What Happens When a Hospital Poaches Your ASC’s Top Producer?
Written by: Robert Goettling, Esq., The Bloom Organization, LLC
Ask independent physicians how the last few years have gone and you will hear the same story. Medicare reimbursement has not kept pace, commercial payer contracts rarely make up the difference, and the cost of running a practice goes up every year. As a result, docs see more patients and work longer days just to hold their margins where they were. We call this the “Hamster Wheel Effect” and no physician can keep running faster every year just to stay in the same place. Eventually, something has to give.
The numbers back it up. According to the AMA, Medicare physician pay has been essentially flat since 2001 while practice costs rose 59%, a 33% cut after inflation. Only 42.2% of physicians were in private practice in 2024, down from 60.1% in 2012.
When something gives, it often starts with a call from the local hospital. Health systems are actively recruiting independent surgeons, and for a high producing physician tired of the constant pressure, a guaranteed salary and freedom from managing payers and overhead can be an attractive offer. Others join larger groups, partner with private equity, or sell their practices. For the physician, any of these may be the right move. But for the surgery center they own, that decision could pose the biggest risk which no one has prepared for.
What One Decision Can Do to Your Center
In most centers we look at, a handful of surgeons drive a large share of the cases and earnings. In a partnership of fifteen or twenty physicians, one productive doc making a career decision can change the entire picture of the ASC.
Hospital employment is the clearest example of this problem. Not every employment arrangement ends a physician’s participation in his ASC, but many do. Terms vary by system, market, and specialty, and some leave room for continued ownership. But an employment agreement may restrict ownership in a competing facility, and even where ownership is permitted, the employer will often expect cases to move to system facilities. Referral patterns can shift with them, including referrals from the physician’s former practice partners. Where that happens, your center loses more than a partner. It loses the cases.
Because a surgery center carries heavy fixed costs, lost volume hits earnings hard, and ASC value is driven by earnings. As we tell our clients, a buyer is not paying for your building or equipment. They are paying for the cases, and for the assurance those cases will still be there in the future. Lose your top producer, and you can lose a meaningful piece of your distributions and your valuation at the same time. This is happening now. That is not a reason to panic. It is a reason to plan.
Always Be Evaluating
We tell our physician clients to follow ABE: Always Be Evaluating. For your ASC, that means being able to answer these questions honestly, by name and by number:
- Concentration. What share of your cases and earnings comes from your top three surgeons? If you cannot answer that quickly, start there.
- Downside. If your single most productive partner left next year, what would happen to case volume, distributions, and your ability to cover fixed costs? Have you actually run the numbers?
- Exposure. Which partners are most likely to get that call from a hospital or buyer? Whose practice is under the most financial strain? Who is nearing retirement or a practice sale?
- Trends. Is any partner’s utilization drifting down? Declining volume is often the earliest sign that cases are moving elsewhere or a physician is winding down.
- Value. How would losing a key partner affect what your center is worth, and what a partner or buyer would pay for it?
- Options. Stay independent, restructure, recruit, or bring in a partner that offers more than cash? Depending on your center, even an ESOP may be worth a look.
There is no one-size-fits-all answer. It depends on your specialty, market, physician base, ownership structure, finances, and what your partners actually want.
What You Need to Do
Your ASC should conduct a Physician Utilization Risk Analysis at least annually. Even if it is running well today. Especially if it is running well today, because that is when you have the most options.
The analysis is a physician-by-physician look at your center: case volume, revenue and earnings contribution, utilization trends over time, and the individual circumstances of each partner, including retirement horizon, practice health, and any employment or acquisition conversations. It also looks at your operating agreement to see what actually happens to ownership and volume if a partner leaves. It serves two purposes.
Identify potential problems before they become problems. The goal is to know which physicians present future risk to your center while there is still time to act. That could be a top producer approaching retirement, a surgeon being courted by a hospital, a partner whose practice is likely to sell, or a doc whose utilization has quietly declined. None of these show up on a monthly financial statement until the cases are already gone.
Develop a proactive strategic plan. Once you know where the risks are, you can do something about them. Some can be resolved early: recruiting new surgeons to spread out volume, bringing younger physicians into ownership, tightening operating agreement provisions, or addressing a partner’s concerns before they become a resignation letter. Some cannot. If a key partner is clearly headed for retirement or employment, you need a broader plan to protect your center’s future volume, earnings, and value, and that may include evaluating strategic alternatives while your numbers are still strong.
What you cannot afford to do is wait until a physician leaves to find out how that departure affects your business. By then, someone else has set your timeline. Keeping your head in the sand only guarantees it.
This is the exact work we have been doing for more than 30 years. Bloom got its start advising physician-owned surgery centers; and ASC strategy and transactions remain at the core of what we do. We can help you evaluate physician utilization and concentration risk, identify threats to future case volume and profitability, build practical strategies to mitigate those risks, and evaluate strategic alternatives when it makes sense. Sometimes the answer is to stay the course with a better plan. Either way, you should know where you stand.
If your partners have not taken a hard look at physician risk in the past year, we would welcome a confidential conversation about conducting a Physician Utilization Risk Analysis for your center. Contact the Bloom ASC team at https://bloomllc.com/contact-us/ or call us directly at 305-974-0700.