As ambulatory surgery centers continue to spread across the country, several variables factor into their ability to expand.
Growth potential for ASCs depends on surgeons’ retirement schedules, scarcity of local operating rooms, and their array of offerings, health analysts and ASC operators told Healthcare Services Investment News.
Private-equity investments, acquisitions, and family investment firms have contributed to growth in ASCs, which perform surgeries that don’t require hospital admission – and often at lower cost with faster service than hospitals.
The number of Medicare-licensed ASCs in the U.S. doubled from about 3,100 in 2000 to over 6,000 in 2021, according to the most recent data available from healthcare advisory firm VMG Health.
Compared with other factors, the career stages among surgeons can make certain ASCs stand out as attractive targets for private-equity investment or acquisitions by other health companies, according to Joan Dentler, founder of Austin-based consulting firm Avanza Healthcare Strategies.
“It doesn’t make any sense for a private equity group to buy into a surgery center if all the surgeons want them to invest so that they can cash out and leave,” she said.
Densely populated areas that have hospitals with scarce operating rooms also drive the need for ASCs. The lack of operating rooms in New York City combined with high hospital healthcare costs, in part, spurred an investment from Manhattan fertility doctor and investor Jason Kofinas into Gramercy Healthcare. That funding is allowing Gramercy to develop Staten Island’s first ASC, adding to its existing locations in Manhattan and Queens, said Jeffrey Flynn, Gramercy’s chief operating officer.
Larger healthcare companies like Optum, for example, are entering the ASC field because of lower costs compared with hospitals, said Flynn, who is also the vice president of the New York State Association of Ambulatory Surgery Centers.
Value Proposition for Efficiency and Costs
ASCs generally provide care at lower costs and at a more hands-on level than hospitals, which helps drive higher patient volume and strong revenue streams, Flynn said.
In many cases, “what might have cost $75,000 in the hospital is going to cost you $20,000 If we take this route,” he said.
Two large healthcare companies hoping to drive efficiency and reduce treatment costs are Raleigh, N.C.-based ASC management company Compass Surgical Partners and Cincinnati-based Bon Secours Mercy Health (BSMH), which last month announced a partnership that will advance BSMH’s plans to enter the ASC space.
The companies on May 1 started the partnership, which will expand ASC care to BSMH’s seven-state footprint, which includes 1,200 sites of care, including 43 domestic hospitals, according to BSMH spokesperson Maureen Richmond.
Compass and BSMH broke ground on at least one surgical center before formally striking the deal, starting construction in December on an orthopedic, spine, and ear, nose, and throat ASC in Greenville, S.C., expected to open in 2024.
Compass and BSMH are working to develop ASCs in three ways: establishing new centers from the ground up, acquiring existing ASCs, and converting current hospital outpatient departments into freestanding surgery centers, Compass Surgical Partners President Sean Rambo said.
Compass hopes to add at least 30 new, reconstituted, and/or hospital-converted centers across five to seven states during the next several years, he said. Compass has managed about 250 ASCs spanning three different firms across about 35 states throughout the last 30 years, he added.
Rambo agreed with Dentler that the hallmarks of a well-run ASC revolve around the surgeons.
“At its core, it’s about a physician alignment strategy, bringing in the right partnership, structuring it the right way so that the surgeons kind of are part of it, they care for the patient,” Rambo said. “As it relates to Bon Secours Mercy [Health], are we creating a vehicle that pushes that outpatient surgical care further and further into the communities? And [ASCs] can do it more efficiently, we can do it less costly, and we believe we can do it more much more quickly.”
High-Interest Care Areas
Cardiology, orthopedic care, and women’s health are among the care areas generating high interest in the ASC space.
The Centers for Medicare and Medicaid Services moved a number of cardiology procedures off the inpatient-only list, a list of cases that the agency requires to be performed on an inpatient-only basis in order to receive reimbursement from those federal programs, according to HealthCare Appraisers, a company that provides healthcare valuation and advisory services.
“We’re seeing a number of future cardiology-related cases to be able to be done in a freestanding ambulatory surgery center setting,” said HealthCare Appraisers partner Nick Janiga.
The prospect of an increasing number of procedures like aortic valve replacement and electrophysiology ablations being done in ASCs has mobilized private-equity firms to look for potential opportunities to draw cardiologists from health systems into the ASC sphere, Janiga said.
There’s promising upside for private-equity investors. About 70% of cardiologists are employed by health systems, as opposed to other work arrangements such as owning a practice, according to a May HealthCare Appraisers blog post. That’s a high percentage compared with other care areas, as recent years saw a wave of health systems acquire independent cardiology practices, Janiga said.
In addition to cardiology, orthopedics continues to generate high activity in ASCs, as an increasing number of cases are being pushed to ASCs amid an aging population seeking joint replacements to stay active longer in life, Janiga said.
Orthopedics generates more revenue on average than any other ASC specialty, according to VMG Health data. Orthopedics surgeries produce about $3,791 per case, compared with the second highest-netting area, gynecology, which earns an average of $3,117 per case.
Janiga has noticed a focus from private-equity groups on health management companies looking to acquire orthopedic surgery centers.
Large, private-equity-backed physician practice management companies (PPMs) are expected to continue heavy investment in the orthopedic space, as HealthCare appraisers expects the number of orthopedic PPMs to increase 25% by the end of 2023, from 20 to 25, according to another May HealthCare Appraisers blog post.
Gynecology, particularly fertility treatment, also remains a high interest area for ASCs, as patients planning pregnancies later in life than in previous years and pregnancy rates are down, Janiga said.
Due Diligence on the Deal
Before ASCs enter into a private-equity agreement or acquisition, it’s important for them to vet the potential investor(s) or acquiring companies, said Joel Magerman, CEO of Bryant Park Capital, an investment bank that also provides strategic advisory services for several industries, including healthcare.
Companies should communicate with other ASCs that have undergone acquisitions and received private-equity investments before agreeing to any deal, he said.
Independent ASCs can also reach out to health consulting firms to learn more about the companies they do business with and negotiate deals on their behalf, Magerman said.
“This is why professional athletes have, effectively, agents. Someone else should push hard for the economic part of what you want,” he said. “An intermediary has the ability to push and ask for things that you may not be comfortable with.”
