Latest / Becker’s Healthcare Podcast / ASC Deals in 2027: What Physician Owners Should Know

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ASC Deals in 2027: What Physician Owners Should Know · Becker’s Healthcare Podcast

• 0:00
  - Well, hello, everyone. This is Erica Spicer Mason
• 0:02
  - with Becker's Healthcare. Thank you so much for
• 0:05
  - tuning in to the Becker's Healthcare podcast series.
• 0:08
  - So today, I'm joined by Andy Colbert, the
• 0:11
  - senior managing director at Ziegler.
• 0:13
  - And Ziegler is a specialty investment bank with
• 0:16
  - deep roots in health care, and Andy works
• 0:19
  - closely with organizations that are navigating the deals,
• 0:22
  - partnerships, and ownership decisions that are reshaping the
• 0:25
  - ASC space.
• 0:27
  - So Andy is also a panelist on ASC
• 0:30
  - ownership, joint ventures, non competes, and more key
• 0:33
  - issues on the horizon, which is a panel
• 0:36
  - session at Becker's thirty second annual, the business
• 0:39
  - and operations of ASCs,
• 0:41
  - which is taking place this October 29 through
• 0:44
  - the thirty first. So we'll preview some of
• 0:46
  - that conversation today in this podcast and hope
• 0:49
  - that you catch the full panel live.
• 0:51
  - And without further ado, Andy would love to
• 0:53
  - welcome you to the podcast. Thanks for making
• 0:55
  - time for this today. Yeah. Thanks so much,
• 0:57
  - Erica. Thanks thanks so much for having me.
• 1:00
  - Yeah. We're really glad to have you, and
• 1:02
  - I was hoping to get our conversation kicked
• 1:04
  - off. You could kind of just describe
• 1:07
  - what you're seeing in the ASC space today
• 1:10
  - as it relates to ownership.
• 1:12
  - What's that landscape looking like, and what's driving
• 1:14
  - the most deal activity and partnership discussions as
• 1:17
  - we head into the new year?
• 1:19
  - Yeah. So, you know, and and just to
• 1:21
  - set the stage, you know, I I grew
• 1:22
  - up in a family of physicians. My dad,
• 1:25
  - retired
• 1:26
  - physician. My brother is also a physician. So
• 1:28
  - always been around the medical industry and,
• 1:31
  - really decided to build my career here at
• 1:34
  - Ziegler,
• 1:35
  - advocating and working on behalf of either physician
• 1:38
  - or or founder owned health care businesses and
• 1:42
  - really helping them grow and scale
• 1:44
  - and navigate
• 1:45
  - complex
• 1:46
  - dynamics and mergers, acquisitions, joint ventures, and and
• 1:50
  - and other capital raising initiatives. And one of
• 1:53
  - the areas where where I've spent a tremendous
• 1:55
  - amount of time is is the ASC space.
• 1:58
  - Happens to be a really interesting area because,
• 2:01
  - you know, really is kind of a a
• 2:03
  - perfect area for collaboration
• 2:06
  - and and joint ventures between
• 2:09
  - multiple different stakeholders. You've got, obviously, the physicians
• 2:12
  - and the surgeons that are usually the ones
• 2:15
  - performing the surgeries. You've got
• 2:17
  - capital sources like private equity or other groups
• 2:20
  - or management companies that come in with
• 2:23
  - know how and capabilities
• 2:24
  - and skills around scaling, and then you've got
• 2:27
  - health systems that often have
• 2:29
  - patients and and other
• 2:31
  - services that they can provide
• 2:33
  - around around a wrapper. Right? And so, you
• 2:35
  - know, I think why why the ASC space
• 2:38
  - is really
• 2:39
  - in vogue right now and in focus is
• 2:42
  - you're just seeing a tremendous
• 2:44
  - openness from CMS
• 2:46
  - and, you know, the Medicare
• 2:48
  - authorities to really enable more procedures to be
• 2:51
  - moved outside of the hospital.
• 2:53
  - You know, cardiology
• 2:55
  - and
• 2:56
  - a lot of procedures
• 2:57
  - around vascular
• 2:59
  - and other,
• 3:01
  - interventional services,
• 3:03
  - you know, all being fueled and funneled into
• 3:06
  - the outpatient arena.
• 3:07
  - And, you know, what's exciting is it enables
• 3:10
  - physicians
• 3:11
  - to move in... Into really being more entrepreneurial.
• 3:14
  - Right? And instead of doing
• 3:16
  - all of their work now at the hospital
• 3:19
  - setting,
• 3:20
  - It enables them to actually set up and
• 3:22
  - become owners in any way they're actually performing
• 3:25
  - the surgeries
• 3:26
  - and, you know, have a stake now in
• 3:28
  - the actual technical, you know, profits of of
• 3:31
  - the entity
• 3:33
  - and candidly save money in the health care
• 3:35
  - system. Right? And so, you know, instead of
• 3:38
  - the the insurance companies paying,
• 3:41
  - to have the surgery done at the hospital,
• 3:43
  - right, you're moving it to an outpatient setting
• 3:45
  - where,
• 3:46
  - it's usually, you know, a percentage of the
• 3:49
  - cost.
• 3:50
  - The physicians
• 3:51
  - are obviously enjoying the benefit of that, and
• 3:53
  - the patients are usually happier to have it
• 3:56
  - in an outpatient setting where they can come
• 3:58
  - in and come out and,
• 4:00
  - just have a more convenient
• 4:02
  - and more efficient process.
• 4:04
  - Yeah.
• 4:05
  - Andy, what a great overview. And it... It's
• 4:08
  - so interesting.
• 4:09
  - Everything that you just described,
• 4:11
  - the excitement behind the ASC
• 4:13
  - landscape is coming from all different directions. You
• 4:15
  - know, you touched on regulatory
• 4:18
  - opportunities opening up from CMS, and other Medicare
• 4:21
  - authorities.
• 4:22
  - And then also kind of the opportunity for
• 4:24
  - physicians to play more of a business role
• 4:27
  - in care delivery. And then I I know
• 4:29
  - we've heard from many other leaders too that
• 4:31
  - patients are are appreciating the efficiency of the
• 4:34
  - ASC space as well. So
• 4:36
  - a a lot going right for ASCs.
• 4:39
  - And I wanted to touch on something that
• 4:40
  - you mentioned earlier, and you kind of mentioned
• 4:43
  - that
• 4:44
  - you touched on joint ventures with health systems
• 4:47
  - is one way that we're seeing
• 4:49
  - ASC ownership evolve. And then also management companies
• 4:52
  - are are a popular option for ASCs.
• 4:55
  - So from your perspective, what separates
• 4:57
  - successful partnerships from those that struggle, and what
• 5:00
  - do you think physicians and ASC leaders should
• 5:02
  - evaluate before they enter an agreement?
• 5:05
  - Yeah. So, I mean, at the end of
• 5:07
  - the day,
• 5:08
  - you know, all of these are really are
• 5:10
  - really contingent on alignment,
• 5:12
  - right, and and having really good alignment around,
• 5:16
  - you know, what what the objectives are.
• 5:19
  - You know, I think,
• 5:20
  - oftentimes,
• 5:22
  - you know, one side or the other
• 5:25
  - feels like they're bringing more more value to
• 5:27
  - the table.
• 5:28
  - You know, there was an old understanding and
• 5:31
  - and thinking that,
• 5:32
  - you know, the hospital always had to have
• 5:34
  - 51%,
• 5:35
  - and, you know, that's really not the case
• 5:38
  - anymore. We're we're seeing, you know, quite a
• 5:40
  - few situations
• 5:41
  - where,
• 5:43
  - you know, the the physicians
• 5:44
  - are able to keep a majority stake in
• 5:46
  - in the ASC.
• 5:49
  - You know, there's there's no kind of hard
• 5:51
  - and fast rule around that that percentage requirement.
• 5:54
  - The other piece that that... That's really important
• 5:57
  - is
• 5:58
  - making sure that it's set up for success
• 6:01
  - from a physician,
• 6:03
  - alignment perspective. Right? So you need alignment between
• 6:05
  - the physicians and the hospital, and then you
• 6:07
  - also need alignment
• 6:09
  - between the physicians themselves. And,
• 6:12
  - you know, one of the challenges we've seen
• 6:14
  - sometimes in in in some practices is, you
• 6:17
  - know, all all the ownership is held by
• 6:19
  - the senior physicians. And as they start winding
• 6:22
  - their career down,
• 6:23
  - you know, the junior or younger physicians are
• 6:26
  - kinda ramping up, and they don't have as
• 6:27
  - much economic interest
• 6:30
  - in the facility. And, you know, that's where
• 6:32
  - often kind of a management entity or some
• 6:34
  - third party intermediary can really help drive that
• 6:37
  - alignment and give some better
• 6:39
  - sophisticated,
• 6:40
  - you know, strategies around making sure that those
• 6:43
  - younger physicians really get
• 6:45
  - an appropriate stake of the economics relative to
• 6:48
  - the value that they're contributing.
• 6:51
  - And then lastly, I would say is, you
• 6:53
  - know, really the operational
• 6:56
  - challenges and operational
• 6:57
  - sophistication.
• 6:59
  - You know, everything from anesthesia coverage,
• 7:02
  - you know, scheduling, payer contracting,
• 7:05
  - supply costs,
• 7:07
  - You know, those are becoming increasingly challenging
• 7:10
  - and and very difficult for kind of stand
• 7:13
  - alone, one off,
• 7:15
  - operators to really be successful in, and that's
• 7:17
  - where, you know, I I think partnerships can
• 7:20
  - be can be really
• 7:22
  - really value added in those areas where, you
• 7:25
  - know, at the end of the day, the
• 7:26
  - surgeons are really good at what they do,
• 7:29
  - but but, you know, they're not experts at
• 7:31
  - some of these back office administrative capabilities. And,
• 7:35
  - you know, I think that's where there's a
• 7:36
  - big opportunity in some of these partnership models.
• 7:40
  - Mhmm.
• 7:40
  - Yeah. Andy, appreciate the overview of of what
• 7:44
  - you're seeing
• 7:45
  - with the partnership models and also some needs
• 7:47
  - and alignment in general, whether that's between physicians
• 7:50
  - in the hospitals or physician to physician.
• 7:53
  - I also wanna make sure that we touch
• 7:54
  - on something even a bit more granular, which
• 7:56
  - I know you'll mention in your upcoming panel
• 7:59
  - at Becker's AFC event. But that's the non
• 8:02
  - competes and restrictive covenants will, you know, it's
• 8:05
  - something that's top of mind for for leaders
• 8:07
  - as they get into this space.
• 8:09
  - How are those considerations,
• 8:11
  - non competes and and restrictive covenants, how are
• 8:14
  - they influencing ASC deal structures and negotiations?
• 8:18
  - And do you think there's anything position owners
• 8:20
  - should especially be mindful of here?
• 8:23
  - Yeah. It's it's a it's a great point.
• 8:25
  - You know, I think one of the things,
• 8:27
  - right, that we're all seeing is, you know,
• 8:30
  - non competes in employment agreements are becoming harder
• 8:33
  - and and harder
• 8:34
  - to enforce.
• 8:36
  - Where you are still seeing them enforceable is
• 8:39
  - through equity ownership.
• 8:41
  - And so I think
• 8:43
  - one of the benefits, right, of having physician
• 8:46
  - ownership is
• 8:48
  - it does enable
• 8:49
  - a a a tighter enforcement of that non
• 8:52
  - compete through through the equity ownership,
• 8:55
  - and and so that is another reason why
• 8:57
  - you're you're seeing more
• 8:59
  - desire for physicians to actually have an economic
• 9:02
  - ownership
• 9:03
  - in the entity as opposed to just being
• 9:06
  - an independent
• 9:07
  - contractor that's paid some sort of, you know,
• 9:09
  - day rate or professional service.
• 9:12
  - You know, I think
• 9:13
  - there are other ways
• 9:15
  - to structure around these things. Obviously, you know,
• 9:18
  - we're we're a firm believer that at the
• 9:20
  - end of the day, the the carrot often
• 9:22
  - works better than the stick.
• 9:25
  - And so, you know, I I think one
• 9:27
  - of the best ways, right, to drive alignment
• 9:29
  - is just through economic
• 9:31
  - upside.
• 9:32
  - You know, fundamentally,
• 9:34
  - if, you know, if a surgeon is is
• 9:37
  - generating
• 9:38
  - more economics
• 9:40
  - than they could otherwise on their own independently,
• 9:44
  - whether there's a non compete or not. Right?
• 9:47
  - They they really don't have any incentive to
• 9:49
  - go take business elsewhere. Right? And I think
• 9:52
  - I think, fundamentally,
• 9:53
  - that's the lens I always like to look
• 9:55
  - at these models with, which is
• 9:58
  - if if you can create an enterprise where
• 10:01
  - the effective overhead cost to the physician
• 10:06
  - is lower than it otherwise would be if
• 10:08
  - they were operating on their own,
• 10:12
  - then there's really no risk of them trying
• 10:14
  - to take that business elsewhere.
• 10:17
  - Yeah. Andy, I appreciate your thoughts on that.
• 10:20
  - And I wanna make sure too that we
• 10:22
  - we touch on physician ownership. It's something that's
• 10:25
  - come up a couple of times already, and
• 10:27
  - it's something that's been long central to the
• 10:30
  - ASC model.
• 10:31
  - So as private equity firms, health systems, and
• 10:34
  - other investors are expanding their presence in the
• 10:37
  - ASC space,
• 10:38
  - how can centers maintain physician engagement and alignment
• 10:41
  - while also creating opportunities
• 10:43
  - for the next generation of physician partners?
• 10:47
  - Yeah. I mean, I I I think it
• 10:49
  - goes back to
• 10:51
  - making sure that these deals are structured in
• 10:54
  - a way such that
• 10:56
  - there's constant rebalancing.
• 10:58
  - Right? I mean, I I I think the
• 10:59
  - analogy here would be kind of like,
• 11:02
  - you know, a a stock portfolio,
• 11:04
  - right, where,
• 11:05
  - you know, never a good idea just to
• 11:08
  - kind of pick individual stocks
• 11:11
  - versus kind of,
• 11:12
  - you know, generally speaking,
• 11:15
  - investing in a broad strategy that's split between
• 11:19
  - domestic, international,
• 11:21
  - fixed income, equity. You You know, you wanna
• 11:24
  - take the same approach, right, when you're thinking
• 11:26
  - about how to structure the ownership stake of
• 11:29
  - of a ASC. And so, you know, what
• 11:31
  - we've seen actually is sometimes
• 11:34
  - a a good model for that is structures
• 11:37
  - where...
• 11:38
  - You know, for example, there's a relatively low
• 11:41
  - buy in, buy out,
• 11:43
  - and, you know, a mechanism where when the
• 11:46
  - physician stops practicing or their incomes... You know,
• 11:49
  - their their production falls below a certain level,
• 11:53
  - or they they leave the the practice or
• 11:55
  - retire,
• 11:56
  - there's a mandatory buyout at at a relatively
• 11:59
  - low level
• 12:00
  - that, you know, ultimately kinda ties the ownership
• 12:03
  - more to
• 12:04
  - a production based approach.
• 12:07
  - I know it's hard from a regulatory standpoint
• 12:10
  - to do that perfectly, but, I mean, that
• 12:13
  - that really is the goal,
• 12:15
  - is is is trying to create as much
• 12:17
  - alignment there as possible so that, you know,
• 12:20
  - the the future partners
• 12:23
  - have this path to to building into the
• 12:26
  - ownership,
• 12:28
  - and don't feel like it's gonna be kind
• 12:30
  - of,
• 12:31
  - you know, capped, right, and and and and
• 12:33
  - and held out for the the the older
• 12:36
  - partners, the the senior partners without them having
• 12:38
  - access
• 12:41
  - to it. Right? And so, you know, that's
• 12:41
  - something that's... That... That's really important.
• 12:44
  - You know? And, ultimately,
• 12:45
  - you wanna make sure that
• 12:48
  - whatever you do here, of course, you you
• 12:51
  - do through
• 12:52
  - careful consultation with a health care regulatory attorney
• 12:56
  - just to make sure that everything is structured
• 12:58
  - in accordance with Stark.
• 13:00
  - Mhmm.
• 13:01
  - Yeah. Such a good piece of advice, Andy.
• 13:04
  - And I appreciate too how we've talked about
• 13:06
  - kind of the current state of
• 13:09
  - ASC ownership,
• 13:11
  - what you're seeing evolve, and then also
• 13:13
  - what you're seeing ahead and how you're seeing
• 13:15
  - ASCs prepare
• 13:17
  - their physician owners, not just to, as you
• 13:19
  - mentioned, keep it within a certain set of
• 13:21
  - folks that started
• 13:23
  - the ownership, but to, you know, kind of
• 13:25
  - enable there to be maybe hand off or
• 13:28
  - growth. And,
• 13:29
  - so I appreciate this full picture that you've
• 13:31
  - given to us today.
• 13:33
  - And kind of on that note of looking
• 13:35
  - ahead, I wanted to just make sure we
• 13:37
  - also had a few moments to touch on
• 13:39
  - your upcoming panel at Becker's thirty second annual
• 13:41
  - business and operations of ASC conference.
• 13:53
  - Yeah. So I I I think capital is
• 13:56
  - is not the issue. I think there's more
• 13:58
  - than enough capital available.
• 14:00
  - I think, if anything, what we've seen the
• 14:02
  - last couple years is
• 14:04
  - capital is continuing to grow, and and and
• 14:07
  - a lot of capital sources are kind of
• 14:10
  - being pickier and choosier, right, in this kind
• 14:12
  - of higher interest rate environment.
• 14:14
  - That being said, I think the bar is
• 14:16
  - higher
• 14:17
  - than it used to be for deployment, right,
• 14:19
  - just because
• 14:20
  - interest rates are higher, the cost of borrowing
• 14:23
  - is higher, the cost of build out is
• 14:25
  - higher, the supply costs, and the labor costs
• 14:28
  - are higher. Right? And so, you know, I
• 14:30
  - I I think it... It's it's no longer
• 14:32
  - the Wild West to go just
• 14:35
  - put a stake in the ground at at
• 14:36
  - any sort of project, and so the the
• 14:39
  - bar is definitely higher. I think it's much
• 14:41
  - more important now to feel like you really
• 14:44
  - have a thoughtful pro form a. You've got
• 14:46
  - real thoughtful
• 14:48
  - alignment around,
• 14:50
  - how you're gonna be successful, when you're gonna
• 14:52
  - get to profitability, where the patients are coming
• 14:55
  - from. But I think most importantly, from my
• 14:58
  - perspective, the biggest missing
• 15:00
  - piece in the equation that I think is
• 15:02
  - often underestimated
• 15:03
  - is really the dynamic around
• 15:06
  - the physician leadership gap. And, you know, I
• 15:09
  - think, unfortunately,
• 15:10
  - we're seeing an increasingly
• 15:13
  - change in physician
• 15:15
  - behavior where,
• 15:17
  - you know, physicians are really moving more towards
• 15:19
  - employed models,
• 15:21
  - moving more towards
• 15:23
  - academic
• 15:24
  - health system based models where
• 15:27
  - they're less motivated and eager to kinda take
• 15:30
  - risks
• 15:31
  - and and go out and build something on
• 15:33
  - their own and and and build a business,
• 15:35
  - build a practice. And so,
• 15:37
  - it is creating this void,
• 15:39
  - this void, and and there's just a a
• 15:41
  - more risk averse
• 15:43
  - workforce. And it's not just physicians. I I
• 15:46
  - think it's kind of a broadly
• 15:49
  - speaking dynamic that we're seeing where, you know,
• 15:52
  - this kinda next generation that's coming up,
• 15:55
  - just doesn't have the same entrepreneurial
• 15:58
  - risk tolerance. And so
• 16:00
  - I I think the onus is on the
• 16:02
  - leaders today to really train and teach and
• 16:06
  - create those
• 16:07
  - opportunities
• 16:09
  - to build that next generation of leaders
• 16:12
  - as well as for these management companies and
• 16:14
  - other structures
• 16:16
  - to help physicians feel like they have the
• 16:19
  - tools
• 16:20
  - and the capability to step into these roles
• 16:23
  - because,
• 16:24
  - you know, ultimately, that's gonna be really the
• 16:26
  - deciding factor in the success of these partnerships.
• 16:31
  - Mhmm. Yeah.
• 16:32
  - Well, Andy, it's been such a great time
• 16:34
  - with you today learning about what you're seeing
• 16:36
  - in ASC ownership and
• 16:38
  - and getting a little bit of a sense
• 16:40
  - of what you're going to touch on in
• 16:41
  - just a few weeks in Chicago. So I
• 16:43
  - just wanna thank you again for making the
• 16:45
  - time for Becker's today.
• 16:47
  - Really appreciate it. Yeah. Thank you so much,
• 16:49
  - Erica, for having me, and and look forward
• 16:50
  - to seeing folks next week.
• 16:53
  - Yeah. Likewise.
• 16:54
  - And, of course, we'd also like to thank
• 16:56
  - our podcast sponsor for today, Ziegler.
• 16:59
  - Listeners, be sure to tune in to more
• 17:00
  - podcasts from Becker's by visiting our podcast page
• 17:03
  - at beckershospitalreview.com.