Ownership shares continue to shift at two area surgery centers, with private equity-backed firms from outside the region taking a larger share.
That's the latest local transaction in an ongoing national trend that shifts ownership of surgery centers away from local surgeons and hospital systems that made the initial investment to launch the sites.
The newest deals affect two freestanding gastroenterology ambulatory surgery centers: the Endoscopy Center of WNY on Sheridan Drive in Amherst and Endoscopy Center of Niagara on Williams Road in Niagara Falls.
Both were developed by groups of physicians in partnership with hospitals, in this case, Niagara Falls Memorial Medical Center and Kaleida Health. Another partner was Physicians Endoscopy LLC, a national provider of administrative and consulting services.
As physicians retired or opted to cash out, shares were sold to LLCs controlled by companies backed by private equity. That continued this summer, when PE Healthcare Associates LLC gained another 15%, bringing total ownership shares in the Amherst site up to 39%; and up to nearly 12% in the Niagara site. Based in New York City, PE Healthcare Associates LLC has ownership in 16 freestanding ambulatory surgery centers across the state.
The move confirms the region’s ongoing attractiveness to outside groups, said Matt Drake, executive vice president for strategy and partnerships at Kaleida Health.
“Venture capital and private equity VC are active and Buffalo/Western New York is an attractive region for them given its fragmentation versus other communities – even in upstate New York,” he said.
He pointed to investments in other health care verticals across the region, including Windsong Radiology, which became part of PE-backed U.S. Radiology in 2020; and WellNow, which is majority owned by TAG The Aspen Group, also supported by private equity.
Others include larger specialty groups such as Buffalo Medical Group, Primary Care Independent Practice Association and CinqCare, which have partnerships with private equity groups. The same is true for veterinary health.
Venture capital in health care has been around for 30 years or more, but the pace of investments in ambulatory surgery centers (ASC) has been increasing, said Matthew Bates, managing director and physician enterprise service line lead with national consulting firm Kaufman Hall.
“We are seeing a huge increase in both PE and commercial money into surgery centers,” he said.
Part of the reason for the increase comes from physicians who need additional resources to get into the business of surgery center ownership, providing a second source of income.
“So the economic driver of this joint venture with PE is economically as a doctor, I can make more if I have an ownership stake. So every orthopedic surgeon, every GI doc, every endoscopy doc in this country, if they aren’t already an owner in a surgery center is getting calls from multiple parties saying ‘We’d love to joint venture with you’,” Bates said.
The share owned by PE firms grows when physicians use their ownership as a retirement option.
“It’s just like in the old days when the doctor would own their office building. It was often the most valuable piece of their practice. The ASC is also an asset,” he said.
Kaleida’s Drake said that can also have a negative impact, however.
“They are here because they see opportunity to generate a return for their stakeholders,” Drake said. “Unfortunately, that return is health care dollars from Western New York that leave the market as opposed to staying locally to be reinvested in our health care system.”