The issue dividing ASC owners

ASC growth and expansion can be an uphill battle for independent centers. A controversial trend makes it easier for some and harder for others.

Private equity isn't new to the ASC industry, but surgery centers are becoming an increasingly attractive investment for firms that see surgery centers as the winners of the movement toward high-quality, low-cost healthcare. ASC owners also see bigger opportunities by taking on private equity partners as a means for explosive growth, especially in ophthalmology, orthopedics and gastroenterology.

"There's going to be consolidation on the PE side, and I think there's going to be some winners and some losers on investments made in the PE space in general across healthcare," said Douglas Wisor, MD, CEO and president of National Spine & Pain Centers in Rockville, Md. "I think that will lead to some consolidation or a lot less overall healthcare investors than there are today."

The increased cost of running an ASC, regulatory burden and uncertainty amid the pandemic has more physician owners considering taking on the investment in exchange for losing some autonomy.

"Many gastroenterology practices are now left considering the pros and cons of a private equity acquisition," said Rami Abbass, MD, a gastroenterologist at University Hospitals in Mentor, Ohio. "An upfront acquisition payment must be weighed against the loss of autonomy and a potential longer-term, reduced professional income level. Some providers worry about medical decisions becoming more financially driven or changes in patient perceptions of the practice."

There were at least 13 private equity companies buying new centers and specialty practices from Jan. 1-24, and the deals will likely continue to heat up throughout the year. PE funding is a quick way to inject cash into the physician group and ASC, and then it can grow to acquire other groups.

"Over the last decade, we've seen an explosion of private equity investors in ASCs with mixed results," said Melissa Hermanson, RN, administrator of Ambulatory Care Center in Vineland, N.J. "Healthcare, especially the ASC model, is enticing for short-term investors whose primary motivation is profit. Private equity is attractive to facility owners, too, as they generally offer more than other potential partners. From a purely economic business standpoint, it seems like a win-win; however, there are many other considerations that need to be taken into account in healthcare — primarily, that patient safety and high-quality care should be at the forefront of every decision."

For some ASC owners who prefer to operate a small, independent business, the private equity boom is bad news.

"The biggest concern is loss of autonomy for the physician investors," said Caryn Fink, RN, director of ASC clinical operations at IU Health in Indianapolis. "The small independent groups won't have a chance to develop their own centers in bigger markets. Although, if they already have a facility, a private investor may pay top dollar."

The number of physicians employed by corporate entities, including private equity, increased 3 percent from 2020 to 2021 to 20 percent of all physicians, according to Avalere. In the last six months of 2020, as physician groups dealt with the height of the COVID-19 pandemic, 11,300 physicians became employed by corporate entities. The private equity investment for some offers a lifeline to stay in business and an alternative to hospital employment, but it stifles competition for others.

"Private equity investment is a double-edged sword," said Craig Gold, administrator of Virginia Center for Eye Surgery in Virginia Beach. "On one side, it can provide much-needed capital investment and financial stability into an ASC; on the other, it can create a profit-hungry bureaucracy, which can detract from the clinical autonomy, which comes from a traditional physician-owner model. The future of current private equity and venture capital investment trends will depend on which side is sharper."

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