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Nashville-based SurgNet Health Partners is looking to expand, especially in underserved markets where there’s a need for ambulatory surgery centers (ASCs).

Those markets will be critical as part of company’s growth and mission.

“We want to be in the states that are underserved,” co-founder and CEO Chase Neal told ASC News. “That’s really our focus, and where we’re seeing deal activity is more in the Midwest, and the Upper East and the Southeast quadrants right now.”

SurgNet Health Partners operates and manages three ambulatory surgery centers (ASCs) in Michigan, Ohio and Alabama. The company has been expanding its footprint since its founding, with a focus on both acquiring existing facilities and developing new ones, most recently acquiring the Tuscaloosa Endoscopy Center in Alabama.

ASC News connected with Neal and John Brock, co-founder, president and COO, to discuss the company’s recent acquisition, expansion plans, and the strategic importance of physician alignment and market penetration in underserved regions.

ASC News: What are some major updates on SurgNet?

Brock: Aug. 9 was the one-year anniversary of our initial funding and the acquisition of our first center. Since that time, we’ve acquired our third center, which, obviously, you’re aware of – the Tuscaloosa center.

Our first two were in Warren, Ohio, and Dearborn, Michigan. We feel like our trajectory in terms of growth is good, certainly in the first 12 months. But there are some real interesting things in our pipeline that we hope we could possibly add – a couple more centers, minimum – by the end of 2024.

Highlights include the addition of another center, a very robust pipeline leading to several really nice opportunities, and just positive performance by the centers we’ve gotten involved with.

Neal: We’re continuing to grow our footprint in the Southeast as well as the Northeast, and we would really like to start establishing a presence in the Midwest. Our deal flow is taking us in those directions. So that’s where we see the most opportunity.

When you look at a center for acquisition, what are some critical things that must align?

Neal: I think physician alignment is among the first things that we look for.

Beyond that, it is helping us accomplish the goals of our partners. And that’s something that differentiates us, that we feel very strongly about; we want to tackle the issues that our partners experience, whether that’s organizational around growth, and then also helping them grow by way of position, syndication and partnering. We tackle things operationally, basically problem solving and really anything to help our partners accomplish their goals for their center.

Brock: The prototypical type of center we look for is generally wholly physician owned – owned solely by physicians that are wanting to bring in both an equity and a management partner, either at a minority or a majority position. These are centers that maybe these physicians feel that they have taken the center as far as they can, and they’d like to have the additional expertise that we bring to the table, whether it’s operations, whether it’s payer contracting, whether it’s physician recruitment.

Are there any significant barriers to growth?

Neal: Yes, physicians being employed by hospitals is something new to the health care dynamic, at least in the ASC-hospital joint venture space over the past 10 years. The most straightforward way to put it is that there are fewer physicians to recruit into ASC joint ventures than there have been in the past, as a result of physician employment by hospitals, which stifles our growth.

Barriers to entry also stifle growth. We’re not trying to stand on a soapbox or project anything, but we’re just pointing out that these are issues we struggle with from a growth standpoint.

Contracting is another issue. I probably should have led with this: contracting and payers being willing and open to negotiating with surgery centers, which would help lower their cost of care. Getting in front of those decision-makers is important. Those are the primary obstacles we face in terms of growth, beyond just your typical marketing, advertising and services challenges.

How do you see the ASC market evolving over the next five years?

Brock: I think a lot of that goes back to CMS and the other payers trying to push cases out of the inpatient setting to an outpatient setting, because it’s more cost effective for them. I think, ultimately, as a result, it’s going to be more cost effective for the patient.

You’re seeing total joints. You can get a knee replacement at a surgery center now, or a hip replacement, and that hasn’t been going on for that long. So those are pretty significant procedures that you have always kind of viewed as inpatient-type procedures, and they are now moving into an outpatient setting.

So from my perspective, I think you’re going to see continued growth. I think that’s part of the reason the experts say that it’s going to become a $60 billion industry in the next four years. We feel like we’ve entered this industry at the right time, that there’s potential for growth, that doctors are looking for partners. It feels like the stars have lined up pretty well for us on this.

Chase, Did you have anything to add to what John said?

Neal: Our thesis and the reason that we started this business was to help accommodate the growth that we’re experiencing coming from hospitals that need an outpatient [setting] for when there are lower-acuity cases. We want to affect change in our markets.

How do we help physicians take something off their plate so they can focus on finding balance in their life, while we focus on running their surgery center? We have a lot to bring to the table [in that sense]. [Physicians] have a lot that they need to do just outside of running their practice and taking care of patients, and we can be those partners. Oh, and by the way, we’re also really helping the overall cost of health care by driving it down. That’s just a very simplified practical explanation.

Before the end of 2024, are there any more key priorities for SurgNet that you’d like to execute on? Can you share some of them, perhaps?

Neal: Our goals for the rest of this calendar year are to continue making intelligent acquisitions while starting several de novo projects, and really to further figure out how we can help reduce cost of care in states where we’re going. With negotiating payer contracts, the reality is that we’re trying to figure out how we can help payers in markets that we want to reduce the cost of care. I think that’s probably the feather that we’re trying to put in our cap. But time will tell.

*Editor’s note (Sept. 3, 2024): An earlier version of this story incorrectly listed the states in which SurgNet operates. The earlier version of this story also incorrectly said SurgNet operates and manages 14 ASCs.