With the U.S. stock market tanking in recent weeks, many investors' portfolios have taken a hit. But those with ownership shares in an ASC might not have much to worry about.
Becker's ASC Review spoke with 13 experts and ASC leaders on the value of ASC ownership as a portfolio piece. Below is a summary of their thoughts, followed by what they had to say in detail.
- Active control in the investment — owners can affect the returns
- Winds of change are blowing in a favorable direction for ASCs
- Strong ASCs give higher returns than a typical stock market portfolio
- More stable revenue flow versus highly market-responsive assets like stocks
- Rare combination of income and equity growth potential
- Near-immediate returns
- Less liquidity versus stocks
- Cost per share can be high for well-established ASCs
Note: Responses have been lightly edited for clarity and brevity.
What makes ASC ownership attractive as an investment option versus other options like stocks?
James Hays, MD. Ophthalmologist at Woolfson Eye Institute (Atlanta). I am a 16 percent owner in our surgery center. I have made just about a 25 percent return on my invested money each year for the last 11 years. I do have some, though minimal, control over profitability in our center. Although my voice is fairly small, it is louder than it would be with almost any other investment.
Susan Feigenbaum, PhD. Professor of Economics at the University of Missouri-St. Louis, Practice Administrator at Pepose Vision Institute (St. Louis). ASCs — especially those located in suburban areas — are great investments for a number of reasons. First, ASC reimbursement will continue to hold steady or increase marginally as payers continue to reap savings by shifting hospital outpatient cases to ASCs. Second, the aging population will contribute to ongoing growth in the volume of ASC procedures. Third, if transparency in hospital pricing proceeds as legislation demands, there will be an outflow of hospital outpatient cases to ASCs. These trends will combine to generate a more stable revenue flow than other investment vehicles such as stocks and residential real estate, which move with the business cycle (interest rates) and can be globally impacted.
John Brock, Director of Progressive Healthcare (Brentwood, Tenn.). If a center performs well, the return on investment is typically higher than what you see in the stock market. As an ASC investor, a physician can actively participate in the success of the center via utilization and governance. Surgery center investments are considered a long-term investment strategy. The stock market offers financial liquidity, whereas ASC ownership is less so.
Jack Jensen, MD. Surgeon at Athletic Orthopedics & Knee Center (Houston). Investing in an ASC is investing in yourself. Not only do you know more about the ASC investment than a public stock, you are an insider regarding the functioning of the ASC.
Earl Kilbride, MD. Surgeon at Austin (Texas) Orthopedic Institute. The track record of an existing, well-run, profitable ASC is much more like mutual funds than stocks. It is a nice blend of volume and reimbursement to minimize risk. We, as surgeons, have a hand in controlling our investment. Many surgeons do not know the cost of their implants or supplies. It's important to educate yourself on these costs to increase the net revenue of cases. Many surgeons have close relationships with their vendors, and that can create issues with the facility negotiating prices. It's crucial to pick a vendor that understands ASCs run on thinner margins, and that costs must be controlled.
Bo Neichoy, MD. Panhandle Weight Loss Center (Amarillo, Texas). ASC ownership brings a lot to the table. Current insurance reimbursement structures are geared to rewarding the facility side of medicine and have not been as kind to the professional side. As a private practice physician, you become aware of the value that you represent for the facility, but you do not realize that value in monetary terms. Some physicians run to employment by the facility in order to have a stake in that entity's financial reimbursement. However, that rarely represents what you bring to the facility.
ASC ownership (being that we are now blocked from owning hospitals or surgical hospitals) gives a physician an opportunity to fully realize their value (or at least a percentage). I think this differs from a traditional investment in a publicly traded stock because you know you can affect the bottom line of the company that you have invested in. You participate in the culture, and on some levels you realize what you mean for your community, which differs from owning a portion of Netflix or British Petroleum.
Melody Combs. Administrator at Northpointe Surgical Center (Tooele, Utah). The ownership in an ASC is an investment in people. Investors who choose to invest in our ASC take pride in what we provide.
Richard Nadjarian, MD. Pain Specialist at Medicus Pain and Spine (Bloomfield Hills, Mich.). For physicians, ASC ownership represents an investment option within their wheelhouse over which they have more control. Unlike stocks, which are susceptible to market swings, an ASC aligns with and is an extension of a physician’s practice. For the most part, the success and failure of an ASC is dependent more on the decisions of the physician owners and less on national events or market forces.
Bruce Maddern, MD. Pediatric Otolaryngologist at Simonsen & Maddern Pediatric ENT (Jacksonville, Fla.). While all investing has risk, ASC ownership is a much more direct venue for your hard-earned dollars, with much better control for physicians to invest in. It is up close and personal. You see the fruits of your own labor every day. When you build it, it really does come. You are rewarded for your own intellectual property and handiwork. We already give away so much to hospitals, insurers, big pharma and device companies — it's depressing.
We as physicians are discriminated against financially by not allowing us to collaborate on anything because of Stark and regulatory threats. ASCs remain a welcome haven in a sea of increasing regulation. Few investments have both income and equity potential. ASCs have both. Growth stocks have equity upside, no dividend. Blue chips have dividend potential but little upside equity. Don't even mention bonds. ASCs can also include real estate opportunities — ours did.
Cherokee Gonzalez, BSN, RN. Surveyor for AAAHC and Regional Director of ASCs at Florida Medical Clinic (Zephyrhills, Fla.). ASC ownership is not a passive activity. Physician owners have the ability to move the needle with the volume, case and payer mix that they contribute to the center. They can also help move the needle by conserving resources such as time and supplies. The impact of their efforts can be realized in a fairly short time frame.
Collin Hart. CEO and Managing Director at ERE Healthcare Real Estate Advisors (Costa Mesa, Calif.). By investing in their ASC operation, physicians can capture the facility portion of the reimbursement schedule, providing additional income for the work and investment they’ve put in. Unlike stocks or other more passive investments, with a successful practice, an ASC investment allows them to control and grow their income the harder they work. Try doing that with your Apple or Tesla stock.
Corporate ownership is highly prevalent in the ASC space. Think USPI, Amsurg, Surgery Partners, etc. These investors have identified a niche where they can add value by assuming management responsibilities within surgical operations. If they fulfill their role (administration, billing, recruiting, syndicating), they have the potential to generate a high return on investment for their shareholders. Once again, this is an active business versus a passive investment.
Private equity takes the same approach, just with a different capital stack — one that is more based on financial engineering with leverage. Still, their objective is the same: to capitalize on and share in the productivity of the surgeons performing cases in a center by taking on management responsibilities, which are generally not profitable uses of a physician's time. Private equity tends to be more aggressive, both in terms of pricing and aggregation because their time horizon for investment is shorter term (five to seven years) than a corporate operator (perpetual).
Babak Azizzadeh, MD. Founder and Director of The Facial Paralysis Institute (Beverly Hills, Calif.). I have ownership in an ASC that I've managed for about 17 years. We have over 50 partners, and we recently sold a percentage of it to Surgery Partners.
ASC investing has evolved over the last two decades. Ten years ago, returns on investments were very significant, and competition wasn't as high. Return on investment was significant, especially for ASC founders. As an investor, you're always looking at, 'What am I going to do with my capital? Is that capital safe? Do I have control over it?' From an investor standpoint, with ASCs those three things are positive answers.
ASC investments are fairly safe investments, especially if they're an up-and-running business with a track record. You have some involvement in the governance of the business, and the return on investment compared to similar risk assets is pretty good. For a surgeon or physician that can use the center, it's a great way to diversify your portfolio and allocate some capital into it.
John Peloza, MD. Surgeon at The Steadman Clinic (Vail, Colo.). An ASC investment is an important part of a physician's revenue stream. The two major strategies are to invest in an existing ASC or start an ASC de novo. There are pros and cons to each.
Investing in an existing ASC is easier, but the share price is usually more expensive. You are investing in an existing business. It includes real estate, a facility, equipment and staff. It has insurance and Medicare contracts. It also has existing physician partners. Fortunately, an existing ASC also has a financial history. You should get at least a 12-month financial history prior to signing any contract. You will also have a reasonable expectation of your return on investment. Once you invest in this opportunity, you will see return on your investment immediately from the quarter you invest. Overall, there are a lot of advantages; however, the cost per share is the biggest potential problem.
Starting a new ASC has more risk and costs. There is a possible additional real estate investment or cost if building a new ASC or buying an existing, possibly failing one. The real estate and ASC investments are usually two separate investments. New equipment must be purchased and staff must be hired. Insurance contracts must be obtained; otherwise, you may not be able to operate. It is highly likely that you will need a hospital or ASC company partner to get insurance contracts (50 percent-plus ownership). It is critical that the hospital or ASC partner must be strong in your market in order to ensure good insurance contracts. In addition, there is no financial history, only financial projections for your decision making. However, the price per share is usually much lower.
The ASC investment makes returns several ways. A successful ASC has a quarterly return on the medical side. It also increases value in time (share price higher when time to sell). Real estate value increases because the ASC is a good client that predictably pays rent with almost no chance of default. As a physician, you have the greatest control over both sides of the business.