Underwriting an ASC Investment Opportunity

The following is written by Vivek Taparia, director of business development for Regent Surgical Health.


Less than a year ago, I went through the first-time home buyer purchasing experience. As is probably the case for many first-time home buyers, my wife and I had very different ideas of where we wanted to live, the type of home we wanted and the length of time we were planning to stay. Since we took almost a year to make our purchase, we slowly educated ourselves on key criteria we should consider including proximity to public transportation and highways, school districts, levels of crime, commuting distance and property tax rates. Interestingly, as we went about purchasing a home, it occurred to me that, in essence, we had underwritten an investment opportunity, which is an activity we perform at Regent on a weekly basis. Similar to purchasing a home, evaluating where to launch or acquire an ambulatory surgery center requires evaluation of numerous factors both macro and market-specific.


Macro factors

Population Base
Examining trends with respect to population growth and population age are critical when evaluating investing in an ASC. The U.S. population is projected to grow approximately 5 percent over the next five years. If population growth in a specific area exceeds the U.S. average, it is generally a positive indicator of the need for healthcare services and capacity. However, it is important to also understand the demographic composition of the population growth. Is the majority of the population growth in age brackets eligible for Medicare? If so, we'll have to consider the payor mix implications.

Payor Mix

Here is a breakdown of the payor mix of the U.S. population:

  • Commercial: 55.85 percent
  • Uninsured: 15.16 percent
  • Medicaid: 14.89 percent
  • Medicare: 14.10 percent

Generally speaking, the higher the percentage of commercial patients in a market, the more likely the ASC can succeed. While the payor mix at our facilities is highly diversified, it is critical that we treat enough commercial insurance patients to survive and sustainably offer patients the superior care available in the ASC setting.

Barrier to Entry
The concept of a Barrier to Entry refers to a competitors' ability to penetrate a given market. A classic barrier to entry in our industry manifests in the form of a certificate of need, which creates both advantages and disadvantages. If a state is a CON state, acquiring the CON of an existing facility can help us enter a market in a competitive position. However, a de novo opportunity in a CON state will often be challenging if we do not have the support of a hospital partner.

Market specific factors

Population per ASC
On a high level, there are 300 million people in the United States and 6,000 ASCs, which roughly brings us to 50,000 people per ASC. This ratio can vary as many parts of the rural United States do not have ASCs and a significant portion of ASCs are single specialty eye or plastic centers. Within a 30 mile catchment area, a ratio of at least 40,000 people per ASC indicates a market is likely not too saturated with ASCs. The average population per capita for Regent ASCs is around 60K. On the high end, Illinois Sports Medicine and Orthopedic Surgery Center in suburban Chicago has a ratio of around 80K and on the lower end the ratio of Cheyenne Surgical Center in Cheyenne, Wyoming is around 20K. Both are highly successful facilities in very different markets.

Insurance consolidation
Aside from payor mix, it is critical not to overlook the consolidation of insurance. Does one insurer control 90 percent of the commercial insurance market? In such circumstances, it is difficult for us to have negotiation leverage with payors.

Capacity in marketplace
Given that half of Regent ASCs have a hospital partner, it is crucial to understand the availability of hospital beds in a marketplace. In single hospital towns, in which bed capacity is not in surplus, our hospital partners tend to have the most negotiating ability with payors.

Employment base
Who are the top five employers in a given market? Are there any Microsofts, Caterpillars or Boeings? Typically, employers of such profiles help generate a stream of patients which can position a facility for sustained growth.

Physician availability
The presence of available physicians to recruit to a facility informs an investment decision. Generally, we ascertain such information when a Regent development executive puts "boots on the ground." Our research engines, however, do give us a feel for specialty physicians per capita.


As you can see, there are numerous criteria used to underwrite a market. No single criterion can motivate an investment decision. Rather, a collective review of the above will produce the insight needed to make an investment. Over the past 10 years, Regent has developed and managed over 24 ASCs. Each investment has given us new insights and acumen about underwriting our next opportunity. Similarly, when my family outgrows our current home, I'm hopeful we'll have much more defined criteria on our next purchase, and we won't take as long as we did the first time!


Learn more about Regent Surgical Health.

More Articles Featuring Regent Surgical Health:

9 Observations on the ASC Market

Our Most Successful Turnaround: Thoughts From Regent Surgical Health's Nap Gary

Why Did Standard & Poors Downgrade the United States? (and What It Says About Healthcare Reform)

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