To ASC, or not to ASC, that is the question

One of the most common questions we get asked by gastroenterologists is whether they should move cases from their office-based endoscopy suite (OBS) and develop an Ambulatory Surgery Center (ASC). It’s not only a big decision, but a complicated one.

How much does it cost, do I need a hospital partner, how long will it take, when will I recoup my investment, will it be worth it? These questions are often overwhelming and so doctors take the path of least resistance and remain in their OBS. Below is a quick teaser on the current landscape, key considerations, and what makes the most sense for you.

A Quick History of the Office Based Endoscopy Suite

Let’s use New York State as a case study. 40 years ago, most colonoscopies were done at the hospital. ASCs were difficult to get approved, and the OBS was not yet common. But when payors realized how much more expensive the hospital was, they started offering enhanced professional fees and tray fees for doctors who set up their own OBS. By the 2000s, most endoscopies had been taken out of the hospital and were being performed in doctors’ offices. Since 2010, however, the number of doctors still working out of an OBS has declined dramatically. 

The Decline of the OBS

When we first started developing ASCs in New York over 15 years ago, around 80% of non-hospital outpatient endoscopy procedures were done in office-based settings. That has now flipped – 80% are done at an ASC, and only around 20% are still at the OBS. This change has occurred across the country, and while some states have maintained a high presence of office endoscopy by obstructing ASC development (like Virginia), OBS is becoming less popular overall.

OBS Does Have Some Upside

For younger gastroenterologists just starting out, an OBS might be a good choice because it’s cheaper to set up and run, particular if a gastroenterologist wants to build their own practice or doesn’t want to join an established ASC where they will get minimal equity and no control. While an ASC costs several million to develop, and usually takes at least two years, an OBS can be built for a fraction of the cost and in a fraction of the time (say $100 thousand over four months). Simply put, it is cheaper, there is less red tape, and it’s easier to get accredited. Plus, some doctors can negotiate a "facility fee" (usually just a tray fee) to help boost profitability. But pretty soon, doctors run into the limited upside of the OBS: the standard of care is lower, it’s difficult to partner with other GIs, the doctors must spend more time worrying about operations and compliance, and reimbursement remains low (and is declining).

The Simple Economics of ASC vs OBS

As a rule of thumb, the total reimbursement for a Medicare colonoscopy performed at an ASC is 2x what is received at an OBS, and for a commercial case, it’s typically around 3x. There are two reasons for this disparity: firstly, ASCs are considered the dominant and future site of service and so advocacy groups are focused on improving reimbursement. Secondly, CMS prefers the ASC as a site-of-service. ASCs have the same life-safety and infection control standards as a hospital, but at roughly half the cost. This disparity in reimbursement between an ASC and OBS has been increasing over the last decade, and appears set to grow: Medicare’s office GI rates are set to drop by 4.1% in 2025 while ASC facility fees are increasing by 3.4%.

Opening an ASC is expensive, no doubt. But with guidance and sound planning, it is less daunting than it initially appears. Firstly, an endoscopy center is usually a project between multiple GIs, meaning that the risk, and the startup cost is defrayed across multiple Members. Secondly, most of the expenses, particularly those for buildout and equipment, can be financed. This means that each GI is often only contributing $30 to $100 thousand of their own capital, which for well-run centers, is recouped in the first distribution, and then is paid back many-fold each year. Even after taking into account the site-of-service impact of closing the OBS (especially the reduced professional fee), overall take-home compensation for the GIs improves meaningfully at the ASC – often more than doubling. 

Long-Term Gains with ASCs

The real benefit of an ASC, though, is the long-term value. Owning an ASC gives you an asset that can be sold if you ever want to get out or retire. It is a licensed outpatient facility that allows for easy syndication to new physicians and partial sales to hospital or strategic partners. An ASC has real value – the license alone is typically worth $1-4 million depending on the number of rooms and the state, and they typically trade at 6-8x profits. Compare this to an OBS, which is just an extension of your practice, with little to no resale value. We have helped multiple clients buy GI practices and worked with many gastroenterologists who have tried to sell their practice & OBS and they are often surprised to find that they have de-minimis value in the market place. Had they chosen to partner with an ASC, their share at retirement would in some cases have been worth multiple millions.

Bottom Line

While OBS may seem like a cheaper and easier option at first, it’s becoming less of a viable choice long-term. ASCs, while more expensive to set up, offer far more long-term benefits, including better profitability, rising reimbursements, and a more valuable eventual exit. For gastroenterologists looking to grow their practice and set themselves up for long-term success, switching to a well thought out ASC is usually a smart move.