Legal Update: This Transaction Might Be Worth a Tri
Hospital-corporate-physician ASC deals benefit all investors.
Danielle Golino, JD; and Jerry Sokol, Esq.
Tri-party ASC deals benefit all 3 of the transaction's investors physicians, ASC management companies and hospital health systems. Based on current trends in the surgical industry, they also appear to be here to stay. Here's an overview of how they work, and how they benefit their participants.
The players and the structure
Historically, the major investors in the ambulatory surgery center market have been the physicians who performed procedures in surgery centers and the ASC management companies who specialized in optimizing their operational efficiency.
When hospitals began moving into ASCs in a big way a few years ago, many observers saw this as a death knell for the management companies. After all, what additional value could these corporate partners bring to the table that an established health system couldn't? Surely the management companies would soon become obsolete as health systems rapidly and aggressively took over the ASC market, right?
Well, not exactly. Instead of signaling the end of the management firms, the surge of health systems into the ASC market sparked the tri-party deal, a transaction involving investments in a single surgery center from health systems as well as management companies and physicians, each bringing their specific expertise and skill sets to the table.
United Surgical Partners, a publicly-traded ASC management company, pioneered the tri-party ASC deal, and has since been followed by other corporate partners. Andrew Hayek, president and CEO of Surgical Care Affiliates, says his company had partnered in ASC ventures with 43 non-profit health systems nationwide as of the end of 2013.
There are generally 2 ways a tri-party deal can be structured. In one common arrangement, the health system and the ASC management company establish a "joint venture entity," through which they own a majority of the surgery center. The center's physicians own a healthy minority, usually around 49%. Alternatively, the health system and ASC management company can own their shares in the surgery center individually and directly, as the physicians do, without the formation of an intervening joint venture entity.