Will There Be Enough Physician-Investors in ASCs in the Future?

At a time when some physician-owners of surgery centers are entering hospital employment or contemplate retirement, there may not be enough physician-investors to take their place, some officials at ASC management companies say.

 

 

Physicians dropping ownership stakes

Brent W. Lambert, MD, founder and CEO of Ambulatory Surgical Centers of America, says baby boomers nearing retirement may lead to a considerable sell-off of shares in surgery centers. "These physicians face a very hostile workplace out there," Dr. Lambert says. "We have some places where the Medicare contractor isn't paying its bills on time. Obamacare creates so much uncertainty, surgical volumes are down and malpractice insurance costs are rising."

 

However, Goran Dragolovic, senior vice president at Surgical Care Affiliates, has not seen a big wave of physician retirements yet. "We have not noticed an unusual uptick in the retirement of baby boomer physicians," Mr. Dragolovic says. "The recent economic events are forcing many to delay their original retirement plans and continue their practice well into their 60s."

 

A more significant trend right now, Mr. Dragolovic says, is physicians opting for hospital employment, which usually means they cannot use the surgery center any more. "We are seeing the physician pool shrinking more as a result of hospital employment than retirement," he says. "In such instances the physicians are expected to move their activity away from the ASC and into the hospital and divest their ownership in the ASC."

 

Mr. Dragolovic says these cases can cause headaches for ASC owners who have to take action on physician divesture without much direction from their operating agreements. "While ASC operating agreements typically address death, disability or retirement of physicians, they may not have appropriate provisions on how to deal with partners who become employed," Mr. Dragolovic says. "These ambiguities can pose divestiture challenges for the partnership."

 

Who will take exiting investors' place?

As some physicians drop their ownership stake, "ASCs across the country are wrestling with this issue," Mr. Dragolovic says. "In certain markets, there is a shrinking the pool of potential new partners for ASCs."

 

For example, there are not as many young physicians available to buy shares, because this generation is caught up in the trend toward hospital employment. "Many of the younger physicians coming out of fellowships and residencies are pursuing the employment model and going to work for hospitals," Mr. Dragolovic says.

 

Dr. Lambert, however, still expects some interest among younger physicians who have not sought employment. He says they would need to invest $50,000-$100,000 in the center, which can be hard to scrape together, what with hefty medical school debts and little savings accrued yet. But Dr. Lambert says young physicians could quickly amass the funds in a few years. "How long it takes to accumulate the necessary funds depends on what your lifestyle is," he says. "If you are frugal, you could accumulate that much money in a year."

 

Dr. Lambert adds that shares in the ASC might also be sold to hospitals, management companies and surgeons who have become disillusioned with hospital employment. Mr. Dragolovic agrees that some employed physicians will grapple with issues such as the possibility of reduced payments by hospitals and come running back to ASCs. "Will hospital-employed physicians be as productive as they were on their own?" he asks. "Will the hospital be able to maintain the current payment levels to their physicians over a longer time horizon?"

 

Dearth of de novo ASCs provides new source of investors

Despite the possibility that problems with hospital employment may drive physicians back to the ASC, it would take several years for disillusioned employed physicians to break their multi-year hospital contracts and return to private practice. Meanwhile, Mr. Dragolovic has identified another source of new ASC investors: physicians who would have built new centers if the times were different. With fewer unaffiliated physicians to partner with and more difficulty getting financing in some markets, these physicians are now more likely to join existing centers than build new ones, he says.

 

"We are seeing diminished interest on the part of unaffiliated physicians without ASC ownership to build their own ASCs," Mr. Dragolovic says. "As a result, we are still able to identify independent physicians in a number of markets who can be syndicated into existing facilities." However, Mr. Dragolovic concedes there are not enough busy unaffiliated physicians to fill all the vacated spots on ASC boards. Without new investors coming on board, some struggling ASCs may be forced to close their doors, he says.

 

 

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