Exclusive: Investor Interest in ASCs Builds as Hospitals Expand Service Offerings and Approved Procedures Diversify

By Nate Birt

The rise of ambulatory surgery centers (ASCs) continues apace, and experts expect growth will continue. Factors driving the trend include health care companies deepening their portfolios, increases in federally approved surgeries and an aging U.S. population.

Since the first facility opened Feb. 12, 1970, the ecosystem of such standalone surgery facilities has expanded to more than 5,800 locations providing 30 million procedures annually. That’s according to the Ambulatory Surgery Center Association. Some of the most popular specialties they provide include orthopedics, pain management, ophthalmology and endoscopy—all of which are available at roughly one-third of such facilities, according to 2022 Centers for Medicare and Medicaid Services (CMS) data the association references.

“As technology, surgical techniques and team management techniques have improved and developed, the range of procedures and surgeries that can be done in an ambulatory surgery setting has grown,” says Aaron Murski, managing director at VMG Health. He’s worked with the organization 18 years and specializes in health care business and securities valuation, intellectual property and licensing transactions, including ASCs. “The total available market continues to grow and mature and evolve.”

ASC guidelines for prospective investors

That environment makes ASCs attractive to finance professionals looking to expand their health care portfolio. Murski recommends they focus on several factors.

  • Understand how ASCs and hospitals compare and differ. An ASC is a different type of investment than a hospital. Although some health care systems close hospitals and open ASCs instead, in most cases hospitals expand to add ASCs in a way that’s complementary to other facilities, Murski says. Both add value to patients. “The hospital environment is seeing generally a range of patient types and a range of surgery length types,” he explains. Because there’s usually more breadth of types of cases and complexity of patients, there’s less potential throughput.” By contrast, ASCs often have capacity to handle more patients and release them within a 24-hour period, a process commonly called the 23-hour stay. “ASCs can run, depending on the specialty, five to seven cases per day, and procedure rooms much more than that. Those are rough generalizations,” Murski says. “If you do pain management injections, you can do quite a few procedures in a day, ophthalmology and GI procedures, too. Whereas if you have a total joint program at an ASC, you would expect longer cases and fewer.”

  • Study local competition and regulations. ASCs can thrive in both rural and urban areas. Cities tend to be more competitive because of the options available to patients. Investors should be aware that each state has its own payer dynamics. They should also research whether targeted states require a certificate of need, a regulatory process in which agencies requires extensive paperwork and review before authorizing a new ASC to proceed. In those cases, approval times can range from six months up to 18 months. On the flip side, approved ASCs in certificate-of-need states effectively are “insulated from additional competition, whereas in some states, there isn’t a barrier and capital is not a barrier,” Murski says. In the latter cases, the priority for investors should be to determine whether they have access to the right doctors to staff the surgery center.

  • Form quality partnerships. Up to 70% of ASCs are freestanding, independent companies, so “there’s still a lot of room to consolidate,” Murski observes. ASCs can also be operated by management companies and not-for-profit health systems and hospitals. “As surgery center mergers and acquisitions continue to occur, those surgery businesses end up being joint ventures, and the quality of the joint venture partnership matters to sustainability.” Make sure all parties—health care system leaders, investors and ASC facility operators—remain in close communication. This enables stakeholders to know what’s happening on the ground and to be aligned to deliver on the value and efficiency an ASC promises. In the case of private equity investment, a strong ASC partnership might include a management services organization (MSO), which enables doctors and surgeons to maintain financial interest in the practice and grow their platform, Murski points out.

An ASC success story from the field

Illinois-based SCA Health knows a thing or two about operating ASCs. The company serves as a manager and partner to more than 320 surgery centers, most of them multi-specialty, across 39 states.

The next couple of years will be a period of growth for the organization, in keeping with ASC trends nationally.

“We continue to make significant investments in clinical quality and oversight to ensure that growing demand for ambulatory surgical care continues to result in high-quality outcomes,” explains Daniel Riggs, group president of operations. “We continue to make significant investments in our M&A team to expand SCA’s partnership footprint, including emerging service lines like interventional cardiology. We continue to seek out new partners and new procedures for our existing facilities.”

The company also is focused on its strategic service lines. These include total joint replacement, interventional spine procedures and cardiovascular procedures. “With over 40 health system partners nationwide, SCA Health has significant experience in joint venturing with local hospitals to better position and deliver value to our physician partners,” Riggs says.

For investors with business interests in ASCs, he advises focusing on several factors SCA Health has found to be most effective.

“Success derives from partnering with the right physicians. We seek out high-quality providers who are aligned with and engaged in the success of the surgery center via ownership in the business,” Riggs says. “We make sure that we have an experienced, well-trained clinical staff at our facilities and support the administrative staff through our operations and management infrastructure. Finally, we focus on geographies where we can make the most impact, either via physician relationships, health system and health plan partnerships, and/or partnerships with sister companies within Optum.”

What to look for over the next 12 to 24 months

To evaluate market potential over the next two years, experts such as Murski will continue monitoring the number of approved outpatient procedures at ASCs as designated by CMS. Federal regulators expand the list as procedures are deemed safe and effective outside a hospital environment. “You should see … a decent single-digit percentage increase in total available markets simply by having procedures migrate to the outpatient setting,” Murski predicts.

Another key factor is that Medicare is a payer of between 40% and 60% of ASC procedures, he says. Medicare payments are likely to rise about 2% annually. Paired with a growing population of Baby Boomers age 65 and older, “you’ve got those tailwinds driving the industry,” Murski points out. The primary constraint health care organizations will face is expansion capacity. For example, if a company built a new surgery center five years ago, does it have room to expand the location as demand climbs? If the answer is yes, and the clinic has qualified staff and physicians for surgical procedures, opportunities should be numerous.

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