As of January 31, 1997, AmSurg was the manager and majority owner of four
physician specialty networks. Two of the network interests were acquired and two
network interests resulted from AmSurg's development efforts. AmSurg's ownership
interests in the networks are similar to those in its surgery centers in that
they are structured through limited partnerships or limited liability companies.
The limited partners of the partnerships and the physician members of the
limited liability companies are individual physicians who are generally
associated with an AmSurg surgery center in operation or under development. Both
AmSurg and the physician partners contribute capital to the partnership or
limited liability company.
In January 1996, as part of its network development strategy AmSurg
acquired a 70% ownership interest in the operations of Gastroenterology Group of
South Florida ("GGSF") in Miami, Florida, a gastroenterology and primary care
practice currently comprised of seven gastroenterologists and five primary care
physicians that provides gastroenterology physician and outpatient endoscopy
services under a contract with a large managed care payor which covers
approximately 120,000 lives. AmSurg and certain GGSF physicians have been
partners in a practice-based endoscopy center that provides outpatient endoscopy
services to this base of covered lives and to other patients. Using GGSF as a
base, AmSurg has expanded its gastroenterology physician network in south
Florida and expects to add additional surgery centers and covered lives as a
result of this expansion.
In January 1997, also as part of its network development strategy, AmSurg
acquired a 60% ownership interest in the operations of Miami Urological
Associates, a urology practice comprised of three urologists and seven
additional contract physicians in Miami, Florida, and a urology network which
contracts with two managed care payors to provide physician and certain
outpatient procedures for approximately 170,000 covered lives. AmSurg and Miami
Urological Associates have entered into a partnership to develop an ambulatory
surgery center for the urology practice. AmSurg expects to expand the acquired
urology network in south Florida and the number of covered lives it serves. In
addition, AmSurg has developed two ophthalmology/eye care networks located in
Knoxville, Tennessee and Montgomery, Alabama.
AmSurg's principal source of revenue is a facility fee charged for surgical
procedures performed in its surgery centers. This fee varies depending on the
procedure, but usually includes all charges for operating room usage, special
equipment usage, supplies, recovery room usage, nursing staff and medications.
Facility fees do not include the charges of the patient's surgeon,
anesthesiologist or other attending physicians, which are billed directly to
third-party payors by such physicians.
Practice-based ambulatory surgery centers such as those owned by AmSurg
depend upon third-party reimbursement programs, including governmental and
private insurance programs, to pay for facility services rendered to patients in
the centers. AmSurg's surgery centers derived approximately 36% of their net
revenues from governmental healthcare programs including Medicare and Medicaid
in 1996. The Medicare program presently pays ambulatory surgery centers in
accordance with a fee schedule which is prospectively determined. There may be
continuing legislative and regulatory initiatives to limit the rate of increase
in expenditures under the Medicare and Medicaid programs in an effort to curtail
or reduce the federal budget deficit. These limitations, if enacted, may
negatively impact AmSurg center revenues and operations.
In addition to payment from governmental programs, ambulatory surgery
centers derive a significant portion of their net revenues from private
healthcare reimbursement plans. These plans include both standard indemnity
insurance programs as well as managed care structures such as PPOs, HMOs and
other similar structures. The strengthening of managed care systems nationally
has resulted in substantial competition among providers of services, including
providers of surgery center services with greater financial resources and market
penetration than AmSurg, to contract with these systems. AmSurg believes that
all payors, both governmental and private, will continue their efforts over the
next several years to reduce healthcare costs and that their efforts will
generally result in a less stable market for healthcare services. While no
assurances can be given concerning the ultimate success of AmSurg's efforts to
contract with healthcare payors, AmSurg believes that AmSurg's position as a
low-cost alternative for certain surgical procedures should enable AmSurg
centers to compete effectively in the evolving healthcare marketplace.