When you live in Florida, you wrestle not only with the periodic hurricane or hungry gator but also with the growing population battling it out to schedule hospital surgical procedures. That may explain why more than a million procedures were performed last year in the state's 360 ambulatory surgery centers ("ASCs") -- facilities that can perform surgeries not requiring hospital admission.
Florida ranks second only to California in its number of ASCs. According to the Federated Ambulatory Surgery Association, the first ASC opened in 1970, and today more than 4,200 centers operate in the U.S., performing more than 8,000 surgeries a year. Disciplines encompassed include ophthalmology, gastroenterology, orthopedics, ENT, gynecology, and plastic surgery. Patient satisfaction tends to be quite favorable, and affluent consumers are finding ASCs an attractive alternative to a hospital stay.
The FASA cites a 1977 study by Blue Cross/Blue Shield of North Carolina showing that surgeries performed at ASCs cost 47% less than those done at hospitals because of lower overhead and increased efficiency. ASCs are subject to any state-required regulation, as well as to federal inspection for those approved for Medicare reimbursement.
So the question, of course, is: If ASCs can benefit patients and contain health costs, can they benefit investors, too? A few players in the market do, in fact, show potential:
AmSurg
Symbion
United Surgical Partners
Each of these companies recently reported increasing same-store sales (an odd-sounding term, given the business!). They diverge, however, in their business models and in their financial characteristics. Of the three, AmSurg probably represents the most cautious play, with its longer operating history and consistently high operating margins. Symbion boasts strong cash flow but has a much shorter history, while United Surgical carries a debt-laden balance sheet.
While these companies each approach this field in their own unique way, they share the benefits of an upward trend in outpatient surgery. They also share such risks as the possible threat that Congress could bar joint ventures between physician owners and ASCs or make future cuts in Medicare reimbursements. ASCs currently face a freeze on such rates through 2008.
We'll continue to monitor the health of this interesting business and put results under the scalpel.
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Fool contributor S.J. Caplan does not own shares of the companies mentioned. The Fool has a disclosure policy.