'Profit-hungry bureaucracy' or 'much-needed capital investment'? How PE will shift the ASC industry

Private equity firms were the buyer in 63 percent of second-quarter deals, according to a Bass Berry & Sims report published in JDSupra.

Eleven ASC leaders spoke with Becker's about how they think private equity will shift the ASC industry.

Note: These responses were edited lightly for clarity and brevity. 

Question: How do you predict private equity investment will affect the ASC industry?

Jason Sugar, MD. Washington Gastroenterology (Tacoma): Private equity firms will continue to have strong interest in ASCs, which are known to provide high-quality, affordable and efficient care. PE firms see the opportunity for growth as more procedures migrate from the hospital systems to ASCs. In gastroenterology, lowering the age to start colon cancer screening to age 45 will drive demand for ASC services, as well. For physicians, private equity investment can provide a variety of benefits, including capital for growth and expansion, as well as business expertise.  

Caryn Fink, RN, BSN, CASC. Director of ASC Clinical Operations at IU Health (Indianapolis): The biggest concern is loss of autonomy for the physician investors. The small independent groups won’t have a chance to develop their own centers in bigger markets. Although, if they already have a facility, a private investor may pay top dollar.

Robert Nelson. Executive Director of Island Eye Surgicenter (Westbury, N.Y.): Within the ophthalmology specialty, private equity investment has been well established over the past five-plus years. The impact on ASCs for the most part has been positive with regard to streamlining and improving business, accounting, HR and inventory management processes. Where PE is lacking is in their understanding, appreciation and support for the important regulatory, accreditation and clinical requirements essential to the success of ASCs. Their primary focus (understandably so) is to improve profitability to prepare the company for the next transaction. On the flip side, ASC management companies have a comprehensive understanding of ASC operations and the importance of maintaining strict compliance to the regulatory and accreditation standards.

Joe Peluso. Administrator at Aestique Surgery Center (Greensburg, Pa.): Independent ASCs could become the "sweet spot" for private equity groups to invest in technology, as independent, physician-owned ASCs will be challenged to invest in technology and state-of-the-art armamentarium to accommodate new and expanded procedures to continue to grow and retain patients.

Potential disadvantages of private equity groups ownership in ASCs are that physician owners currently stimulate innovation and progress with shared risk and reward. This leads to a high-quality clinical environment, convenience for patients and a better direct connection for patients to physician owners who have direct knowledge of the patient's clinical situation.

Aravind Sankar, MD. General Surgery Specialist at Westlake Hospital (West Lake Hills, Texas): We will continue to see strong interest from PE groups in the ASC space. The multiples will be lower, but increased demand for outpatient surgeries will continue to drive PE interest. As always, quality care, increasing numbers of ASC-approved cases and relative protection from COVID-19 downturns will be attractive to PE. 

Craig Gold, PsyD. Administrator of Virginia Center for Eye Surgery (Virginia Beach): Private equity investment is a double-edged sword. On one side, it can provide much-needed capital investment and financial stability into an ASC; on the other, it can create a profit-hungry bureaucracy, which can detract from the clinical autonomy, which comes from a traditional physician-owner model. The future of current private equity and venture capital investment trends will depend on which side is sharper.

Melinda Smith. Administrator of Advanced Surgery Center (Creve Coeur, Missouri): With the aging ophthalmic surgeon population, I believe private equity may play a large part in the future.

Kelly Rhineberger. Administrator of Bayfront Health's Florida Endoscopy & Surgery Center (Brooksville, Fla.): I feel that private equity investment is good for the ASC industry and will allow more capital to be purchased and expansions performed timely and when needed.

Melissa Hermanson, RN, CASC. Administrator of Ambulatory Care Center (Vineland, N.J.): Over the last decade, we've seen an explosion of private equity investors in ASCs with mixed results. Healthcare, and especially the ASC model, is enticing for short-term investors whose primary motivation is profit. Private equity is attractive to facility owners, too, as they generally offer more than other potential partners. From a purely economic business standpoint, it seems like a win/win; however, there are many other considerations that need to be taken into account in healthcare — primarily, that patient safety and high-quality care should be at the forefront of every decision.

Jamal Otula. COO of HRMD Management (Dallas, Texas): Private equity investment into ASCs is primarily driven by the specialty. Spine, orthopedics and vascular are typically the hottest targets. They face competition from hospital systems who are also acquiring or building ASCs to leverage their hospital contracts and grow their footprint.

Curtis Collins. COO of Palmetto Surgery Center (Columbia, S.C.): I am not sure about other ASCs in South Carolina, but our center will continue to operate independently with decisions being made by our owners and the five-member-appointed board members. We are actually experiencing growth in ophthalmology and otolaryngology and are forging ahead for max utilization while delivering the impeccable and impressive to our patients. 

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