,448 24,072 2,595 4,050 23,617 75,054 78,091 6,107 14,026 23,973 33, ,677 32,988 59, ,959 7,973 31, Orthopedics Oral Oral Ophthalmology Surgery Surgery 43,904 45,448 4,318 2,595 48,353 78,091 6,107 7,103 33,043 57, ,137 33, ,454 35, Pain Orthopedics Oral Management Surgery 33,941 52,275 43,904 4,318 42,729 48,353 62,310 7,103 57,703 43,344 73, ,002 51,071 42, ,014 29,231 38, Plastic Pain Pain Orthopedics Management 10,789 55,489 33,941 52,275 10,816 42,729 62,310 58,750 73,904 43,344 13,150 63,192 42,476 51,071 60,925 8,068 38,984 29,231 29,423 1,598 Podiatry Plastic Pain Management 10,401 10,789 55,489 4,705 11,234 10,816 58,750 13,265 63,192 13,150 19,044 8,956 60,925 10,592 8,068 4,893 29,423 1,598 7,120 3,129 Urology Podiatry Plastic 10,401 6,043 5,300 4,705 13,547 11,234 13,265 13,520 19,044 13,227 8,956 8,052 10,592 10,155 4,893 7,320 14,461 3,129 7,120 8,621 Total Urology Podiatry Cases 196,812 9,936 6,043 5, ,182 13,547 13,520 18, ,543 13,227 8,052 9, ,403 10,155 11,784 7, ,020 14,461 23,259 8,621 Other Total Urology Cases 196,812 3,702 9, ,182 18,774 6, ,543 9,861 6, ,403 11,784 1, ,020 23,259 1,082 Total Other Cases 257,153 3, ,031 6, ,781 6, ,325 1, ,398 1,082 Total Cases 257, , , ,325 Multi-Specialty ASC Intellimarker ,398 Formatted: Font: Arial Formatted: Font: Arial Formatted: Font: Arial Facility Size by Net VMG Revenue Formatted: Health, LLC Font: Arial Rights Reserved < $4.5 M $4.5 M - $6.9 M > $6.9 M Cases Number by of Specialty ASCs ENT Cases by Specialty GI ENT 18,606 46,298 23,079 27,230 68,409 40,407 65, ,006 83,130 General GI Surgery 12,889 84, ,051 14, ,033 60,213 OB/GYN General Surgery 17,954 6,444 18,526 6,695 34,445 77,428 Ophthalmology OB/GYN 28,760 7,407 26,822 9, ,464 47,099 Oral Ophthalmology Surgery 49,034 2,477 77,327 4, ,233 4,425 Orthopedics Oral Surgery 29,942 3,863 45,388 1, ,647 7,610 Pain Orthopedics Management 44,015 37,384 55,492 65, , ,962 Plastic Pain Management 46,992 6,755 10,069 67, ,000 27,597 Podiatry Plastic 10,079 5,868 15,704 7,690 23,351 33,117 Urology Podiatry 7,999 9,030 7,886 9,657 36,373 32,510 Total Urology Cases 210,053 7, ,182 10, ,725 56,759 Other 1,259 3,601 13,701 Total Cases 298, ,077 1,017, Multi-Specialty ASC Intellimarker 2011 The following The chart following illustrates chart the participation illustrates in the study participation by facility size in by the number of operating rooms. study by facility VMG size Health, by number LLC 2012 of operating Rights Reserved rooms. VMG Health, LLC 2012 Rights Reserved 7 7 Facility Size by Number Operating VMG Health, of Room Operating LLC 2011 Rooms Rights Reserved VMG Health, LLC 2011 Rights Reserved ORs 3-4 ORs > 4 ORs 8 Number Cases by of Specialty ASCs Cases ENT by Specialty ENT GI 7,671 43,682 8,132 52, ,829 64,706 50,671 64,774 54,344 GI General Surgery 94,152 5, ,140 44, ,087 38,277 General OB/GYNSurgery 6,423 3,714 54,094 23,174 19,643 46,973 OB/GYN Ophthalmology 14,216 1,981 31,979 81,254 81,983 25,611 Ophthalmology Oral Surgery 30, ,682 6, ,320 4,223 Oral Orthopedics Surgery 22, ,642 7,660 65,334 4,700 Orthopedics Pain Management 27,134 44, , ,195 54,207 80,581 Pain Plastic Management 50,220 3, ,028 17,883 22,340 65,638 Plastic Podiatry 4,814 3,800 26,785 20,040 13,068 23,624 Podiatry Urology 4,704 3,577 26,371 30,455 18,226 17,520 Urology Total Cases 152,784 4, ,660 41, ,746 24,914 Other 193 6,600 10,650 Total Cases 234, , ,962 The following chart illustrates the participation in the study by facility size by case volume. Formatted: Font: Arial Formatted: Font: Arial Formatted: Font: Arial The following chart illustrates the participation in the study by facility size by case volume. Facility Size by Case Volume 4 Facility Size by Case Volume < 3,000 3,000-5,999 > 5,999 Cases by Specialty ENT < 3,000 8,724 3,000-41,037 5,999 > 5,999 61,471 Number GI of ASCs 8, , , Cases General by Surgery Specialty ENT OB/GYN 7,596 6,059 3,742 24,164 15,534 27,081 55, ,808 28,309 GI Ophthalmology 10,336 8,597 54,419 46, , ,552 General Oral Surgery Surgery 5,245 1,478 22,405 6,041 84,344 3,395 Formatted: Font: Arial VMG Health, LLC 2012 Rights Reserved VMG Health, LLC 2011 Rights Reserved 9 10

18 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Section 2 - DATA INTERPRETATION A REPORT USER S GUIDE HOW TO USE THE INTELLIMARKER Selecting appropriate comparables: facilities are different. They each have unique case mixes, different volumes and negotiated reimbursement schedules. They are sized differently, some with more operating rooms, others with larger medical staffs. While there are no perfect comparables for any facility, comparing a single center to a meaningfully sized group of peers eliminates the impact any one facility might have on the aggregated financial performance information. In order to compare a facility to as close a group of peers as possible, it is best to look at several different groupings of centers. For example, a two OR facility in Arkansas, with approximately 3,400 cases annually would be best served by looking at more than one subset of the benchmark data. Compare the facility to the aggregated information, but also look at data provided in the regional grouping, the facility size by OR grouping, and the facility size by case volume grouping. The data from multiple groups will provide a range to compare performance to and also provide a higher degree of certainty that the results are accurate and truly comparable. Additionally, since all centers are unique, it might also be necessary to make adjustments to arrive at the most comparable information. Determining where in the range a particular center should fall depends on the details of the particular ASC. For example, an ASC with a case mix more heavily weighted to high volume pain management procedures, might be staffed differently than the industry averages. Identifying factors like these can help narrow the range even further, providing a more accurate measure against which to compare. Identifying and understanding the variances: Compare a center s performance data and identify the variances. Use each of the metrics contained in this study for a clear understanding of performance. The charts, tables and graphs have been selected to include the most meaningful performance information and designed to provide the most relevant information. The easy-to-read graphs and charts provide additional support to the detail provided in the tables. Significant discrepancies from the benchmarks are the first places to look to understanding operating strengths and areas for improvement. While variances identify the places to look, they rarely provide an adequate explanation of how a center is different. When variances are located, it is crucial to dig deeper to understand the cause for the discrepancies. For example, variances in revenue from comparable centers are related to either the amount of revenue collected per case or the volume of cases performed in a center. Further detailed analysis of charges, a coding review or a review of the reimbursements from each payor would provide more insight into the causes for any variances in collected revenue. Understanding the detail be-hind case mix and the numbers of cases per day or per operating room will help shed light on vol-ume differences from other centers. 5

19 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Using the results to effect change and improve performance: There may be perfectly valid reasons for variances from the benchmark, and it does not necessarily signal under performance in that area. Not every variance is a call for change. In those in-stances where the variance from the benchmark results in actionable steps to improve operations, it is important to implement the change and continue to monitor the results. Start by identifying and changing the most obvious and the easiest to implement and move on from there. Plan change initiatives and measure the outcomes. This is when benchmark data is more important than ever. Using the data is not a one-time event. Use it as a resource to mark and measure pro gress on an ongoing basis. Limitations of the Data: Participants in the study may not be representative of all ASCs. The study is based on a statistical sampling of ASCs around the country. Participation in the study is voluntary, and as such, the dis-tribution of centers is not uniform across each area of analysis. For example, certain regions have greater participation than others, and facilities of a particular size might be under or over repre-sented. In these instances, the data might contain bias. Comparisons to specific operating charac-teristics should be made with caution and the understanding that the data might, or might not be directly comparable. Individual management decisions or other decisions related to strategy, per-sonnel, or other business practices should take into account the all of the relevant attributes of the specific facility. 6

20 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Section 3 - INDUSTRY ANALYSIS General Healthcare Overview Healthcare Spending in the United States Over the last fifty years, health care spending as a percent of GDP has grown from approximately 4% to approximately 17%. This steady rise in health care spending is illustrated in the graph below. Healthcare spending in the United States grew 3.9% in 2010 following a 3.8% increase in Total health expenditures reached $2.6 trillion in 2010, which translates to $8,402 per person or 17.9% of the nation s GDP. 20.0% Na onal Healthcare Spending as a % of GDP 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Ambulatory Surgery Center ( ASC ) Industry Overview Ambulatory surgery refers to lower-acuity, planned, surgical procedures that can be performed on an outpatient basis and typically require less than a 24-hour stay. These surgeries can be performed in either a hospital outpatient surgery unit or in a non-hospital site such as a freestanding ambulatory surgery center ( ASC ). ASCs provide a more productive environment than traditional acute care hospitals since the doctor can maintain his or her schedule without the interruption of emergencies that can delay scheduled surgeries in the hospital setting. Likewise, patients may prefer the less institutionalized environment of an ASC. ASCs also provide a setting for surgical procedures to be performed at a considerable discount, in terms of cost, compared to a hospital setting. ASCs provide the surgical equipment and supplies, personnel, and other supporting services that enable their surgeon-users to perform surgery cases. The physicians typically do not pay for these services, but instead, the ASC bills a technical fee to the patient and/or payor for these technical, or non-physician services provided to the patient. Separately, the physician bills his or her professional fees to the patient or payor. The ASC neither employs nor pays compensation to the surgeon-users. Consequently, the success or failure of an ASC is directly related to its ability to provide the necessary technical services to enable its surgeon-users to perform their surgical cases. 7

21 MULTI-SPECIALTY ASC INTELLIMARKER 2012 The idea of performing surgery on an outpatient basis was first explored and brought into a public forum in 1966 by the Journal of the American Medical Association ( JAMA ). JAMA suggested that it is possible to conduct a program of Anesthesia for outpatient surgery without compromising patient safety. Shortly thereafter, the health insurance industry began exploring alternatives to the high costs associated with procedures in hospitals and the United States National Advisory Commission on Health Facilities began experimenting with lowering healthcare costs. In 1970, the first ASC was opened and within one year a second facility was opened. In 1971, the American Medical Association ( AMA ) endorsed ASCs under general and local anesthesia for selected procedures and patients. By 1976, there were 67 ASCs in the country. Although Medicare began to collaborate with six ASCs in 1974, it was not until 1982 that the Medicare program approved payment for 200 selected procedures performed in ASCs. As a result of this approval and increased demand by physician users and patients, the number of Medicare licensed ASCs has grown to about 5,900 centers. The expanded acceptance by Medicare and other payors has led to large growth in both total and types of procedures performed in the ambulatory setting. ASC Industry Trends Percentage Share of Inpatient vs. Outpatient Surgeries 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: American Hospital Association Outpa ent Surgeries Inpa ent Surgeries Of all the surgery cases performed in the United States in 2010, approximately 63.0% were performed in the outpatient setting. Outpatient surgery as a percentage of total surgery has increased significantly from 1980 to The increase in surgical procedures performed in outpatient settings is primarily linked to both the rise of ASCs as well as technological and surgical procedure innovation which has expanded the types of procedures suitable for an outpatient setting. Beginning in the early to mid-1990s, the shift in surgical volume from inpatient to outpatient began to flatten. Since 2000, the percentage of surgeries performed in the outpatient setting has remained steady at approximately 63.0% of total surgeries. The lack of growth in outpatient surgery versus inpatient surgery suggests a maturing of the ASC industry. 1 1 Trendwatch Chartbook 2011 as provided by the American Hospital Association and Avelere Health 8

22 MULTI-SPECIALTY ASC INTELLIMARKER 2012 As the chart below illustrates, total Medicare payments for ASC services more than doubled between 2000 and Payments increased approximately 8.7% compounded annually from approximately $1.4 billion in 2000 to $3.5 billion in During the same time period, the number of Medicare-certified ASCs grew approximately 5.3% compounded annually from 3,028 in 2000 to 5,344 centers in The growth in Medicare payments to ASCs far outpaced the growth in Medicare certified ASCs during the period prior to Since 2005, this trend slowed significantly, coinciding with the freeze in Medicare grouper payments to ASCs which became effective in Growth in Medicare payments to ASCs have fallen from a high of 16.7% in 2000 to 2.9% in The reduction in growth in Medicare payments reflects slower annual growth in the number of Medicare certified ASCs, which has fallen from 9.0% in 2001 to 1.8% in Medicare ASC Trends Medicare ASC payments (in $1.4 $1.6 $1.9 $2.2 $2.5 $2.7 $2.8 $2.9 $3.1 $3.2 $3.4 $3.5 billions) Growth (Es mated) 16.7% 14.3% 18.8% 15.8% 13.6% 8.0% 3.7% 3.6% 6.9% 3.2% 6.3% 2.9% Number of Medicare Cer fied 3,028 3,302 3,545 3,848 4,140 4,362 4,879 5,095 5,217 5,316 5,344 ASCs 4,608 Growth (Es mated) 8.7% 9.0% 7.4% 8.5% 6.7% 7.3% 5.5% 5.9% 4.3% 2.2% 1.8% 1.8% Medicare Payments per Facility $462 $485 $536 $572 $604 $619 $608 $594 $608 $613 $640 $655 (in thousands) Growth (Es mated) 7.3% 4.8% 10.6% 6.7% 5.6% 2.5% -1.8% -2.2% 2.4% 0.8% 4.3% 2.3% 2 A Data Book: Health Care Spending and the Medicare Program (Medpac June 2012) 9

23 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Illustrated below is a representation of those states that require a Certificate of Need ( CON ), states that do not require a CON, and the number of Medicare certified ASCs located within each state in 2007 (last year of reported data). A CON is a state regulatory review process that requires an application to the Department of Public Health for, and receipt of, a CON prior to the offering or development of a new or changed institutional health service. In an effort to control the rapidly escalating costs of healthcare through planning and regulation, CON programs have been designed to evaluate whether a proposed service or facility is actually needed. As supported by the accompanying graph, ASCs are more prevalent in non-con states. Current estimates show that there are approximately 5,900 freestanding ambulatory surgery cen-ters located in the United States. Since 1996, the industry has added on average more than 200 new ASCs per year. Although there are still a number of new ASC projects under development in many areas, the market for ASCs has become increasingly saturated. As evidenced by current market trends, there is also significant opportunity for consolidation within the ASC market. The industry is highly fragmented, composed of several large, publicly and privately owned companies and many smaller, independent operators. Of the 5,900 freestanding ASCs operating in the United States, approximately 1,325 facilities, or 22.4%, are owned or managed by multi-facility chains. ASC Regulatory Environment ASCs are some of the most regulated healthcare facilities in the nation. Each ASC must comply with a host of laws and regulations on both the state and federal level. There are specific items of legislation and CMS guidelines that pertain directly to ASCs. We have outlined and discussed certain of these items and guidelines on the following pages. 3 3 FASA Update Magazine, Nov/Dec 2007 edition; AmSurg 10k; ASC Focus Magazine, November/December 2008 Vol 1 No 6 10

24 MULTI-SPECIALTY ASC INTELLIMARKER 2012 Medicare Conditions for ASC Coverage Update On November 18, 2008, CMS modified the conditions for coverage of ASCs. This was the first time that CMS significantly revised the conditions for coverage of ASCs since the inception of the Medicare ASC benefit in The new regulations changed the definition of an ASC to modify the rules regarding overnight care, added three new conditions and 19 standards, and revised four existing conditions. Now to become and remain a Medicare-certified ASC, a surgery center must comply with 13 conditions and 35 standards. These new regulations, called Conditions for Coverage, became effective on May 19, CMS excludes from ASC payment any procedure for which standard medical practice dictates that the beneficiary who undergoes the procedure would typically be expected to require active medical monitoring and care at midnight following the procedure (overnight stay) as well as all surgical procedures that medical advisors determine may be expected to pose a significant safety risk to Medicare beneficiaries. The criteria used under the revised ASC payment system to identify procedures that would be expected to pose a significant safety risk when performed in an ASC include, but are not limited to, those procedures that: generally result in extensive blood loss; require major or prolonged invasion of body cavities; directly involve major blood vessels; are emergent or life-threatening in nature; or commonly require systemic thrombolytic therapy. Outpatient Prospective Payment System Approved in November of 2007 and commenced on January 1, 2008, CMS implemented a new system for payments to ambulatory surgery centers for the provision of medical services to Medicare beneficiaries. The new payment system is similar to the previous Medicare payment system in that CMS pays ASCs a facility fee intended to cover the non-professional costs associated with providing a surgical procedure. Instead of categorizing payments into one of nine groupers, the new payment is based on ambulatory payment classifications ( APCs ). Medicare will use the same APCs for ASCs as are used for hospital out-patient departments ( HOPDs ). Each CPT code is assigned to an APC, and each APC has a specific payment rate. Although CMS uses APCs to determine the rates that will be paid, ASCs submit for payment using CPT codes. Therefore, ASCs will continue to bill and collect from Medicare using CPT codes. The rate paid to HOPDs for each APC is based upon the APC s relative weight, which is a measure that CMS uses to rank the costs of performing procedures in one APC as compared to those in other APCs, and a uniform conversion factor that applies to all APCs. CMS determines the relative weight for each APC using hospital cost reports. As the cost of performing a procedure increases as compared to other outpatient procedures, its relative weight increases. Conversely, as a procedure s cost goes down as compared to other outpatient procedures, its relative weight decreases. The final step in determining HOPD relative weights is to adjust the new weights to preserve budget neutrality in the HOPD payment system. In 2007, CMS established a four-year transition to the new payment methodology for procedures, a process that gives individual ASCs more time to adjust to the new payment system than an immediate transition to the full system would have provided. As of 2011, ASCs have been fully transitioned to the new payment system. 11

25 MULTI-SPECIALTY ASC INTELLIMARKER 2012 ASC Reimbursement On November 1, 2012, CMS released the final ruling for 2013 ASC payments. CMS will apply a 0.6% increase to ASC payments for CY The ASC payment system is updated annually by the consumer price index for all urban consumers, which CMS estimates to be 1.4% for CY Beginning in CY 2011, the Patient Protection and Affordable Care Act ( PPACA ) requires any annual update under the ASC payment system to be reduced by a productivity adjustment, which is 0.8% for CY CMS estimates that payments to ambulatory surgery centers will be approximately $4.07 billion in CY According to the final rule, the final CY 2013 ASC payment weight scaler is CMS updates the ASC relative payment weights each year using the national OPPS relative payment weights [and Medicare Physician Fee Schedule (MPFS) non-facility practice expense relative value unit (PE RVU)-based amounts, as applicable] for that same calendar year and uniformly scales the ASC relative payment weights for each update year to make them budget neutral. CMS will apply its established methodology for determining the final CY 2013 ASC conversion factor. The final ASC conversion factor of $ is the product of the CY 2012 conversion factor of $ multiplied by the wage index budget neutrality adjustment of and the MFP-adjusted CPI-U payment update of 1.3%. 12

26 MULTI-SPECIALTY ASC INTELLIMARKER 2012 ASC Quality Measure Reporting In the CY 2012 final rule, CMS adopted five quality measures to be reported by ASCs beginning Oct. 1, 2012, for CY 2014 payment determination. These measures include four outcome and one surgical infection control measure to be reported by ASCs on Medicare claims using quality data codes. In CMS CY 2012 final rule for ASC payments, CMS added two structural measures safe surgical checklist use and ASC facility volume data on selected ASC surgical procedures, beginning with reporting in CY 2013 for the CY 2015 payment determination as well as one National Healthcare Safety Network (NHSN) infectioin control measure influenza vaccination coverage among health-care personnel, beginning with reporting in CY 2014 for the CY 2016 payment determinatiions. The following table outlines the meausres finalized for purposes of the CY payment determinations. Though the CY 2013 final rule did not add new measures to the 22 measures finalized for CY 2014, CMS finalized revisions to the ASC Quality Reporting ( ASCQR ) Program. The revisions included specific considerations for data completeness, submission dates, and a methodology for reducing payments to ASCs that do not meet the program s reporting requirements. These measures are set to take effect Cy 2014 through CY