The ASC industry is facing a new dilemma: An aging physician population looking to cash out, but not necessarily to larger consolidators.
The industry is largely fragmented, with around 68% of ASC facilities operating independently, as of 2023. This makes the ASC market ripe for acquisitions at the individual facility level, according to a report from VMG Health.
As a consequence, the industry is consolidating, albeit slowly. The number of ASCs under partnership by a national operator jumped to 1,941 in 2023 — up from approximately 1,339 in 2011.
"What's starting to happen is many of these physicians are mature now, some are getting ready to retire, and I think some would like to cash out or bring in new surgeons," Joe Peluso, administrator at Aestique Surgical Center in Greensburg, Pa., told Becker's. "Unfortunately, many surgeons are now employed by health systems or private equity groups, so there isn't the potential to bring in many new doctors to take over. As a result, I think many are cashing out."
However, as more than 77% of U.S. physicians are now employed by hospitals, health systems or corporate entities, there aren't many independent physicians left to take over the ASCs.
A new ASC company, Ker Medical, is looking to disrupt the trend of selling to private equity and health systems.
Ker's ASC model involves integrating four or five ASCs under similar management with a board made up of the principals, John Webb, one of Ker's founders and president of MMC Capital Markets, told Becker's. The board handles operations, but physicians retain their autonomy.
Ker's model also provides physicians with the option of an exit strategy, which is particularly attractive for physician owners who don't want to involve large institutional management, equity or health system partners.
Independent ASCs that don’t follow this model are at risk of losing control, Mr. Webb said, particularly when older physicians want to exit and younger ones want to buy in, yet neither the older or younger physicians want to sell the ASC. When this happens, ASCs typically turn to conventional banks, and as a result, they can lose their leverage or power to negotiate lower pricing and favorable terms and conditions, Mr. Webb explained.
Mr. Webb said he's seen a number of cases where a young physician wants to buy into an ASC deal but doesn't have the capital. In such cases, his team puts together a credit facility, often funded by the ASC partners, to recruit a new physician. The money they pay in can then go toward the older physician who is nearing retirement.
The model also bypasses the need for private equity — the ASC market has seen continued private equity activity, most often tied to physician practice portfolios, which allows investors to capture additional revenue streams, according to the VMG Health report.
"The independents are getting a lot of pressure from the private equity side. They hear horror stories of deals that didn't go well and they don't know which way to turn," Mr. Webb said.