Image by Tung Lam from PixabayThe future looks promising for ambulatory surgery centers (ASCs) as the health care industry’s focus on cost efficiencies shifts toward where surgical procedures are performed.
Surgeries with increasing complexity, once limited to hospitals, are now shifting to ASCs, indicating continued growth for the foreseeable future.
A recent Jefferies equity research report highlighted the structural tailwinds driving this transformation and projected 6% to 8% growth for the ASC sector through 2030.
The U.S. ASC industry was valued at about $45.5 billion in 2023 and has shown steady growth over the last few decades, surpassing inpatient hospitals and hospital outpatient departments (HOPDs), according to the report. Jefferies predicts the market will reach nearly $70 billion by the end of the decade.
This growth is driven by the ongoing shift of surgical cases from hospitals to outpatient settings, the aging population, payer initiatives to lower health care costs through more affordable care models and the addition of higher-acuity procedures to the ASC fee schedule.
Despite its growth, the ASC sector remains highly fragmented, with market share shaped by local factors and physician affiliations.
The largest operators include United Surgical Partners International, a subsidiary of Tenet Healthcare Corporation (NYSE: THC), which controls approximately 8.1% of the national market and benefits from favorable payer contracts nationwide. Other leading players are Surgical Care Affiliates, AMSURG, HCA Healthcare (NYSE: HCA) and Surgery Partners (Nasdaq: SGRY), a public company with an active acquisition pipeline.
These companies make up about a third of the U.S. ASC market. Most are owned independently by physicians or small partnerships.
Tailwinds
Site-neutral payments could be a significant advantage for the ASC industry, according to the report.
However, it would require Medicare to reimburse ASC-eligible procedures at the ASC fee schedule rate regardless of the care location. This change would eliminate the reimbursement gap between HOPD and ASC settings, making many procedures previously done in HOPDs unprofitable and prompting hospitals and health systems to shift them to ASCs.
“This policy change would likely not happen all at once, as it would force the closure of many rural community hospitals and health systems, since these areas do not have the population sizes required to justify an ASC,” the report stated. “It is more likely that CMS and payers continue a gradual approach to site-neutral payments, lowering reimbursement rates of HOPD procedures relative to ASC procedures over time, unless Congress legislates a faster change.”
The report also noted that well-managed ASCs achieve EBITDA margins of 20% to 30%, even though their reimbursement rates are generally lower than those of HOPDs. This profitability results from lean staffing models, shorter operating times and high physician productivity.
Revenue composition also favors the commercial insurance segment, which accounts for over 40% of industry revenues and pays premiums at Medicare rates. Centers with stronger commercial contracts and high-acuity case mixes tend to deliver the best returns, Jefferies explained.
CMS’ proposed rule for FY2026 states that the Inpatient Only List should be phased out over the next three years, starting with the removal of 285 musculoskeletal procedures in 2026. Jefferies noted that, although this is a positive gesture from CMS, it will not significantly affect case migration from the HOPD to the ASC setting.
CMS needs to add these procedures to the ASC fee schedule and make them reimbursable by Medicare before doctors start referring these cases to ASCs.
Headwinds
Despite these successes, labor costs remain high, especially for nursing and anesthesia providers, who are also in strong demand and face fewer candidates for open roles.
The high cost of construction and rising interest rates have also made it more expensive to build new centers.
Additionally, certificate-of-need laws in some states limit the development of new facilities.
Health system consolidation could also restrict the independence of smaller ASCs, as hospital networks use their negotiating leverage to keep surgical volumes. Payer opposition to lower-acuity procedures and potential CMS cost-reporting requirements might reduce reimbursement margins over time, the report stated.
Improving profitability
ASC operators can enhance financial results through reimbursement rates and volume, according to Jefferies.
Reimbursement rates for government programs like Medicaid, Medicare and Medicare Advantage are fixed according to the ASC fee schedule and local wage index; they do not change beyond these parameters.
To compensate, ASCs strive to generate over 40% of their total revenue from commercial payers, with whom they can negotiate for higher rates. These payers usually insure beneficiaries employed by companies, resulting in a younger, lower-risk patient population with better case migration rates to the ASC environment. This demographic structure enables ASCs to derive a majority of their revenue from commercial payers, except in specialties that predominantly serve Medicare patients.
Larger ASCs can negotiate higher commercial rates with payers because outpatient settings save significantly on baseline Medicare reimbursement rates. Conversely, independent centers run by small groups of physicians typically have less negotiating power and are likely to receive below-average commercial rates, as noted in the report.
Volume relies on referrals managed by physicians. Adding new physicians with strong caseloads to an ASC partnership boosts overall volume. The operating leverage of ASCs is high, meaning that adding more physicians and revenue typically results in higher EBITDA and increased returns for equity owners, the report stated. This operating leverage also shows that higher-acuity specialties with higher revenue per case are the most profitable procedures when the ASC operates at full capacity.
Jefferies proposed another way to increase profitability – hiring a professional ASC manager. These managers specialize in operating surgery centers and can handle tasks like center-level accounting, supply procurement, physician recruitment, revenue cycle management and payer contracting. ASCs and managers may also collaborate with hospital or health system partners to boost referral volumes and secure better payer contracts by leveraging their network strength.
Jefferies remains bullish on the ASC sector, identifying Tenet Healthcare and Surgery Partners as key beneficiaries of ongoing outpatient migration. Both companies are expected to capitalize on procedural growth, physician partnerships and attractive acquisition opportunities.
