Thanks, Kevin. So just for laughs, how many in the audience here have ownership in ambulatory surgery center? Great. So talk a little bit about the current state of the market in ambulatory surgery centers and the dynamism in the market in regards to cytosurface migration of total joints and spine to the ASC and how we can leverage that to help combat some of these other challenges we have like the HR challenges, like the reimbursement challenges, et cetera. So Brian gave a great talk on, you know, leveraging your, incorporating vertical integration of all the aspects of care into your practice, right? And he said, well, that's a way that you can make more income, right? But it's also a way for you to control what I call the means of production, right? When you control the means of production, you can control not only the clinical, but the economic aspects of healthcare, right? So if we do that, then we become the managers of healthcare and we don't have to go to the insurance company for payment. We can go right to the self-insured employer and we can contract for total joint replacement, for spine, for back pain, for whatever we want, right? So that's going to be the future. That's what's going to get us away from the incessant negative reimbursement trends that we see. We're going to have to manage the disease processes themselves. We're already doing it and we do a better job than anybody. We do a better job in the hospitals. We do a better job than insurance companies, but we need to do it. And to do it, we need to have this integration. You need to have that. And that's why there's all this consolidation. We'll talk a little bit about that too. So in addition, Kevin asked me to talk a little bit about private equity at the end and how this paradigm shift is occurring and where the value is. What's the value equation of that? My disclaimers are in the AOS website. So here's the current ASC market. This is from Fortune Informatics. There's about 6,000 centers in the United States. They do about 25 million procedures now. Current revenue is about 36 billion. That's going to climb to 58 billion in only five years, right? So that's a 6.9 compounded annual growth rate. This is where the action is in orthopedics and in medicine right now. And if you read Becker's or anything like that, you see that there's lots of foment in this space, right? Lots of insurance companies buying these things. Lots of the USPIs and the SCAs of the world are buying more ASCs. Private practices are adding more ASCs. Private equity firms are buying ASCs because they know that this is where the economic gain is going to be in the next 10 years. And if you look at the growth, it's been going on for 20 years, right? So when I get out of my fellowship, there was probably about 2,000 ASCs in the United States. Now there's about 6,000. And the percent of procedures, Brian went over this a little bit, it's now at 60%, but it's going to go to 80% or 85%. So that migration is going to continue for the next 10 years of cases going from the hospital to the ASC because of the payment differential mostly. Not only just the payment differential, but we can have some better outcomes in the ASC too, and I'll show you that. This is from Bain Capital. This shows this is where the growth in the ASC is going to be. It's not just ASCs are going to grow, but they're going to grow specifically in certain sectors. And those sectors are cardiology, spine, and orthopedics. So this is great news for us, right? Because we are right here, and we are right in the mix of taking advantage of this migration. So what's driving the growth? Aging population, right? We do about 1.3 million total joints a year now. That's going to 4, 4.5 million, right? More rotator cuff repairs. It's like 700,000 a year now. That's going to go to over a million. So with that growth, there's going to be a need for more surgery. Patient choice, right? Especially after COVID, people don't want to go to the hospital. They're afraid of the hospitals. They'd rather go to an ASC setting. And when you marry that with consumerism and site of service payment differential, when their co-pays and deductibles are higher at the hospital, this migration is very appealing to patients to go to the ASC. There is a trend of re-oxidation of CON laws in South Carolina, in Tennessee. There's a movement in Alabama. It takes a lot of effort. This is a political effort. The hospitals fight it tooth and nail. But it is going on because, I mean, you can't deny the ability to save money here. And it's obviously an ancillary income. But really, this is what it's all about. Re-oxidation of total joints and spine. And this is certainly a sports medicine meeting. But this is about business. And we needed to take a look at this. Obviously I had an ASC in my practice. We loved it. Efficiency. Turnover time was 12 minutes. When I was a hospital employee, turnover time was an hour for a meniscectomy. Autonomy. You control the center. You hire the employees. They come. They're there every time for you. So you control the whole aspect of care there. That improves quality and creates efficiency. If you look at satisfaction results, patients are more satisfied with care in an ASC than in a hospital setting. And once again, the main crux here is the ability to take advantage of this site of service migration. So with all these great attributes, ASC, well, why don't we all have one? Because there's significant barriers to entry here, right? And most of them are political, related to the local environment, with the hospital relationships, and also CON laws. In New York, where I was, it was exceedingly difficult to get an ASC. When we finally got a CON for our ASC, the hospitals fought us tooth and nail. It took us a long time to get off the ground. And as a result, we really weren't that successful. But if you go to states like Mississippi or Louisiana, where there's no ASCs, basically you can get a single specialty ASC, CON very easily. And if you have the volume, you're going to be able to do well with that center. Capital. Hey, especially as interest rates go up, it's going to be more difficult to access capital. These things can cost about $700,000 per room to build these things out sometimes. You need to have the case volume, right? If you're not assured of case volume and case mix, especially with orthopedics, the great thing about orthopedics is that it usually drives at least 25% of the revenue of a multi-specialty ASC. But if you have a single specialty ASC, you can do quite well in just orthopedics alone. There are also local reimbursement issues that you need to take note of. For example, workers' compensation. In some states, workers' compensation is reimbursed very well in the ASC. In others, not. So for example, in New York, it's reimbursed very poorly. In New Jersey, it's reimbursed very well. So a lot of New York physicians actually have surgery centers in New Jersey and take their patients over into Jersey to have the surgery for comp, craziness. And then the management too. Hey, we're busy orthopedic surgeons. Do you have the time or the skill set to manage this business? Maybe not. So you either need to have a partner to do that or you need to hire that ability. So these are real barriers. They can be overcome though. And they've got to be overcome because bottom line is even Medicare gets this, right? So Medicare knows that they're going to be saved. They can save about $6 billion a year by migrating some of these cases to the ambulatory surgery center. And that's why they took total joints off the inpatient only list. That's why they put them onto the ASC lifts because this is where they want them to go. And so what are some of the results? This is from Mike Barron, who's been a real pioneer in this area, the Midwest Joint Center. Between 2011 and 2017, 19,000 outpatient total joints, a younger population because it certainly is a selected population. But if you take a look at the results, 97% discharge the same day, a 0.2% infection rate, readmissions 0.3%. And basically, these are some really state of the art results. And if you look at the economics of it, Bill Creavy up in Massachusetts and Boston did this study of the Truven market scan. Basically found that between the hospital and the hospital outpatient, there's lower complications in the hospital outpatient for total joints. And then between the hospital outpatient and the ASC, the ASC even performs even better. So of all the places for lower complication rate and readmission rate, the ASC is the best. And basically, the reimbursement rates were higher in the ASC. They've surmised that this is because the owners of the ASC were able to negotiate better contracts because they were focused on one thing, whereas the hospital has to do everything. Now they estimated a 13% saving rate for total joints in the ASC. And I can tell you that that is wildly conservative. It's about 30% or more. And this is the result. This is our experience down in Mississippi. Started a outpatient total joint program in 2016. This was the first 4,000 patients. This was published in the Journal of the Knee last year. Obviously a younger age population, 56 is the average age. Now in 2022, the average age is about 64 because we're doing a lot of Medicare patients now, do about 500 Medicare patients a year. And these are the complications, 99% discharge the same day, 1.4% ER visits, readmission rate of 0.6%, total orthopedic complication rate 3.5%. And that's reconciled as part of a bundled payment episode of care plan every month with Blue Cross Blue Shields. We get every complication. Those complications are, that's 100% of the complications because Blue Cross Blue Shield sends us that data. So there's a 20% potential withhold that's reconciled based on complication rate and patient outcomes. So we collect patient outcomes on everybody, all of our practices. This is the spine program, 900 cervical discs, T-lifts, P-lifts, 156, laminectomies, 1,000. And then we have readmission rates, average event rate 2%. So this is in an ASC setting. So right now we're doing about 2,500 total joints a year. It's a value-based care program. The profit is over $20 million, $20 million. We save Blue Cross Blue Shield of Mississippi $15 million a year. Because of that, the default site of service for total joints in Mississippi is the ASC. So if you want to go to the hospital, you have to pre-certify it. Go to the ASC, it's not pre-certified. So this is what I, when we say controlling the means of production and assuming all the risk of the care and controlling all of the costs inside of it, this is some of the things you can do. Now, can this be recreated everywhere? No. You need control and management of the ASC, right? The more you get control and management, the more you can do these things. And patient satisfaction is higher, outcomes are better, complications are less, and it's very profitable. So the trends to watch are, it's like 1.3 million total joints a year going to 3.5. There's about 6,000 ASCs that's going to climb. Only 500 of those ASCs are doing total joints now. Only 500, right? Only 31%, according to a survey at ACUS last year, of the ACUS members are doing outpatient total joint. That number's going to climb, right? So this is going to be a huge growth area. SG2, which is a think tank, a healthcare think tank, they said that by 2026, 52% of all total joints are going to be done in ASC. At our center right now, we're doing 72% of all the total joints in ASC, 72%. So that number is achievable. Antiannual growth rate, orthopedics and spine are leading the charge here, right? So this is something that if you're not involved in, or if your ASC is not involved in, you need to get involved in it now. And as much as possible, even if you're a hospital employee, you can have ownership in an ASC that your hospital owns, right? So there's mechanisms even for physicians that are employed to do this. So with that, I'm going to kind of segue into understanding private equity transactions. I do have a conflict. I work for an MSO that's PE back called U.S. Orthopedic Partners. I don't need to reiterate these challenges. We all are aware of them, right? And the thing about COVID is it took all of the challenges that we face and it put them on steroids, right? So we're really at a precipice in regards to costs. Now Medicare wants to cut us another 5%, HR issues are huge. People are looking for ways to band together to create scale to address these challenges. And these are the ways we do it, right? We have organic growth through acquisitions of practices in a geographic area. This is the Ortho Indies, the Ortho Carolinas, the resurgents of the world that develop 150, 170 orthopedic surgeons. Takes time, takes a lot of money. Hospital employment. I'm going to go over some slides of that. That is something that's really on the increase. A PSA, right? Professional Service Agreement, right? This is sort of hospital employment light. Some of these work really well. Some of them don't work at all, right? So it's really kind of black and white. I think the more leverage you have with your hospital, the better you are able to craft a PSA that is favorable to you. And then the new guy on the block is private equity. This is hospital acquisition. Okay, so if you take a look at what happened right after the Affordable Care Act came in in 2010, 2011, the acquisition of practices by hospitals, this is orthopedic practices, this is out of the Journal of Orthoplasty, went through the roof. And then it leveled out in about 2011, 2012. But now with COVID, it's on the rise again. So this is a trend, and I think it's a fairly unhealthy trend for patient care and for orthopedic treatments because our autonomy and our ability to control aspects of care is lessened. So I think PE is a nice alternative to that, and if you look there now, when I started doing this about two years ago, there were about four platforms. Now there's 12, right? So there's 12 PE-backed MSOs operating in the United States, and this is the geographic regions they're operating in. They're operating in all over the country, and the whole idea here is to inject private equity capital into the orthopedic market to derive more value. And so the thing is, it's all about valuation, right? So this is something we've traditionally have never done. I mean, we all run private practices that are businesses, and we don't know what they're worth. And the reason why we don't know what they're worth is because we take all the money at the end of the year and we distribute it to the partners, right? So we have no profit or EBITDA, earnings before income taxes, depreciation, and amortization. So EBITDA is all about what the valuation is. So PE creates EBITDA, right, or assesses the EBITDA of your practice and then pays you out based on that EBITDA in a multiple. So you have the EBITDA or your profit, then there's a multiple that that's multiplied by, and you get what's called the total enterprise value. So that's what your practice is worth. So it puts a monetary value on your practice, which is really kind of interesting, right? And then you're paid out on that, right? So you can extract the value of your practice out. It's something that we've really never been able to do. For example, when you retire, right, you get your accounts receivable and a party, right, and maybe a cut of any hard, you know, ancillaries that you own. I mean, it's, you know, I know friends of mine who have, you know, who have retired from AT&T with millions of dollars of stock. So this is a way to sort of not only extract that value up front, but also have ownership in the new entity, which is an MSO that's created with the PE partners to, so that you have value, you have investment in that as a company going forward, and you can realize considerable gains in that when the entity is sold or when you retire. The MSO, or the Management Service Organization, needs to be created so that non-medical people can be involved in healthcare, because many states have laws against that. And what the goal of these is, is, so it's buy, grow, sell, right? So it's buy practice, grow the practice, and then sell the practice, and the buyers, usually the buyers are going to be other PE entities. And this is the thesis or the value proposition, right? So it's a top-line growth proposition. In other words, it's not, they don't come in and try to cut costs, but rather to add value through addition of ancillary services, new doctors and service lines, improving your patient acquisition, improving patient engagement, right? Okay, Kevin and Brian gave great aspects to that, right? And the ability to do value-based contracting, direct contracting with brokers and employers, disease management, things like cyber security and compliance, these are huge things, right? You know, ransomware and things is a big problem, HR benefits and purchasing leverages. So the terms you need to know about are EBITDA, a pro forma, which is basically just business models, a scrape, which is the income, the EBITDA is created by a percent reduction in your, the physician take-home pay of between 20 and 30%. And the growth, the income repair is the plan of the PE partners to grow the practice to repair that income. And second bite would be a sale, a subsequent sale of the practice. This is sort of what the structure looks like. The MSO sits in the middle, the surgeon partners and the PE partners own it equally, or not equally but they own it together. And then the practices sign a business agreement with the MSO to perform services. The governance structure is important, you want to maintain control of the clinical governance of things and then have the PE partners be more concerned about the business aspects. Everybody's worried about the younger partners, you know, does this seem like such a good deal to them, especially if they haven't ramped up yet? Well, you can take care of them with accounting for their potential future growth through pro forma. You can also increase their split of the ownership and the total enterprise value. They're going to be involved with more equity events moving forward and they need to know that. You can establish a holding company to hold that equity so that you can disperse that to new partners moving forward. And, you know, these are all ways to convince the younger guys they can do well too over time. You know, the problem is everybody asks what's the future? I don't know what the future is but I know some trends. Only 25% of doctors are left in private practice now. Now that's not orthopedics, that's all doctors, right? So this is a trend that's going to continue to the point where there's going to be very little private practice left. And our reimbursement based on CPT code reimbursement will continue to go down. Bill Beach and I wrote this article here on the right, came out on arthroplasty last year. We took the trend line of decreasing reimbursement for arthroplasty and intersected it with a line of what you can earn in the office with CPT code and E&M reimbursement in the office. It's about a thousand bucks. So where those two lines intersect is the point where being in the operating room and being in the office are the same from a reimbursement standpoint. That line intersects in 2024, right? This is just a model and it doesn't account for other service lines, it doesn't account for other reimbursements you get from other payers, which are more. But what's going to happen is at some point in time in the future, if we keep relying on CPT code reimbursement, being in the operating room and being in the office are going to be parity in regards to payment. So the future is going to look different no matter what you do, whether it's PE or anything else. So consolidation's going to continue, scale's the word. Your ability to scale up is limited and PE brings in a unique position to a consolidation for the value equation. Thanks a lot. Thank you.

ASCs

healthcare market

patient outcomes

reimbursement rates

private equity

orthopedic surgeons