Hospital partners, PE investors are fueling ASC activity — 3 insights from a healthcare M&A partner

Roger Strode, a partner and healthcare business lawyer with Foley & Lardner, has expertise in healthcare mergers, acquisitions, corporate restructurings and joint ventures, as well as industry regulation.

Mr. Strode told Becker's ASC Review why there's been a general rise in surgery center transactions.

Note: Responses were lightly edited for style.

Question: What are the key factors causing an uptick in transactions involving surgery centers?

Roger Strode: The move out of acute care hospital facilities and toward outpatient facilities is fueling ASC activity. ASCs continue to be the most cost-efficient and patient-friendly environments available. CMS continues to expand the list of covered ASC surgical procedures, with eight proposed procedures to add to the ASC list of covered surgical procedures in 2020. These new additions include total knee arthroplasty, a mosaicplasty procedure, as well as six coronary intervention procedures.

We are also seeing continued interest from hospitals in partnering with physicians in ASC deals, to recapture volume previously lost to physician-only ASC projects and/or to enhance relationships with local physicians. Finally, we see increasing ASC activity as private equity investors continue to acquire proceduralists such as ophthalmologists, gastroenterologists and orthopodiatrists.

Q: Do you expect to see this level of activity continue for ASCs in 2020 and beyond?

RS: I do expect to see activity continue at this level over the next couple of years. There are no signs of a slowdown in the shift toward outpatient facilities and private equity investment in the space. Hospitals and physicians want to continue to partner for those reasons and to leverage the bargaining power hospitals have with payers, which can enhance ASC revenue.

Q: What are hospitals' top priorities when investing in ASCs? What are ASCs' top priorities when taking on these kinds of investors?

RS: Many hospitals are looking for opportunities to increase their outpatient capabilities and develop facilities where lower-acuity procedures can be done, creating room for sicker, higher-acuity patients. Hospitals are seeking to partner with existing ASCs in an attempt to recapture volume that was lost when the ASCs were originally developed.

Maintaining or developing relationships with physicians is also a priority for many hospitals. With the co-investment, hospitals can "control" further development by their physician partners, and we continue to see that as a priority for investment. The priority for ASCs and their non-hospital investors is to pick a hospital partner that can add value to the ASC through "rate lift," and the ability to participate in ACOs and other hospital-centric population health management models.

Want to participate in future Becker's Q&As? Email Angie Stewart:

More articles on transaction and valuation:
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16 ASCs opened or announced in August
Froedtert & the Medical College of Wisconsin relocates surgery center as part of $53M investment — 5 details 

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