Image by Bruce from PixabayThe rise of private equity in ambulatory surgery centers (ASCs) has sparked intense discussion among industry leaders, as PE firms are increasingly investing in ASCs, largely due to the shift of complex procedures from hospitals to outpatient settings.
For operators who want to remain independent, and for those who have concerns about the impact of PE on the health care landscape, the future is full of questions.
“There’s good private equities and bad private equities, just like there’s good physicians and bad physicians, and good CEOs and bad CEOs,” Dana Jacoby, president and CEO of health care advisory group Vector Medical Group, said during a recent industry panel. “So you just have to be very discerning about what partnership you’re committed to right now in health care across all categories.”
Jacoby was joined on the panel by Nyleen Flores, administrator and COO of Georgia-based Lake Oconee Orthopedics, and Michael Graziano, administrator of Clifton Surgery Center, a multi-specialty ambulatory surgery center located in New Jersey.
While PE partnerships and management firms can often provide upfront cash, they often remove autonomy from physicians and leadership, Flores said. And promises of better payer contracts from a joint venture can fall through, leading to quadrupled expenses without increased reimbursement, she warned.
Flores spoke from experience.
“They come in with promises, saying, ‘Oh, we’ve got a large base with X, Y, Z payers, so if you join us, we can get you on our contract,’” she said. “Every single one did not come through. They pulled out, and they couldn’t deliver. So, my capital expenses quadrupled, my out-of-pocket monthly costs quadrupled, and my reimbursement stayed the same.”
Evaluating organizational readiness
It is important to evaluate organizational readiness before entering such partnerships, as the financial and operational changes can be significant, Jacoby said.
“I think it’s how you structure your contracts, it’s who your partner is, it’s how much of a seat at the table you have,” she said.
Graziano, whose center remains independent, said that the interest from PE is there, but his concern is about whether their goals align with his physicians.
“When you bring in a partner or anybody, the culture in your center is going to change,” he said. “Whether you’re an independent, family-based place where everybody’s really friendly and everything is in place, when a corporation or private equity firm comes in, they bring their own rules, regulations and expectations. That might shift the culture from focusing on doing everybody’s case and providing great patient care to feeling more pressure on the financial side.”
This pressure impacts not just the administrator or the director of nursing but also the staff, he added.
“Partnering with someone creates a big culture shift, and knowing who you’re getting into bed with is really the most important thing,” he said.
Still, partnering with PE could mean alleviating some administrative burdens, such as credentialing, payroll and billing.
Another consideration: Physicians graduating today are seeking employment rather than pursuing business ownership due to financial constraints, Flores said. As employees within groups, they rely more heavily on leadership to make financial decisions.
“All of that stuff requires a lot of work, a lot of follow-up, and a lot of follow-through, and has to be involved,” she said. “My medical director and I would sit down every day. We knew every doctor, every peer review, every case, every fallout, every mistake. If you don’t have that physician buy-in, and it’s not their baby, they’re just employees.”
Indeed, the percentage of doctors employed by hospitals, health systems, or private equity has increased from 59% pre-COVID to 78%, Jacoby said.
And while corporate practice of medicine laws in most states prohibit non-physician entities from dictating how doctors practice medicine, without sophistication in negotiating contracts upfront, physicians might face unexpected challenges, Jacoby said.
Physicians expecting a financial partner to simply capitalize their practice while allowing full autonomy may be disappointed.
“If you’re not at the table, and you think this is just going to be a partner that will capitalize your practice and suddenly let you do whatever you want financially – but not clinically – you’re going to be in for a reawakening, I think,” she said.
It is essential to thoughtfully consider the cultural alignment of these partnerships, Jacoby added.
“Most of the doctors that we know in the present day are probably going to be working for or with a large entity for the better part of the rest of their career,” she said.
Flores echoed those sentiments.
“If you’re going to have that model, then private equity is going to assist in just taking that kind of administrative burden off of the doctors, and doctors are just going to come in and do their cases,” Flores said.
Independent focus
Graziano said his group’s strategy focuses on controlling their entire revenue stream, spanning practice, anesthesia, surgery center, real estate, and ancillary services like physical therapy, to maximize value for a potential private equity acquisition.
Owning their anesthesia company eliminates the need to pay subsidiaries and ensures consistent staffing for procedures, even if reimbursement is sometimes lacking, he said. Their caseload is about 85–88% pain management, 10% orthopedics, and a small percentage of podiatry.
“Our pain management guys are all board-certified anesthesiologists,” he said. “They’re willing to take a hit when we don’t get paid, just to make sure we’re in control and that we’re always staffed for procedures.”
While anesthesia no longer generates the profits it once did, a mix of orthopedic cases and New Jersey’s personal injury cases still provides reasonable income, although not at previous levels, he added.
“Professional fees go hand in hand with ASC profits, we ensure that we’re always covered and always staffed,” he said. “The anesthesiology department doesn’t make as much as it used to, but our little mix of orthopedic cases and, in New Jersey, a lot of personal injury cases still pay for anesthesia. So they do okay.”
