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The Healthcare Investor Insights on Issues & Trends that Impact Investments in Healthcare & Life Science Businesses

ASC and OBL Investment and Development: 5 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on ambulatory surgery center (ASC) and office-based lab (OBL) investment and development. It is authored by our colleagues Chris DeGrande and Jason Greis.


ASC and OBL Investment and Development: 5 Key Points

By Chris DeGrande and Jason Greis

As there continues to be a move toward performing certain procedures in outpatient settings, ambulatory surgery centers (“ASCs”) and office-based laboratories (“OBLs”) continue to be areas of interest for private equity investment. This trend was explored by experts who spoke on a panel at the McGuireWoods 15th Annual Healthcare and Life Sciences Private Equity & Finance Conference on Wednesday, February 21. Experts included Jan Dees, President of American Vascular Access; Dr. James McGuckin, President of Vascular Access Centers; Terry Litchfield, Patient Advocate of Access Solutions; and Joan G. Dentler, President and CEO of Avanza Healthcare Strategies.

Here are five key points from the panel discussion:

1. ASCs and OBLs have both arisen out of a desire by patients and physicians alike to be able to safely perform procedures in a more welcoming and cost-effective outpatient setting. This outpatient setting gives physicians the ability to increase their efficiency and perform cases that otherwise might be bumped from hospital procedure schedules if an emergency arises.

2. Panelists reported that physicians are able to provide more efficient services in an ASC or OBL compared to a hospital environment. These types of facilities can tailor the procedures and schedules around patient needs, or even provide specific types of procedures on certain days in compliance with state laws, thereby reducing turnover time between such procedures.

3. Since ASC reimbursement is generally higher than OBL reimbursement, an increasing number of OBLs have considered converting their facilities to ASCs. However, panelists warned that OBLs should give careful consideration before implementing such a change. First, there can be significant build out costs and working capital needs associated with development of an ASC. Second, ASC operating costs are generally higher as a result of additional patient safety and heightened regulatory requirements associated with operating an ASC. Finally, in some states converting a facility to an ASC may require a certificate of need, which may be difficult and time consuming to obtain.

4. There are many opportunities for expansion and use of OBLs and ASCs. Panelists reported that they have seen the use of “hybrid” facilities, where a facility operates as an ASC on certain days of the week and an OBL on other days in compliance with applicable State laws. This structure potentially allows a facility to provide a wider range of patient care services.

5. Commercial payor issues are important considerations for OBLs and ASCs alike. Whether developing an ASC or an OBL, it is important to engage with payors early in the development process both to attempt to obtain in-network status, if desired, and to explain the operational structure of the proposed facility. Payors are less likely to contract with providers if they believe that a proposed arrangement is likely to result in higher costs to members.