How PE firms and health systems are investing in ASCs

During a panel discussion Oct. 26 at Becker's ASC Review 24th Annual Conference: The Business and Operations of ASCs, held in Chicago, three panelists discussed trends affecting hospital-ASC relations moving into 2018.

Panelists included:

  • Chandler Shirer, administrator of FranciscanSurgeryCenter in Indianapolis
  • Nader Samii, CEO of National Medical Billing Services
  • Sandra Jones, founder of Ambulatory Strategies Inc.
  • Moderated by Lauren Ramos, associate at McGuireWoods LLP

Hospital interest in outpatient centers

Panelists discussed hospitals' ongoing interest in the ambulatory market. However, unlike in previous years, hospital systems are increasingly buying into ASCs rather than acquiring them.

"Hospitals need to decompress their [operating rooms] for trauma cases or more complicated procedures, so they need to move any procedures that can be done outpatient to ASCs," Ms. Jones said. In terms of procedures performed in hospital outpatient departments versus ASCs, "hospitals are currently getting double the reimbursement ASCs get for the same services — but if CMS makes reimbursement site-neutral, I think you will see a major shift in cases [from inpatient to outpatient]."

Mr. Samii agreed that many hospitals and health systems have made growing their outpatient footprint a key part of their business strategy.

"A lot of health systems are looking at the bigger picture and how they can free up capacity in the OR by having those strategic discussions with ASCs in their area," Mr. Samii said. "I sense there will be a shift in what hospitals look like down the line. I think we will move to a more decentralized approach … that is much less capital-intensive and more profitable in a different environment." 

Private equity firms versus hospitals and health systems

The discussion touched on how hospitals' and private equity firms' market behaviors have differed in the ambulatory space.

"Private equity firms are more aggressive in the market than health systems; they've got different strategies and a different approach to M&A," Mr. Samii said. "They want to put together organizations they can grow at 30 percent a year or greater. With that comes greater challenges, but also significant financial upside. As a result, it’s important for owners of ASCs to understand their own goals and objectives and determine whether the ideal situation for them is to partner with a health system, with a private equity firm, or to remain independent. Each of these options are different, but viable in today’s environment."

Ms. Jones pointed out both health systems and PE firms can be valuable business partners for different reasons.

"Hospitals can really help with managed care contracting," she said. "I think that's a big factor. I see hospitals that act as partners and want to be involved and do what's best for the surgery center. But if you want to be a platform organization and you have a goal of acquiring other practices, then a PE partner is going to help you do that."  

Finding the right business partner — whether it's a PE firm, health system, management company or physician group — is key to ASCs' success moving forward. To ensure organizations establish valuable, lucrative partnerships, Mr. Shirer recommended ASC leaders first develop long-term strategic goals for their organization before they consider involving outside investment or business partners.

"In picking a partner to joint venture with, ASCs should evaluate their needs and then make sure they align properly with the party they choose," Mr. Shirer said. "It's not about the dollars and cents you get today, but building those structures that have potential ... to bring in millions [of dollars] down the line." 

More articles on ASC transactions and valuations: 

New York State DOH approves CON for joint venture ASC: 5 things to know
After Envision Healthcare hits 52-week low, investment analysts sour — 5 insights
Work progressing on $25M building housing Athens-Limestone Hospital Surgery Center — 4 insights

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