July 10, 2024

Changes in ASC ownership: A look at the influencing factors

Editor's Note

As aging ambulatory surgery center (ASC) physician-owners retire, many ASCs are struggling with succession plans, Outpatient Surgery Magazine May 1 reports. Per the article, younger surgeons often lack the capital to establish freestanding ASCs, and with tight margins in the ASC market, a capital infusion is often needed.

Private equity [PE] groups, ASC management companies, and payors are stepping in to invest or buy ASCs. Hospitals and health systems are also forming joint ventures with physicians. Despite ASCs receiving about half the reimbursements hospitals get for the same procedures, hospitals are embracing the ASC model.

“It does not make financial sense for hospitals to develop ASCs,” Joan Dentler, MBA, founder of Avanza Healthcare Strategies, told the outlet. But some factors like high-deductible plans and lower infection risks are driving same-day surgeries out of hospitals. As ASCs proved safe and efficient, Centers for Medicare & Medicaid Services and payors demanded more value from hospitals.

Patty Shoults, MBA, BSN, RN, CNOR, CASC, executive director of ambulatory surgical services at AdventHealth, noted in the article that hospital outpatient departments (HOPDs) are “viable for patients with higher risk factors,” but the ASC joint venture model has a certain appeal. Converting HOPDs to ASCs can be tricky because the move involves relabeling, losing existing payor contracts, and starting afresh. A good alternative is physician partnerships, with Shoults saying that “health systems like hers prefer partnering with physicians on ASCs.”

Physicians are incentivized under the “safe harbors provision,” which allows them to have ownership in ASCs as an extension of their medical practice. To comply, a certain percentage of their practice's volume and income must come from the ASC. Additionally, noncompete clauses in these agreements prevent physicians from leaving to join or open competing ASCs nearby.

While AdventHealth avoids PE, Shoults acknowledged the expertise that ASC management companies bring. These companies often co-own or manage ASCs, providing business acumen that hospitals may lack. Private equity's interest in ASCs has surged recently. Daniel K. Zismer, PhD, of Associated Physician Partners explained to the outlet that PE firms see ASCs at crossroads, needing recapitalization or facing buyouts. Sometimes, high costs of building ASCs make private equity essential. Danielle E. Golino, Esq, partner at McDermott Will & Emery LLP  added that PE allocates capital to markets in need, fueling outpatient care expansion.”

Critics argue PE’s quick-buying model and high bankruptcy rates are concerns. Golino countered, “Even after the first [PE] fund exits the platform, the improvements that [PE] fund brought are not lost—those improvements stay with the platform.” Despite skepticism, PE’s influence in ASCs is set to grow, unless major legislative changes occur, concluded the article.

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