Invest in ASC (Surgery Center) vs Total Market?

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PhinanceMD
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Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

I am beyond grateful for the wisdom of this forum in the past few years and have followed the BH philosophy to a T. We are debt free, own no homes, and have a ~66/33 stock/bond ratio in various taxable/retirement low expense mutual funds (~3.0M).

My wife and I are part-time physicians with 2 kiddos (3+1), total income ~400K/yr, increasingly we have been approached to invest/own a small stake of the ambulatory surgery centers (ASC) where we do our procedures. The stake would be minor 1%, would involve us to put money down (200K or so) with the promise of "very healthy returns". People in our same situation are making 5-10K/mo (or more) in distributions from the ownership stake, which comes directly from the generous facility fees paid by insurance. Basically it's a double dip, you work, collect an income for your professional work but then receive a monthly distribution (5-10K) from the ownership stake. This of course comes with meetings, dealing with other partners, but the ROI is supposed to be amazing.

My gut tells me this violates some of the BH philosophy, basically that I would be better off putting that 200K or so in a total market fund like we have been, that is truly passive, lower ROI, but more diversified and comes with less hassle. Anyone experienced in ASCs or have an opinion on this?

Here's an article about ASC investment:
https://www.sdtplanning.com/blog/buying ... ery-center
Last edited by PhinanceMD on Sun May 28, 2023 9:13 am, edited 1 time in total.
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Rex66
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by Rex66 »

More risk for the potential of more returns

Many bogleheadish physicians would do it after filling the standard “buckets”…..401k, back door Roth etc

It isn’t going to be bogkeheadish “standard” bc most have no access to this and many have less available funds after the standard buckets
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ResearchMed
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by ResearchMed »

PhinanceMD wrote: Sat May 27, 2023 10:12 am to invest/own a small stake of the ambulatory surgery centers (ASC) where we do our procedures

If you are investing where you practice, then you've got both your income and part of your investments tied to the success (or lack thereof) of the same enterprise. That's probably not a good idea, no different from recommendations here not to hold stock in the employer company.

RM
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

great point
ResearchMed wrote: Sat May 27, 2023 10:28 am If you are investing where you practice, then you've got both your income and part of your investments tied to the success (or lack thereof) of the same enterprise. That's probably not a good idea, no different from recommendations here not to hold stock in the employer company.

RM
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by snowday2022 »

ResearchMed wrote: Sat May 27, 2023 10:28 am
PhinanceMD wrote: Sat May 27, 2023 10:12 am to invest/own a small stake of the ambulatory surgery centers (ASC) where we do our procedures

If you are investing where you practice, then you've got both your income and part of your investments tied to the success (or lack thereof) of the same enterprise. That's probably not a good idea, no different from recommendations here not to hold stock in the employer company.

RM
What happens if you stop operating at the ASC?
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by snowday2022 »

ResearchMed wrote: Sat May 27, 2023 10:28 am
PhinanceMD wrote: Sat May 27, 2023 10:12 am to invest/own a small stake of the ambulatory surgery centers (ASC) where we do our procedures

If you are investing where you practice, then you've got both your income and part of your investments tied to the success (or lack thereof) of the same enterprise. That's probably not a good idea, no different from recommendations here not to hold stock in the employer company.

RM
This is true, but really rich MDs that own their practice and invest in it do this regularly. Higher risk higher reward. You’re pretty much set with 3M anyway.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by the_wiki »

You have 3 Mil. A $200k investment is less than 7% of your portfolio. If the investment looks good to you, I don't see how it's even that big of a risk.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by GreendaleCC »

PhinanceMD wrote: Sat May 27, 2023 10:12 am The stake would be minor 1%, would involve us to put money down (200K or so) with the promise of "very healthy returns". People in our same situation are making 5-10K/mo (or more) in distributions from the ownership stake, which comes directly from the generous facility fees paid by insurance policyholders' premiums.
It sounds like a reasonable investment to me, but let's not pretend that these profits come from someplace other than consumers' pockets. (I recognize that was probably not your intention.)
Last edited by GreendaleCC on Sat May 27, 2023 11:50 am, edited 1 time in total.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

Yes, the US health care system is broken in many ways and way too expensive. Ironically the out of pocket consumer (patient) costs at ASCs are much lower than hospitals. 7% is no small chunk of change. My question is really about the principle of comparing a 200K investment in an ASC (high risk, high reward) vs total US equity market (medium risk, medium reward in comparison) in terms of pros and cons.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

I don't know too much of the specifics, but my general understanding is you would be forced to sell your share since you are no longer contributing any value.
What happens if you stop operating at the ASC?
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by GreendaleCC »

PhinanceMD wrote: Sat May 27, 2023 11:50 am Yes, the US health care system is broken in many ways and way too expensive. Ironically the out of pocket consumer (patient) costs at ASCs are much lower than hospitals. 7% is no small chunk of change. My question is really about the principle of comparing a 200K investment in an ASC (high risk, high reward) vs total US equity market (medium risk, medium reward in comparison) in terms of pros and cons.
I agree with the others who would seriously consider it, if given the chance. Just like any other opportunity to buy into a partnership where you work, it seems like you'd have much more information regarding the day-to-day business operations compared to another investment. Seven percent is a lot, but how long before this investment comprises 5% (or less) as your portfolio grows?
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by afan »

I would do it, provided that the rest of the deal checks out. Does the SAC run well? Learn about the lease, expenditures, need for repairs and upgrades...

At your NW, $200,000 is a perfectly reasonable amount to invest. I assume the amount you can put in reflects the volume of procedures you do?

From what you describe, this does not sound risky.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by toddthebod »

I know a number of physicians who do this, and they make a lot of money. A group of orthopedic surgeons in Milwaukee built their own hospital, and they make more money from owning the hospital than they do for doing surgery.

With the current state of the market in healthcare, I would not consider investing in a healthcare facility to be nearly as risky as another type of business. The demand so far outstrips supply, that your biggest risk is further cuts in reimbursement (which again is an advantage of this setup: getting your procedure fee and a portion of the facility fee for each case).
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by delamer »

GreendaleCC wrote: Sat May 27, 2023 11:45 am
PhinanceMD wrote: Sat May 27, 2023 10:12 am The stake would be minor 1%, would involve us to put money down (200K or so) with the promise of "very healthy returns". People in our same situation are making 5-10K/mo (or more) in distributions from the ownership stake, which comes directly from the generous facility fees paid by insurance policyholders' premiums.
It sounds like a reasonable investment to me, but let's not pretend that these profits come from someplace other than consumers' pockets. (I recognize that was probably not your intention.)
As opposed to the profits of, let’s say, the S&P 500?
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by delamer »

PhinanceMD wrote: Sat May 27, 2023 11:53 am I don't know too much of the specifics, but my general understanding is you would be forced to sell your share since you are no longer contributing any value.
What happens if you stop operating at the ASC?
And what about the opposite — you intend to keep practicing at the facility but want to sell your share?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by jeam3131 »

Ah, the good old facility fees. One of the great scams in American healthcare. No clue why this hasn't been cracked down on as its ripe for abuse and is abused regularly. Does it save money to do a procedure in an ASC compared to a hospital/HOPD? Yes. But now we have doctors that do procedures in ASCs that can be done in the office just because they have ownership in said ASC and can make 3-4x the profit compared to doing this in an office.

Either way, you'll need a detailed understanding of the ASC, who else works there, how many procedures they do, at what capacity is it working at etc. Probably worth reaching out to someone else who's invested in one.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by Stinky »

PhinanceMD wrote: Sat May 27, 2023 10:12 am People in our same situation are making 5-10K/mo (or more) in distributions from the ownership stake….
Is that the expected distribution from this particular surgery center?

Can you get access to the actual distribution schedule for this center for the last year or two?

Would you be required to contribute additional capital if it was needed?
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

Great points, I would a small owner 1% in this ASC that has been going for almost 4 yrs and very productive. Still early in talks, so no clue what the distributions are exactly, for larger percent owners/founders they receive 25-50K per month (which is crazy on top of their professional fees). Again pro con of being a small owner coming in 4-5yrs in, not ground level, and not having control of most decisions bc of small ownership.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

Don't know about contributing additional capital, my sense is when capital is needed most of these owners are happy to pony up to increase their percent ownership and thus percent of distribution.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by afan »

With one exception, the people I know who own parts of ASCs are quite happy with the investment.
I know one that was successful financially but they got tired or running it. I don't know all the details but they made a deal with their hospital. The hospital took over running the center, for a fee of course, and the docs still profited.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by 8000m »

What are the forced sale terms (e.g. valuation methodology, payout sequence, etc.) when you stop practicing?
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

Yes, I think most physicians have been very happy with their ROI at ASCs. I think it's on average 20% ROI annually (this is what I've heard, I have no hard data). Doesn't a high return automatically mean there is an inherent higher risk? Isn't that part of the foundation of investing.

I think you're starting to help me parse out some of the things that are concerning me about this type of investment, forced sell if you leave, not as liquid as mutual funds, small decision making correlating which percent ownership. What about taxes, this is a distribution from ownership in an ASC, I'm assuming it would be treated as ordinary income and not qualified?
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by lj3md »

The major risks are a big group breaking away and joining another center or loss of an insurance contract. Then you have high fixed cost of rent and lot of times expensive medical equipment that has a long term lease, but the revenue has declined. The other issue you sometimes see is people who own shares but don’t do many cases. In that scenario they are suppose to be bought out secondary to not meeting safe harbor exemptions. The final thing is that when you leave, the center typically has the option but not the requirement to buy you out. Buyout is usually based on some trailing profit calculation. Typically it’s a good deal, but it’s more fair if people have equal ownership. You may check to see if you can buy more overtime. In your scenario the larger owner will want you to stay there for the benefit of your cases. I own a small part of an ASC. I chose mine based on convenience. There was another center where the investment would probably be more lucrative but the center I chose allowed me to do cases basically every morning prior to clinic starting. In addition it is right next to the hospital so I don’t have to make a separate trip to round. I can also do small cases at the ASC in between larger cases at the main hospital.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

Very helpful, thank you for your expertise in defining the major risks.
lj3md wrote: Sat May 27, 2023 4:30 pm The major risks are a big group breaking away and joining another center or loss of an insurance contract. Then you have high fixed cost of rent and lot of times expensive medical equipment that has a long term lease, but the revenue has declined. The other issue you sometimes see is people who own shares but don’t do many cases. In that scenario they are suppose to be bought out secondary to not meeting safe harbor exemptions. The final thing is that when you leave, the center typically has the option but not the requirement to buy you out. Buyout is usually based on some trailing profit calculation. Typically it’s a good deal, but it’s more fair if people have equal ownership. You may check to see if you can buy more overtime. In your scenario the larger owner will want you to stay there for the benefit of your cases. I own a small part of an ASC. I chose mine based on convenience. There was another center where the investment would probably be more lucrative but the center I chose allowed me to do cases basically every morning prior to clinic starting. In addition it is right next to the hospital so I don’t have to make a separate trip to round. I can also do small cases at the ASC in between larger cases at the main hospital.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by HipCoyote »

PhinanceMD wrote: Sat May 27, 2023 10:12 am I am beyond grateful for the wisdom of this forum in the past few years and have followed the BH philosophy to a T. We are debt free, own no homes, and have a ~66/33 stock/bond ratio in various taxable/retirement low expense mutual funds (~3.0M).

My wife and I are part physicians with 2 kiddos (3+1), total income ~400K/yr, increasingly we have been approached to invest/own a small stake of the ambulatory surgery centers (ASC) where we do our procedures. The stake would be minor 1%, would involve us to put money down (200K or so) with the promise of "very healthy returns". People in our same situation are making 5-10K/mo (or more) in distributions from the ownership stake, which comes directly from the generous facility fees paid by insurance. Basically it's a double dip, you work, collect an income for your professional work but then receive a monthly distribution (5-10K) from the ownership stake. This of course comes with meetings, dealing with other partners, but the ROI is supposed to be amazing.

My gut tells me this violates some of the BH philosophy, basically that I would be better off putting that 200K or so in a total market fund like we have been, that is truly passive, lower ROI, but more diversified and comes with less hassle. Anyone experienced in ASCs or have an opinion on this?

Here's an article about ASC investment:
https://www.sdtplanning.com/blog/buying ... ery-center
You might want to see what people are saying on whitecoatinvestor.com which specializes in physician related finances. There might be someone who specializes on this kind of thing there.

As an outsider looking in, you are well on your way in the financial world. Investing 200K (or about 7% of your net worth) into this seems reasonable. Are there risks? Yep. But there is also reward. Could you afford to lose 200K? Probably so. Do due diligence, perhaps seek legal counsel (some on whitecoat) and think about going for it.

The only other suggestion I might make is to have an attorney specializing in contracts for docs look at your contracts with regard to pay. Two surgeons should be making more than 400K unless that "part" means part time or I misread. ( Im pretty active on whitecoat.)
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by TXDoc21 »

I have a similar stake in an ASC.
What’s the competition like? How long have they been in business — what’s their track record? How is their group of docs that use the place? Wide variety of doctors? Not a bunch of surgeons who are the bread winners for the place but also about to retire?

I recommended to another doc to ask for some of the financials and say you need to show it to a local bank to get a loan (even if you plan on paying with cash). This is a good way anyway to have a relationship with a local banker if you ever had a need. But I took the documents to a bank that does physician practice loans and did one of the buy-ins with a loan back when money was cheap.

My ASC investment has been just under 30% return annually (pre-tax). I spoke to as many other docs that I knew that were invested in the place and took a leap of faith. No regrets. Would buy more.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by doc4sleep »

I have similar ownership in a couple of working medical partnerships. One at a surgical center and another at a medical billing company. Yearly distributions average between 20-30% in addition to growth in share value. You have correctly identified that you are entering a riskier area of investing. Ownership in small business is inherently riskier than broad market index investing which explains the better returns. Be aware that things don't always work out but you have indicated you are already well on your way to financial independence and this would be a further diversification of assets. I am glad I took the risk years ago and continue to invest as shares become available. In most cases you are required to sell your shares when you no longer practice at that facility. I am looking at retiring in a few years and will walk away with well over $1M from selling shares that younger partners are anxious to acquire. Over time this has become a smaller part of a diversified portfolio which includes real estate, index investing (50:50 TSM/SCV) as well as ownership in partnerships. While I may have riskier asset classes it is based on being totally debt free with a very stable income. I do not think identifying as a Boglehead necessarily limits one to only index investing.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by KingRiggs »

With a solid current net worth and the ability for one or both of you to go more full time if things go sour, investing 7% of your portfolio in this is (most likely) a no-brainer.

I have a similar investment, and it has BY FAR exceeded the ROI on any other investment I have made. If my ownership stake went to zero value tomorrow, I would have already recouped many multiples of my initial investment. I would walk away a happy man.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by Parkinglotracer »

Devil is in the details …. Get the financial records books for the entity you are investing in and talk to someone that understands the books that isn’t interested in selling you a share. If you know it’s a good business find out if it is run well without major risks, liabilities or debts. If there are no surprises I’d be in if it is a small portion of my overall portfolio. Always good to invest in an area you know. Good luck

As my business teacher used to say it is the opportunities that you don’t take as well as the ones you do take that will be responsible for your success or not.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by marielake »

The $25K-$50K per month that some surgeons are earning sounds like gross income Be sure you understand revenue and expenses and how they are distributed among partners.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by bmelikia »

ResearchMed wrote: Sat May 27, 2023 10:28 am
PhinanceMD wrote: Sat May 27, 2023 10:12 am to invest/own a small stake of the ambulatory surgery centers (ASC) where we do our procedures

If you are investing where you practice, then you've got both your income and part of your investments tied to the success (or lack thereof) of the same enterprise. That's probably not a good idea, no different from recommendations here not to hold stock in the employer company.

RM
By that logic, no one should ever be a business owner due to the outcome of one’s investment being so tied to the success of the same enterprise
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by investuntilimrich »

You'll be OK regrdless of whether that investment works out or not long term. The real danger here is that you won't be able stop yourself from other, similar investments if you have initial success.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by IDK1962 »

Unclear age for OP, but if kids are 3 and 1 yo, I would assume a few more years of work. On that income and current net worth of 3 mm, they should be able to save a good amount and build NW quite well, without great effort. While ASC investment return is tempting, be careful about succumbing to fear of missing out. Mutual funds/ETFs, equity investments are much more liquid than partnership interest in ASC and require much less time/energy. MF/ETF expense ratio is much less than transaction and opportunity costs of the ASC (time evaluating the investment, meetings (your time is worth something), lawyer's and accountant's fees), and you aren't tethered to the ASC if your work situation changes, or you want/need to move. 30% ROI, or whatever the gross return might be, does not reflect effective return, after all the other costs, which shouldn't be ignored. OP is also part time, as is their spouse/partner. If that's for work-life balance or other family obligations, then don't ignore that in this calculation. On the other hand, if you have an interest or passion to get involved with ASC management and don't mind spending time in meetings, talking with your accountant more, and learning the business side of the operation, then it could be a great opportunity.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

Thank you, yes it's the time and energy required that concerns me, thank you all for your perspective. Quick clarification, I thought the 20-30% ROI annually was the distribution AFTER expenses, meaning net profit not gross income, am I missing something? My amateur understanding so far is they pay their expenses/rent/staff payroll with the facility fees and whatever is left each month is distributed to the partners/owners.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by queenofthemadhouse »

I would absolutely do this at the percentage you are talking about. I would also decide up front what percentage of you net worth is the maximum you would commit to this. It sounds like it would be 5-10 percent of your current portfolio. That does not seem like an unreasonable percentage for a business venture, but you may want to keep it there and funnel distributions back into your usual assets, and I would decide that up front. Or you may want to buy in more I. The future, but I’d set a cap now.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by TXDoc21 »

PhinanceMD wrote: Sun May 28, 2023 9:21 am Thank you, yes it's the time and energy required that concerns me, thank you all for your perspective. Quick clarification, I thought the 20-30% ROI annually was the distribution AFTER expenses, meaning net profit not gross income, am I missing something? My amateur understanding so far is they pay their expenses/rent/staff payroll with the facility fees and whatever is left each month is distributed to the partners/owners.
Yes that sounds right. But then you pay taxes on the distributions. So pre-tax ROI for 30% - minus your taxes = post-tax ROI. Right? That's how it works for me.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by marielake »

"
Thank you, yes it's the time and energy required that concerns me, thank you all for your perspective. Quick clarification, I thought the 20-30% ROI annually was the distribution AFTER expenses, meaning net profit not gross income, am I missing something? My amateur understanding so far is they pay their expenses/rent/staff payroll with the facility fees and whatever is left each month is distributed to the partners/owners."
My background is physician comp planning. No two comp plans are alike. You need to know the details of the practice. Ask for the financials. Know how expenses and distributions are split. Is it based on FTE, revenue generated or work produced? Are expenses pooled or allocated back to individual doc. Also understand benefits and compensation after benefits.
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Re: Invest in ASC (Surgery Center) vs Total Market?

Post by PhinanceMD »

My wife is a surgeon (part-time), I'm an anesthesiologist (also part-time). The other 2 anesthesiologists at my ASC are owners and medical directors, because they helped found the place. Our income discrepancy is significant when you compare my work-only income vs their work+monthly distribution. Since I don't bring cases to the ASC, I'm told I will have a chance to buy when one of the partners retires (2-3yrs) and I become a medical director. My wife's opportunity is to build an ASC from scratch with a few other partners in similar field.

For the ROI assuming it's 25% pre-tax (net profit), at our income bracket 35% federal + 9.9% state, would we pay ordinary taxes on this or are surgery center distributions considered qualified?
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