Ambulatory surgery centers (ASCs) are a hot commodity. We're seeing an increase in the number of ASCs coming on the market and plenty of interest in high-performing — and sometimes underperforming — centers from the likes of hospitals and management/development companies, and to a lesser extent other ASCs/physicians and private equity (PE) firms. The latter is largely more interested in investing in companies with existing ASC portfolios or medical groups which own and operate one or more ASC. We're also seeing a growing number of PE firms going head-to-head with the large ASC strategic buyers and offering competitive alternatives to these heavyweight managing companies.
In some instances, an ASC doesn't even need to come on the market to generate acquisition interest. We're seeing strategic partners increasingly approaching ASCs to gauge and express interest in a transaction.
What are the factors currently pushing acquisitions in the ASC market? Based on my conversations with ASC owners we at VERTESS are currently representing, strategic buyers who have bid on ASCs I've represented, and industry experts at national and state conferences, the following are some of the most significant contributing factors.
Physician recruitment and retention
I hear this reason cited repeatedly in the ASC deals I'm working on. Many physicians will not commit to bringing procedures to and performing them at an ASC unless there is an opportunity to invest in the center and become an owner. This is an advantage a strategic partner can provide. Independent ASCs can easily lose surgeons to more lucrative buy-in opportunities with competing facilities or because the center lacks ownership share options, which can motivate physicians to "shop" centers in their patient market. A strategic partner can expand the investment opportunities available in an ASC and make those investment opportunities more appealing for reasons that we will cite further below.
Staff recruitment and retention
The biggest challenge facing most ASCs today is staff recruitment and retention, and this is another area where a strategic buyer can have a significant, positive impact on an independent ASC. Strategic companies often provide more incentives for staff to join and remain with an ASC. These incentives do not necessarily concern salary/pay, although they can. Strategic companies can generally offer better benefits because of their larger purchasing power and budget.
We saw just how much of a difference an ASC with a strategic partner can make during the early months of the COVID-19 pandemic. Smaller, independent ASCs were either forced to completely shut down or borrow money to remain open, with many centers experiencing staff shrinkage due to the loss of or significant declines in incomes. Centers with strategic partners were largely able to keep their staff more effectively because they continued to pay staff at least a reduced salary when they shut down or had reduced operations. These centers were also able to reopen and ramp back up operations quicker because of improved access to the likes of protective equipment and support developing revised policies and procedures.
Access — to capital, payer contracts, supply contracts, and more
A strategic partner can enhance the access of an ASC in many ways. There's access to capital needed to purchase new equipment and technology and undertake expansion/renovation. These can help an ASC add specialties and procedures as well as recruit and retain physicians.
There's access to more and/or better commercial payer contracts, which can increase profitability and the ability for the ASC to pursue growth opportunities quickly and more effectively.
There's access to supply contracts, which can help reduce the cost of supplies and equipment and make capital investments more affordable.
And there's access to other important products and services an ASC needs or may want, including health insurance for staff, insurance for the facility and its staff (e.g., general liability, workers' compensation, cybersecurity), outsourced revenue cycle management, and information technology.
Exit strategy
The ASC industry is now over 50 years old. We're seeing physicians who have been owning and working in ASCs for decades recognizing that they need an exit strategy, with more business-savvy physicians understanding that such a strategy should be executed earlier than later. Physicians can sell a portion of their ASC, earning them a nice payout and reducing their risk without giving up full ownership. These physicians can then financially benefit from new efficiencies, better contracts, the addition of services and surgeons, and other improvements brought in or accelerated by the strategic partner. The physicians can continue to earn a good living and ownership distributions while they wind down their careers down and then earn a final payout when they fully exit ownership.
Other factors
A few other factors helping motivate ASC owners to consider a sale include the following:
- Hospitals are recognizing the value — and in many cases need — to have one or more ASCs in their portfolio. This will help keep at least some of the surgical procedures migrating out of their inpatient operating rooms within the organization and help keep performing surgeons engaged. ASCs in a market where a hospital is expressing interest in adding surgery centers may want to consider partnering with the hospital rather than end up competing against a different facility acquired by the hospital or a new facility built by the hospital.
- Certificate of need (CON) laws are in the news, with several states considering and proceeding with reforming their laws. ASCs in these states are weighing whether it's worthwhile to take on a strategic partner and strengthen their position before CON reform enables much easier development of new outpatient surgical facilities.
- Commercial payers are increasingly exerting influence on where procedures are performed through changes to contracts and reimbursement. This is helping drive procedures out of inpatient operating rooms but also leading to some procedures leaving ASC operating and procedure rooms and going to surgical suites. ASCs feeling these pressures may recognize that this is a good time to take on a strategic partner who can help them navigate and effectively respond to these and other industry changes.
Always Be Thinking Acquisition
All private ASCs should build and develop their centers to be attractive to acquisition. This will help ensure that when ownership decides the time is right to take on a strategic partner, centers will be developed in such a way that they are more likely to attract multiple offers at higher multiple. Areas ASCs should focus on beyond some of those discussed above: integration, bringing on multiple physician partners, and a developing strong marketing footprint. These will demonstrate value to buyers as much as the ASC's profit and loss (P&L) statement.
If you own an ASC and are thinking it's time to sell your facility or if you're wondering what you can be doing to best position your center for a sale, I'd welcome the opportunity to speak with you and talk through your opportunities. You can contact me using my information below. If you're attending Munsch Hardt's Texas Health Care Transactions Conference on Thursday, September 21, let's meet up! I'll be serving on a panel on "Leading the Charge: Examination of Ancillary Providers + Opportunities for Integration." Feel free to approach me before or after the talk or email me to schedule a time to chat.
If you're interested in learning more about how to know when it is time to consider a strategic partner, I recently discussed this topic on the HST Pathways "This Week in Surgery Centers" podcast. You can find more details and access the episode on the HST website.