The ASC industry, which was founded as an innovative alternative to expensive hospital-based surgery, is showing clear signs of maturation. Since Medicare began to reimburse ASCs in 1982, and due to the increased convenience and economic benefit that ASCs offer both surgeons and patients, the ASC industry experienced rapid growth throughout the last two decades. Until the last few years, new entrants into the ASC market experienced significant growth and a favorable level of competition for physicians and cases. Now, growth is decelerating, with the growth in the number of ASCs and cases per ASC slowing.
According to 2009 data from the Medicare Payment Advisory Commission, the number of Medicare-certified ASCs grew at approximately a 9.2 percent compound annual growth rate (CAGR) between 1998 and 2005; between 2005 and 2008, that number grew at only 4.9 percent CAGR—slightly more than half of the previous rate. In addition to moderated growth in the number of ASCs, competition for ASC physician investors has increased. The pool of eligible physician investors has become increasingly limited because the majority of physicians that are qualified to invest in an ASC already have ownership interests in other ASCs. The deceleration in the growth of ASCs and a limited eligible physician investor pool has significantly diminished high growth opportunities in the ASC industry.
Characteristics of a Mature Industry
In a mature industry—one in a state of equilibrium with an absence of significant growth—businesses tend behave in a fairly standard manner. ASCs are no different. ASCs are reacting predictably to the normal market-maturation process, in which earnings may remain stable, but growth prospects and expectations decrease significantly. In this changing business environment, we have witnessed ASC managers change their focus from growth to operations, innovation, and maintenance. This significant systematic effort within the ASC industry has required a shift in resources, managerial skill and emphasis to innovation and efficiency.
Innovation: To thrive in a mature market, successful ASCs must devise innovative ways to conduct business. Past strategies have focused heavily on physician recruitment and case growth. Change innovations typically involve products or processes. The market more easily picks up on product innovation, such as new technology and new delivery methods. Process innovations are more difficult to replicate and have the added advantages of cost savings and enhancing productivity and product quality. Some ASCs have implemented process innovation by automating or outsourcing functions such as facility management, transcription, information technology, and billing and collection. This change streamlines expertise and allows improvement in business intelligence and operating costs. Mature ASCs need to perform experiments, and learn from them, if they are to succeed in achieving innovation. Some involve adopting, without significant changes, ideas that have been previously tried. But the most exciting initiatives do more. They conjure new possibilities that teamwork or prior research has suggested. This mixture of the tried and the untried, what is certain and what is risky, is the essence of innovation.