Compass Surgical Chief Executive Officer DJ HillCompass Surgical Partners, an independent full-service ambulatory surgery center (ASC) development and management partner, is “marching towards the West.”
Raleigh, North Carolina based Compass has developed more than 250 ASCs over the past three decades. It is currently in 13 markets with exclusive health care system partners.
In January, Compass formed a joint venture with Baptist Health to launch a network of ASCs branded as Horizon Surgery Center in Northeast Florida, part of a broader strategy to modernize existing outpatient spaces and acquire additional ASCs in the region. Additionally, Compass secured a major investment from TPG Growth in January.
ASC News caught up with Chief Executive Officer DJ Hill to discuss the company’s goals for the future, some of its 2024 highlights and more. That conversation is below, edited for length and clarity.
ASC News: How many partnered ASCs do you currently work with?
Hill: We are in 13 markets. First of all, we think about the world in terms of markets, right? So health care is local – local meetings at the market level, right? And so we think about that first. We are in 13 markets, or MSAs, with exclusive health care system partners. So we’ll start with that layer that’s growing rapidly. The current number of centers is 19 across the portfolio. We expect that to grow in the coming years.
How would you define the Compass mission and business strategy?
Let’s start with the baseline: Important, complex clinical work happens in our centers every day.
We are doing surgery — people are unconscious, they’re cut open in pursuit of a better life. I just want to start by saying we’re a mission-driven company. Our purpose comes up in all sorts of ways every day, improving the lives of patients and providers. So, I’m going to start with that.
That’s our mission mandate. Our business mandate is creating high-performing partnerships. All ASCs are effectively partnerships between health care systems, third parties like us, best-in-class managers, and surgeons. With high-performing partnerships, the No. 1 expense inside Compass is people. The No. 1 expense line in surgery centers is people.
Could you tell me about any potential future partnerships that you’re developing and in which markets those might be?
We are an East Coast-based company that is marching towards the West. We are announcing new partnerships over the next couple of weeks. The next state where we’re rolling out with multiple projects is Texas. We expect that trend to continue going forward.
I would say this: There are markets with more or less favorable demographics in terms of population growth or decline, etc. One of the most important elements for us is, do we have a fantastic partner at the health care system level? If we do, we can help them unlock the real underlying potential in outpatient surgery, and in the areas that aren’t as readily apparent to them in terms of the true market size and opportunity. That’s the first determinant for us, and then all the underlying surgery center partnerships flow from the strength of that.
What is your selection criteria for ASC partners?
At the system level, there is a trust-based element on both sides. One way to think about that is, do they see the fullness of the need and opportunity? That creates business alignment.
And then underneath that, do they have other trust-based joint venture partnerships that have succeeded? And if they don’t, are they willing to go on that journey to create a high-performing, trust-based partnership? If either of those are true, we can move forward into the conversation. If either of those aren’t true, it will show up in all sorts of business and operational ways.
But the key to a successful partnership is based on trust, which is built on shared vision alignment, no surprises, and helping each other when issues arise, rather than pointing fingers. These elements often come out during the courting process.
When we enter a market, we are looking to help our system partners capture the fullness of the market. The last thing we want to do is sign up and then sub-optimize at the surgery center level. From the surgeon perspective, it’s similar but from a different lens. It’s about whether we are all in this together, leveraging our strengths for the common benefit. If the surgeons want to run the table, we will be a bad partner. If a corporation tries to run the table, it won’t work.
We look for a true partnership where we can bring best-in-class information, approaches and processes to the table, and then work with the local contingent — whether at the surgeon level or the hospital level — to reflect the actual needs of the local community.
Each community has different dynamics in terms of competitors, market shifts, service lines, strengths and weaknesses, assets in play, etc. Our job is to take our expertise and apply it thoughtfully at the ASC level, or the system and market level.
Could you discuss some of the factors that you think are influential to the growth of the ASC Market?
During COVID, all elective cases basically moved out of the hospital, including big cases like joints and spine. At that moment, the collective health care system, if you will, woke up and said, “We can do cases very safely at an attractive price point with high efficiency and quality in the outpatient setting.”
This accelerated the outpatient migration trend. COVID accelerated the response to it and awareness of it, which, in turn, accelerated the outpatient migration trend. That’s what we’re seeing today — this market shift or heightened awareness, and interest in participating in the outpatient space, particularly ASCs.
Beneath that, there are several other factors. Medicare has moved procedures off the hospital-only list and onto the ASC-approved list, allowing joints, shoulders, etc., to shift to outpatient settings. We’re seeing governmental approval for these case types to be done outpatient.
Anesthesia has progressed to the point where big surgeries can happen on a same-day basis. Additionally, technology in the OR has also advanced significantly, allowing us to do bigger cases with more precision.
You mentioned ASCs you’ve worked with in development recently or projects on the horizon. Is there any type of care you see a lot of potential for in the ASC setting that is on your radar?
I’ll name three by specialty type and then discuss facility types.
By specialty, there’s still a tremendous amount of room for total joint migration, particularly hips and knees. That migration is still happening en masse, so there’s a lot of opportunity there. Another example is spine. Outpatient spine surgery has been discussed for 20 to 25 years, and there’s still a large migration that will happen with spine cases going forward. Thirdly, I’ll point out cardiovascular, which is the more recent of these three complex specialties moving outpatient.
Just this morning, our chief people officer, Darcy Smith, and I were on a call where we approved a cardiovascular project, which we’ll publicly announce in the coming weeks and months. We expect that to continue evolving. The category here is complex cases, which are in an accelerated migration phase overall.
If you go back 20 to 30 years, eyes and GI procedures, etc., have been transitioning to outpatient settings for quite some time. With our hospital partners, there’s an opportunity to help them align with these specialties in an ASC setting. While migrations are happening with complex cases, there’s also a significant opportunity with eyes and GI procedural types.
In terms of facility types, we often see opportunities to turn around underperforming or breakeven centers. We have a number of those projects going, and we’re also seeing an opportunity in our three or four open hospital conversions going on with partners, where they’re converting an existing asset from a hospital license to an ASC partnership.
We’re seeing that shift play out as well.
What’s your strategy for working with a breakeven facility?
My joke would be that if you’ve seen one troubled center, you’ve seen one troubled center. They all tend to have some different element causing the challenge. The No. 1 issue is that there always has to be enough revenue or cases for the center to be stable, and that has to be true in every case. Often, that’s a piece of the puzzle.
Underneath that, salaries and supplies are the top two drivers of expenses inside surgery centers, and getting alignment and tightening those two up are critical. Here’s the real answer, though. What I just told you, most people in the surgery center space could cite – or they’d say something close to it. The real answer isn’t knowing what to do. The real answer in our partnerships is creating the alignment and trust at the partnership level to get the changes done.
With underperforming centers, people almost always know what to do — they struggle with how to do it. In our company, we talk about how knowing the right answer is only half of what you need to be successful. The other half is executing it at the partnership level to get it implemented. That is the beauty and challenge of working in partnerships.
