Considerations for Buying & Financing Ownership in an ASC

By JIM SHAUB


For more than 30 years, ambulatory surgery centers (ASCs) have offered physicians an investment opportunity to perform eligible cases in an outpatient facility as an extension of their practice. Governed by the Federal Physician Self-Referral Act (often called the Stark Law) of 1993, physicians may have ownership in ASCs under certain "safe-harbor" provisions, broadly defined as:

  • The physician must derive one-third of their practice income from procedures performed at the ASC,
  • The ownership must be purchased at fair market value,
  • Ownership must not be tied to referrals,
  • The investment return must relate to the ownership percentage, and
  • The ASC or its investors may not provide financing to the physician.

Today, there are 34 states that currently have some form of a Certificate of Need (CON) program, which can impact local ASC growth and the ownership decision. The initial ASC set-up and ongoing compliance regulations can be complex, time consuming, and expensive, with punitive consequences if not adhered to.

The ASC industry largely consists of 100 percent physician-owned facilities (approximately two-thirds) and joint venture (JV) facilities where an ASC management company and/or a hospital (one-third) have ownership in partnership with physicians. These corporate partners are highly skilled in managing the operations of the center and monitor ongoing regulation change for proper compliance.

The sheer number of operating ASCs suggests a pretty saturated industry so not many new centers are being built each year. Usually, a physician interested in an ASC today opts for investment in an existing center, rather than starting a new one.

There are pros and cons when considering whether to buy into a physician-owned center or a JV with corporate partners. By joining with a management company and independent owner, the physician has chosen to allow experts in the industry to manage the ASC. Our experience is that professionally managed ASCs generally produce higher profit margins and allow physicians more time to focus on their patients and the practice of medicine. Nevertheless, there are many reasons why physicians choose not to enter a joint venture with corporate partners, and that can also be an attractive option.

There are many legal, tax and financial considerations when contemplating an ASC investment, and there are numerous experts in these fields who physicians should consult before making an investment. Specifically, the ASC's operating agreement specifies the rules for how the ASC will be administered and governed. This agreement typically will contain detailed provisions for the purchase of ownership, transfers of ownership and termination of ownership. It will also address the financial terms, distributions of profits and valuation for the sale of ownership. Prior to a purchase of shares in an ASC, a physician and any advisors should carefully review this agreement.

Once a physician has made the decision to buy into an ASC, then the question of "fair value" must be addressed. ASC buy-in investments often run from $100,000 to $300,000, largely dependent on how financially successful the ASC is and the case volume. A physician should take the time to understand how the investment is valued and evaluate the likelihood for continuing success. If a buy-in amount is less than $100,000, then the center is probably new, not highly profitable or the number of shares being offered is small. If the buy-in amount is over $300,000, then the ASC is likely a mature center and very successful.

Many physicians buying into ASCs are in the early years of their practice and don't have the financial strength yet to use cash or assets to obtain a bank loan. Other physician buyers may be financially well situated but have committed their resources to other personal or professional pursuits. Thus, physicians frequently elect to finance a buy-in investment and often turn to a familiar local bank. Banks can be a good source of capital but often require a "blanket" lien on the physician's personal assets, a spousal guarantee, and sometimes an assignment of disability and life insurance. It is important for the physician to understand the terms of this "personal loan," which may impact their future borrowings or sale of personal assets.

Another financing option is to utilize a specialty healthcare lender to provide a loan - likely under terms and structure tailored to the underlying ASC business, not the physician's personal assets. These companies are often competitive with banks on interest rates but have added expertise in the ASC industry, which can be advantageous if the center undergoes unfavorable or adverse changes.

Specialty lenders focus on the underlying strength of the ASC the physician is considering and have a keen understanding of all aspects of center financials and governance. A loan with a specialty healthcare lender is typically collateralized only by the physician's purchased shares, thereby eliminating the need for additional guarantees and liens on personal assets. Repayment terms are matched with the expected distributions and can usually be structured with a cushion for income taxes and no monthly "out of pocket" for the repayment of the loan.

As with any major investment, physicians need to consider a broad range of factors and consult with experts in order to make an informed decision. In addition to regulatory and operational considerations, a physician must also think about their personal goals to discern whether the timing is right to invest in an ASC and then look at the various financing options available to best meet those goals.


Physicians Financial Partners (PFP), and Jim Shaub, a partner, have been providing physician buy-in and practice loans, as well as ASC facility construction and real estate loans, for over 10 years to ASC management companies and independently owned ASCs throughout the U.S. PFP also provides receivables financing and collections services, as well as consulting services for purchase, development and revenue cycle needs of physicians and ASCs. For more information, contact jshaub@physiciansfp.com.