Some ASC leaders say a center that hasn’t renegotiated a payer contract in a decade can be a quick win, at least for a buyer with hospital-sized leverage.
“I do like to acquire centers that haven’t negotiated their contracts in [10 years],” W. Mark Wainner, who leads ASC acquisitions and development at Franklin, Tenn.-based Community Health Systems, said during a panel at Becker’s Spine, Orthopedic and Pain Management-Driven ASC + The Future of Spine conference in June. “That’s immediate ROI.”
“Buy low, sell high,” added Rob Stahler, a principal at ECG Management Consultants.
Mr. Stahler, who previously held senior leadership roles at USPI, said large ASC management groups are signaling a shift away from de novo development, driven in part by construction costs.
“We are hearing a lot more from some of the larger ASC management groups that de novos are going to slow down,” he said. “Just construction costs alone, just to make an ASC from the ground up pencil out … We see more and more of, for lack of a better term, groups looking for struggling ASCs to acquire versus de novo.”
Mr. Wainner, a former president of the Ambulatory Surgery Center Association, put new construction at about $500 per square foot, with roughly three years from project start to positive cash flow. Licensing, Medicare certification and accreditation surveys add time.
A hospital-backed buyer also brings contracting power an independent center lacks, he said.
“We’re not talking about a $3 million contract. We’re talking about $100 million worth of business here,” Mr. Wainner said of negotiating on behalf of an acquired ASC.
Payers respond best when the buyer can show volume moving from a higher-cost setting to a lower-cost one, he said, and threats to sell the center to a hospital do not work because “payers don’t care.”
Ray Brown, CEO of Orlando, Fla.-based Lake Lucien Surgery Center, who is building a three-OR ASC in Florida, said he has looked at buying a couple of centers that “kind of were basket cases,” and asked where an attractive problem ends and a walk-away begins.
Experience in the state helps, Mr. Wainner said, along with knowing what payer contracts there could pay.
Mr. Wainner, who said he sees “a lot of ASCs” in his role, described what separates centers in trouble from those positioned well:
- Stale payer contracts. Centers that “haven’t renegotiated their contracts in 10 years” often see EBITDA earnings going down every year. “It’s not keeping pace with inflation,” he said.
- Weak operating agreements. Without strong noncompetes, “a physician who’s a high performer [can] just leave and go five miles down the road,” he said.
- Shares stuck with nonproducing physicians. Agreements need terminating events covering retirement, relocation or Medicare sanctions. If shares instead pass to heirs or trusts, “that’s a sure sign that your surgery center is going to fail one day,” he said.
- Partner fractures. When ownership drifts from volume, “certain physicians are like, ‘I’m doing more than you. I should have more ownership,’ and it starts to fracture the surgery center partnership,” he said.
- Unused capacity. Most centers would show about 60% utilization against true capacity because few operate nights or weekends, he said.
- Resistance to new revenue cycle technology. Administrative burden is “killing us,” Mr. Wainner said. “If you’re about to sell your center, get your ship in order before you do it.”
Not everyone has pulled back from building, and CHS itself has gone the other way with “quite a few de novos,” Mr. Wainner said. Changing certificate-of-need laws in some states and Medicare’s 2026 addition of cardiology codes have helped.
Health systems are also building ASC networks in-house to avoid handing “25, 30% of equity” to management companies, Mr. Stahler said.
Physician groups see hospital operators as aggressive buyers.
“Tenet, HCA, they’re buying up surgery centers left and right because they see the writing on the walls,” Robert Norton, MD, founding partner of Florida Spine Associates, said during a separate panel at the event. Physicians, he said, “have to band together to build our own ASCs to block out the hospital systems.”
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.
