Private Equity fuels growth of hospital-owned ASCs amidst rising demand, regulatory loopholes

Editor's Note

Private equity investment in hospital-owned ambulatory surgery centers (ASCs) is rising as hospitals seek expansion capital and private equity firms look for profitable partnerships in a growing sector, Modern Healthcare November 4 reports. ASCs have become popular due to their lower costs compared to hospitals, which makes them attractive to patients and providers alike. ASCs are viewed as an essential part of healthcare delivery, drawing corporate interest given their potential for stable returns.

Instead of outright ownership, many private equity firms partner with hospitals through joint ventures, often taking a 49% share while the hospital retains operational control and branding. This structure allows private equity-backed management service organizations to provide capital and management support without triggering the regulatory scrutiny that typically accompanies changes in ownership. These collaborations enable ASCs to upgrade technology, hire clinicians, and manage administrative functions, helping hospitals keep pace with growing outpatient care demands, noted the article. Richard Zall, a healthcare attorney with King & Spalding, explained that hospitals increasingly see private equity as a “collaborator” rather than a “competitor” as they expand into ASCs.

Private equity firms are particularly interested in high-margin specialties within ASCs, including orthopedics, cardiology, gastroenterology, and urology. For these investors, specialties with repetitive, high-demand procedures are appealing. Matt Brubaker, CEO of consultancy FMG Leading, emphasized that private equity firms are focused on stable margins rather than major capital infusions, as the ASC sector remains fragmented yet profitable. Darren Buskirk, director at consultancy Stax, added that joint ventures with hospitals often avoid heavy regulatory oversight, giving them an advantage in the current regulatory landscape, where independent ASC purchases might face more scrutiny.

A recent survey by law firm Barnes & Thornburg highlighted the growing interest in private equity investment among healthcare executives. Over half of the executives from hospitals, physician practices, and medical device companies surveyed have accepted or are actively seeking private equity investment, especially for expansion in underserved markets. Thomas Hutchinson, a healthcare lawyer with Barnes & Thornburg, noted that hospitals are particularly receptive to private equity investment when it aligns with strategic growth goals, such as expanding service lines or improving outpatient capacity.

The ASC sector’s expansion is further supported by advancements in medical technology and a trend toward shorter, more efficient procedures. According to Fortune Business Insights, the ASC market is projected to grow by 7% annually, reaching an estimated $75.2 billion by 2030, up from $46.6 billion in 2023. Private equity firms are drawn to this growth and the steady referral stream from health systems, alongside the opportunity to collect facility fees. Unlike independent clinics, which consolidate all costs into a single charge, hospital-owned ASCs often bill facility fees separately, creating an additional revenue stream. However, these facility fees also increase the overall cost of care, a concern voiced by Paul Berggreen, MD, a gastroenterologist at Arizona Digestive Health and president of the American Independent Medical Practice Association. Dr Berggreen argued ASC joint ventures contribute to rising healthcare costs without necessarily improving care quality and advocates for site-neutral payment policies to curb facility fee use.

Despite legislative efforts to limit hospital costs through proposals to eliminate facility fees, ASC investments by hospitals and private equity are likely to continue. Observers expect demand for accessible, efficient outpatient care to sustain this growth. “There is a lot of upside,” Buskirk concluded in the article.