The ambulatory surgery center (ASC) market has been experiencing significant growth, driven by evolving health care delivery models and the increasing need for cost-effective care.

In August, large industry players ChristianaCare and Atlas Healthcare Partners formed a joint venture to create a major network of ASCs across Delaware, Maryland, New Jersey and Pennsylvania. The partnership aims to develop over 10 ASCs in the next five years.  

And Nashville-based AMSURG, one of the largest ASC operators in the country, recently announced several new joint ventures across a range of specialties in California, Oregon and Nevada. 

Smaller operators, too, are expanding their outpatient capacities, buoyed by advancements in technology and more favorable regulations, particularly in areas of cardiovascular health and orthopedic practices. 

While the ASC market presents numerous growth opportunities, it is not without challenges. The rising costs of construction and the limited availability of skilled labor are significant hurdles for new developments.

Additionally, higher interest rates have made financing more expensive, which, in turn, can delay or even derail planned projects.

However, the long-term outlook remains positive, Sean Maynard, managing director and co-lead of Brown Gibbons Lang & Company’s (BGL) Healthcare Real Estate Team, told ASC News.  

“There’s a lot of patient-driven and clinician-driven issues that are really pushing this new development into a larger ambulatory footprint,” he said. “And we see that happening in a lot of different ways.”

Surge in new ASC development

One of the most notable trends in the ASC market is the surge in new facility development, Maynard said. This expansion is largely driven by large health systems that have traditionally focused on inpatient care within hospital settings.

But reimbursement remains challenging. 

“We have some increase in proposed [reimbursement] rates that is somewhat consistent with where inflation is currently, perhaps not fully covering the last couple of years,” Maynard said. “You would think that CMS and the payers generally would want to incentivize care to be provided in an ASC versus an inpatient setting or even a hospital-based outpatient setting.”

Looking ahead, reimbursement rates for ASCs will likely stay around the same level, at least in the near term, according to Maynard.

On a long-term basis, though, there is a financial incentive to move procedures away from the hospital setting, which bodes well for the ambulatory surgery center market.

“We were executing a transaction a couple of years ago for a physician practice that owned an ASC but also did a number of cases in-office,” Maynard said. “We had done the kind of rate comparison for a particular code – it was something like $9,000 to $10,000 to do it in an office, about $15,000 to $20,000 in an ASC, and almost $40,000 to do it in an outpatient setting in a hospital.” 

ASCs offer a more efficient, cost-effective, and patient-friendly environment for a variety of surgical procedures.

Health systems, recognizing these benefits, are not only acquiring existing ASCs but also partnering with corporate operators – the previously mentioned ones, plus SCA Health, United Surgical Partners International (USPI) and others – to manage and expand their ambulatory care strategies.

“What we’ll often see is that these systems will partner with SCA, USPI, or one of these large operators to really manage their ambulatory strategy because, frankly, they often don’t have that capability in-house,” Maynard said. “But they can acquire these facilities, and often, almost always, they need to have the selling physicians remain in the deal, so remain as owners of the operation.”

These partnerships often involve joint ventures where health systems retain a majority stake while ensuring that the selling physicians maintain a significant ownership interest, which helps align incentives and drives case volume to the ASCs, he added. 

Investment and acquisition dynamics

The investment landscape for ASCs is characterized by a mix of new development and acquisition of existing facilities. Private equity firms and real estate investment trusts (REITs) play a critical role in this space, often entering joint ventures with physicians and health systems to finance and develop new ASCs. 

“What they’ll do is come in and joint venture with, typically, independent physicians who have an interest in owning the real estate on a go-forward basis,” Maynard said. “It’s a great investment with a lot of economic upside. So they will joint venture with one of these funds that effectively serves as an investor and developer.”

These partnerships allow for the sharing of risks and rewards, with private equity providing the necessary capital and expertise to bring these projects to fruition.

“They will handle all of the financing that’s required in addition to just the equity they contribute, but they’ll also manage the development, including all the construction and everything that goes into that,” he said. 

The acquisition of existing ASCs remains a common strategy as well, especially in markets with high demand for outpatient surgical services. In these transactions, health systems or corporate partners acquire a majority stake in the ASC, leveraging their superior reimbursement rates to enhance profitability.

This structure not only benefits the acquiring entity but also provides selling physicians with a financial boost through improved reimbursement rates, often resulting in a significant return on their retained ownership interest.

“Now, [with a health system] instead of 50%, [reimbursement is] it’s 80% of what it was,” Maynard said. “So that 30% bump is really made up by the new reimbursement rates that are brought to the center by the health system.”

Regional hotspots and specialty growth

The development and expansion of ASCs are particularly concentrated in regions known as the “smile states,” which include the Mid-Atlantic, Southeast, South and California. 

These areas are attractive due to their growing 65+ population – a demographic that drives a significant portion of health care spending. Regions with robust population growth and a high concentration of seniors are particularly appealing for new ASC developments, Maynard said.

In terms of specialties, cardiology is emerging as a key driver of growth in the ASC market. As more complex procedures, such as certain cardiac interventions, become reimbursable in outpatient settings, there has been a notable shift of these services from hospitals to ASCs.

This migration is also facilitated by advancements in medical technology and changes in CMS reimbursement policies, which are making it financially viable to perform these procedures in ASC.

In recent years, CMS has shifted more complex procedures off of the inpatient-only procedure list. This trend has led physicians to leave hospital employment, return to private practice, and set up their own facilities, like cath labs, in ASCs.

“Now they can really capture those economics and, frankly, be free of the larger health systems,” he said. “Physicians can be fiercely independent, and system employment does not always run smoothly.”​​