Three-way joint ventures, uniting a health system, a private equity or MSO partner, and physician investors, have become the dominant deal structure for ASCs, according to a Sept. 15 client alert from Holt Law founder David Holt.
Here are 10 things to know.
1. The traditional split between surgeon-owned ASCs and health systems defending hospital outpatient volume has collapsed, per the alert, as CMS eliminated the Inpatient Only list, expanded the ASC Covered Procedures List and payers tightened site-of-care rules.
2. Equity typically splits one of two ways. A “balanced” structure gives the health system and physician investors 40% each and the PE/MSO partner 20%; a “health system majority” structure gives the system 51% and splits the remaining 49% between physicians and the management partner.
3. Governance runs through a Board of Managers, often seven seats, with day-to-day decisions delegated to the management company and major actions — debt, mergers, new physician partners, payer strategy changes — requiring a supermajority vote of 75% to 85%.
4. Anti-Kickback Statute exposure is the central legal risk. Because both the health system and physician investors can refer patients to the ASC, profit distributions can be reclassified as illegal kickbacks unless the deal fits the Hospital-Physician ASC Safe Harbor.
5. That safe harbor has eight non-negotiable elements, per Holt Law, including no referral-contingent equity access, proportional (not referral-based) profit distributions, no subsidized physician financing and mandatory written patient ownership disclosures before scheduling.
6. Payer contracts can route through the JV three ways: at a percentage of the health system’s hospital outpatient department fee schedule, through direct inclusion in the system’s network agreements, or via bundled, value-based pricing for full surgical episodes.
7. Antitrust risk rises when a health system holds a minority stake. If a system with, say, 20% to 30% equity jointly negotiates payer rates alongside physician investors, Holt Law warns that can be treated as horizontal price-fixing under the Sherman Act absent single-entity integration or an independent messenger model.
8. Three-way platforms command 11x to 14x EBITDA or higher at recapitalization, versus 6x to 8x for independent, physician-owned centers, according to the alert, which Holt Law attributes to the model’s payer, referral and regulatory protection.
9. Management fees draw due-diligence scrutiny. Fees paid to the PE/MSO partner must reflect fair market value for services rendered; Quality of Earnings reviews mark down inflated, non-FMV fees, which directly cuts platform EBITDA.
10. Holt Law’s closing checklist includes independent FMV appraisals for all equity contributions, supermajority governance protections, annual safe-harbor compliance audits, FMV-backed management fee studies, and retaining dedicated healthcare M&A counsel before signing definitive agreements.
At the Becker’s 32nd Annual Meeting: The Business and Operations of ASCs, taking place October 29-31 in Chicago, ASC leaders, surgeons and healthcare executives will explore strategies to drive growth, enhance operational performance, navigate reimbursement challenges and prepare for the future of ambulatory surgery. Apply for complimentary registration now.
