CMS reimbursement changes and private equity investments are driving the shift of cardiovascular procedures to outpatient settings, presenting new opportunities for cardiologists.

By Andrew Colbert

Since 2019, the Centers for Medicare & Medicaid Services (CMS) has approved many cardiovascular procedures as outpatient procedures, with reimbursement to encourage the shift toward ambulatory surgical center (ASC)-based care.

The reasons for the CMS’ changes to cardiovascular reimbursements are familiar: Patient demand is rising, and the costs of providing care are already high. According to the American Heart Association, heart disease and stroke caused more deaths in the United States in 2021 than all types of cancer combined—and spending on cardiovascular diseases (CVD) accounted for 12% of the country’s total health expenditures (well above other major diagnostic groups). 

Projections of CVD prevalence in the future are also daunting. More than 40% of the country’s population is expected to experience a form of CVD by 2030, an increase of 10% from 2011.

Not all of the news is negative, however. Cardiologists and medical device manufacturers have devised innovative treatment options to address patient needs, and CMS is acting decisively to make these treatments and other cardiovascular care more accessible, both in terms of physical location and cost to patients.

ASCs are the main pathway to both forms of accessibility. Here CMS is taking a page from the orthopedics playbook. The share of orthopedic surgeries performed in outpatient settings has increased dramatically over the past decade or so, and ASC-based surgeries have been shown to cost less than their hospital-based counterparts. In fact, a 2022 analysis revealed that a shift from hospital-based to ASC-based musculoskeletal procedures saved Medicare $3.26 billion between 2011 and 2018.

While each procedure costs less at an ASC than at a hospital, overall utilization of surgical care is up, largely driven by an increasing aging population. In comparing the projected need to the existing resources and reimbursement trends, private investment firms uncovered a massive opportunity: to use their capital and organizational expertise to expand patient care while giving providers a piece of the upside.

Considering its success with orthopedics, dermatology, gastroenterology, and other specialties, private equity has a track record of anticipating emerging markets in healthcare. Today’s demographic trends, changes to reimbursement, and expanded treatment options are now drawing private equity attention to cardiology.

What Are Cardiologists’ Options?

If orthopedics is at the bottom of the fourth inning in terms of industry consolidation and maturity, the game is just beginning for cardiology. What’s the state of the playing field for cardiologists who want to understand their practice options?

Looking at the recent history of specialties like orthopedics can be instructive. But just as cardiology differs in some key respects from orthopedics or dermatology, the regulatory environment today is—for the moment at least—more constrained than it was in the early innings for those specialties. Still, the timing is right to evaluate the new practice opportunities open in cardiology—especially for those physicians with untapped entrepreneurial skills and ambitions.

Here are the three basic pathways open to cardiologists: 

  1.  Stick with the status quo: Remain employed with a hospital. This pathway is risky in that cardiovascular patient volume is likely to migrate to outpatient settings, so hospitals will be forced to look for new efficiencies. (CMS created efficiencies of its own with a cut to physician fee reimbursement of more than 3% last year. The Biden Administration eased this cut in its most recent budget, which took effect Jan 1, 2024, but only by 1.68%.) As the American College of Cardiology has reported, Medicare reimbursements for cardiology procedures have dropped by 26% over the past 20 years, while expenses have increased by 47%—an unideal context for the specialty. Still, cardiologists employed by hospitals and health systems are likely to enjoy strong job security and avoid possible friction with partners or backers whose operational visions or values diverge from theirs.
  2. Pursue a new partnership: In the current landscape, most cardiovascular partnerships will have the goal of establishing or scaling up an independent ASC—a move that promises autonomy, access to greater financial upside, and the opportunity to flex entrepreneurial skills. A range of partners are available for this pathway, each with a unique set of benefits and drawbacks. A short list of prospective partners includes:
    1. Other cardiologists
    2. A national Management Service Organization (MSO)
    3. Private equity funders
      • These differ in terms of the amount of capital they can supply, the forms of expertise they bring to the table, and the operational latitude they’re willing to give. The amount of personal investment—money and time—demanded of the physician is also an important variable to consider.
  3. Join (or sell to) a national physician organization: This pathway gives cardiologists access to ample capital, established infrastructure, and a variety of capabilities needed to serve patients (including navigating state-by-state regulations). These benefits do detract from the possible upside and autonomy available in different partnership models, but they constitute a stable, high-energy form of employment for individual physicians—and a solid payout for physician-owners of their own cardiovascular practice. In the case of the latter, selling to a specialty-specific organization also means sustained, excellent care and expanded service lines for existing patients.

The Bigger Picture: Balancing Power in Healthcare

Demographic trends and shifts in reimbursement have led to a host of new opportunities for cardiologists. The bigger picture features new constraints, too. Certificate of need laws, now in place in 35 states plus the District of Columbia, influence where new health facilities can legally be established. And ongoing government inquiries into the effects of private equity involvement in healthcare may affect partnership opportunities or deal terms.

Cardiologists will want to keep an eye on these developments themselves, but they should also be consulting with experts who have an understanding of this bigger picture. Currently, the payor side of healthcare is ascendant—insurers have devised numerous strategies to limit their liability for care, their lobbying clout is unmatched, and they’ve even started chipping away at the provider side’s talent by hiring physicians directly. 

In this view, private equity is a much-needed force that can restore some of the provider side’s power. Hospitals and health systems are facing some profound financial challenges at the moment; new sources of capital are the only way to recapture and then sustain a more balanced power dynamic.

The future success of practice depends on laying out the owners’ long-term objectives and goals clearly and comprehensively at the outset. Regardless of the desired strategic path, cardiologists will want to enlist a trusted and experienced advisor, typically an investment banker, to help guide them throughout this complex journey.

Andrew Colbert is a senior managing director and founding member of Ziegler’s Healthcare Investment Banking practice. Colbert has represented 55 physician groups on transactions totaling over $5.7 billion in value. He specializes in advising physician groups on strategic and financing alternatives including PSAs, mergers/acquisitions, health system partnerships, joint ventures, MSOs, strategic partnerships, private equity deals and capital investments. More information is available at https://www.ziegler.com/physician-groups.

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