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Insights from an ASC Expert, by Scott Bacon

What are the benefits and what unforeseen hurdles should it be aware of before proceeding?
This month’s ‘Insights from an ASC Expert’ column is focused on health systems considering the conversion of a hospital outpatient department (HOPD) to an ambulatory surgery center (ASC). Reimbursements for cases performed in an HOPD are greater than those same cases being performed in an ASC setting. For this reason, the conversion of these outpatient facilities to licensed, free-standing ambulatory surgery centers has been slow to occur over time. However, the pace of conversion is increasing.

Why Would Health Systems Convert HOPDs to ASCs?
Among many reasons, a few stand out:

1. Physician Demand. Employed, affiliated, or aligned independent physicians are pushing health systems to provide ASCs in which surgeons have more control, greater efficiency, less bureaucracy, and financial upside.
2. Hospital Protection. By creating alignment with surgeons in an ASC, those relationships become much stickier. In particular, it’s a tool to prevent employed surgeons from leaving or aligning with competitive systems or practices.
3. High-acuity Case Migration. CMS continues to approve higher-acuity cases to be performed within the ASC setting, meaning the majority of outpatient appropriate surgery can now be performed and billed in a licensed ASC.
4. Commercial Payer Requirements. Pre-authorization requirements from commercial payers. These payers are requiring certain case types to be performed in the lower-cost ASC setting.

Insights from an ASC Expert, by Scott Bacon & Chris Stai

This month’s "Insights from an ASC Expert" column is co-authored with Chris Stai, Managing Director of HREA | Healthcare Real Estate Advisors, a leading national healthcare real estate advisory group.  As a former Director for a publicly traded healthcare REIT, Chris has immense expertise in healthcare real estate and unique insights for navigating complex transactions. 

How do I maximize the value of the ASC real estate? 

Or rather, how do you maximize not only an investment in an ASC, but also the underlying real estate? The value of the ASC real estate can create significant investment returns for physicians, but only if the lease terms are structured properly. It’s a balancing act to ensure both investments, the ASC operating entity and the real estate holding company, are successful.  With current real estate valuations for ASCs ranging from a 5% - 6% cap rate, which is the equivalent of a 16.5x – 20x multiple, it is important to consider and plan around a couple of strategic variables in order to maximize value.