ASC Insights: Payment arbitration, case complexity, and the role of private equity in ASCs with Austin Cheng, CEO of Gramercy Surgery Center

[00:00:06] [SPEAKER_01] Welcome to the ASC Insights Series. I'm Lindsay with Medtronic, and we're excited to be at Ask Us Emma 2026, where we're speaking with different ASC leaders to learn about the ever-changing market of ASCs. Today, I'm pleased to be with Alexis with Outcomes Rocket, as well as Austin. Welcome, Austin.

[00:00:26] [SPEAKER_02] Austin Cheng, Thank you. Thank you for having me.

[00:00:28] [SPEAKER_01] Absolutely. So give the audience a little bit of intro to yourself. Like, give me and them some background on, you know, who you are, what you do with your facility, et cetera.

[00:00:37] [SPEAKER_02] Austin Cheng, Yeah. Thank you for having me. My name is Austin Cheng. I'm the CEO of Gramercy Surgery Center. We run two of New York's leading independent ambulatory surgery centers in New York City. We were founded by my mother, actually. So I'm a second-generation owner-operator.

[00:00:54] [SPEAKER_01] Austin Cheng, That's super powerful to come from a second-generation family, and I think that's really great and something I'm excited to talk about what comes next.

[00:01:02] [SPEAKER_00] You know, I think one of the things we've been talking to about different folks who are sort of in your shoes over the last few conversations is how much the landscape is changing. ASCs are growing so rapidly. I think that it makes sense that so many patients want to get a procedure in an ASC because they're able to go home the same day.

[00:01:24] [SPEAKER_00] Austin Cheng, That's a great way. We've heard people talk about how, you know, going into an ASC is a place where they don't necessarily feel sick. They're getting a procedure. They're getting something done. But it's not that a hospital kind of feel. But, you know, just based on your experience, like, what are you seeing in terms of trends or changes? What's really grabbing your attention?

[00:01:40] [SPEAKER_02] Well, I think that there were a lot of good things that came out of COVID for the surgery center industry. I think one was there's more education of, you know, what a surgery center is. I think more people start to ask, are there alternative, you know, sites of care that a hospital that I can go to? And I think that that was just led to, you know, education, you know, at the society level of what my surgery center is.

[00:02:07] [SPEAKER_02] And I think that's the trend is to continue driving more cases, more patients, outpatient and to surgery centers. So definitely something that I think started or really accelerated with COVID. And then we're seeing additional volume being driven by payers or maybe even like employers who are, you know, self-funded, self-insured,

[00:02:35] [SPEAKER_02] who are looking at ways to drive down the cost of care without, you know, sacrificing the quality. So they're looking to surgery centers. Yeah.

[00:02:42] [SPEAKER_00] I think that's a great point. And what we were saying about how the education around surgery centers and what they're there to do has changed. Do you feel like there's any like misperceptions or misconceptions, Bill, or do you think it's all kind of cleared up?

[00:02:54] [SPEAKER_02] I think there's always work to do as an industry to educate the people on what an ambulatory surgery center is. You know, the terminology itself, ambulatory surgery center is like so clunky. And maybe we can do something about that. Yeah, but yeah, I think, you know, always some education to do there. But I think, you know, for those of us in the industry who know what it is,

[00:03:23] [SPEAKER_02] I think that we could do a little bit better about positioning ourselves in a way that expresses, hey, we're not here to compete with, you know, the hospitals or the health systems. We're here to supplement and create an alternative, you know, additional patient access point so that we can increase access to care. We can help drive down, you know, the cost of care. We can help keep, you know, physicians independent if they want and not have to be, you know, part of the health system.

[00:03:52] [SPEAKER_02] So I think there's a lot of great, you know, talking points that as ASCs we need to hit on and keep telling people how great we are.

[00:04:02] [SPEAKER_01] I love that. Absolutely. Keep telling them. One thing I'm really curious about, as you see case complexity getting more and more intense, it's kind of evolving. Where do you guys draw the line right now and where do you see that line moving?

[00:04:18] [SPEAKER_02] Yeah. So case complexity, I think, has been a topic of conversation for us for a few reasons. You know, we're always looking at finding more, you know, more procedures that we can do in our setting. You know, of course, we're running a, you know, you're running a business that needs to, you know, keep producing, you know, from a financial standpoint.

[00:04:45] [SPEAKER_02] So I think there are certain, you know, there are incentives to kind of look at those cases, see if you can accommodate them in your facility. And I think there's an added benefit of driving, even though the surgery centers are making a higher margin on them. So I think that that is going to continue. I think it started with, you know, higher acuity orthopedic procedures like total joints, spine.

[00:05:12] [SPEAKER_02] I've seen cardiovascular shifts definitely out of a hospital setting to a freestanding ambulatory surgery center setting. So I think that's just going to continue. And I think from a legislative perspective, we're also, there are tailwinds supporting us. So I think it's all great things for the surgery center industry.

[00:05:34] [SPEAKER_00] Yeah. Any challenges that you think, you know, maybe particularly to your AC or just kind of across the board? I know that Ask Us Emma in particular is such a small world. Now all these ASC leaders kind of have known each other. But anything you're kind of like hearing here, anything that's not in your mind?

[00:05:53] [SPEAKER_02] Yeah. Yeah. If you asked me that question three or four months ago or, you know, towards the end of last year, I would have said, you know, staffing is probably the biggest issue. It's always, you know, a big issue. You know, retaining staff. Not that we don't, you know, have a good place to work or a good culture, but there's just a lot of demand for healthcare workers, especially in New York City. So I think there's that.

[00:06:19] [SPEAKER_02] To be more specific, anesthesia has been, you know, there's been a shortage. And I think folks have been talking about that for years at this point. So that's been an issue as well. But more recently, we've started to encounter insurance issues. It's kind of interesting.

[00:06:41] [SPEAKER_02] There's a crop of providers that are utilizing a new process called the independent dispute resolution process, where they can actually arbitrate. If they're out of network, there's no set payment with the insurance company. So there's now this new arbitration process where they can go to a neutral third party arbitrator and, you know, argue for higher payments. Wow. Yeah. Yeah.

[00:07:10] [SPEAKER_02] And actually, the providers are convincing the arbitrator more often than not. So it's actually it seems to be actually driving the cost of care up, which is interesting. Yeah. And so some insurance companies are now reaching out to us and saying, hey, you know, it might not be in your best interest to keep allowing out of network providers to come to your center.

[00:07:34] [SPEAKER_02] I don't know if you've seen there are certain payers that have started implementing administrative penalties for allowing out of network providers, like Think is known for doing something like that or with a 10 percent penalty or something like that. So that's something we're facing, which is, yeah, it's new. So we're dealing with that day by day.

[00:07:51] [SPEAKER_01] I'm curious, as this owner operator, do you have advice to somebody who may be considering becoming an owner operator how to get ahead of some of these challenges?

[00:08:00] [SPEAKER_02] Yeah. So it's definitely, you know, owning and operating a surgery center is really, it's wonderful. It's great. You know, it's, again, I'm a second generation owner operator. This, you know, my mother could have started, I don't know, any other business and I guess I'd be doing that. But, you know, so I did not know how I would feel taking over the surgery center, but I found myself really, really, I really love it.

[00:08:30] [SPEAKER_02] And I think it's because, well, one, it's a great place to be, you know, you're providing additional cost of care. You're providing the cost, you know, the cost of care down. So you're providing just a great service to the community. It's a win, win, win. And, you know, I think for someone getting into it, you got to have a plan, you know, a business plan. You can't just build it and, you know, assume it'll be great.

[00:08:59] [SPEAKER_02] So I think you have to have great partners, you know, maybe a solid management group, you know, great practice of, you know, surgeons to fill that facility. But, yeah, I think everybody's bullish on surgery centers. So I would say build it.

[00:09:17] [SPEAKER_01] Do you have any thoughts on private equity entering the equation?

[00:09:22] [SPEAKER_02] Private equity. Sorry, it's like a hot topic, I guess, private equity entering health care. You know, some people view it as like horrible, like we should not allow it. You know, I don't feel that way. I think private equity represents capital.

[00:09:43] [SPEAKER_02] You know, there are some practices, organizations or facilities that need capital to continue operating and providing a service, you know, at the level that they are and growing that service. So I don't think it's a bad thing. You know, there's the idea that they're, you know, taking, you know, profits out and all that.

[00:10:10] [SPEAKER_02] But for the most part, surgery centers are for profit entities right now. So I don't really see that changing the equation really. You know, I think it's interesting. The other side of the coin, I think, are hospitals that are not for profit entities, but they're behaving like for profit, consolidating and trying to cost up. So, so I think it's a complicated topic, but I'm not, you know, like negative private equity by any means.

[00:10:41] [SPEAKER_01] Are you cool? Just kind of shifting a little bit. I want to think about like this operational piece of it around supply chain and the pressure you feel there. I'm curious from your perspective, how do you feel like supply chain issues can affect your relationship with your vendors beyond price?

[00:10:58] [SPEAKER_02] Okay. Okay. So supply chain issues, you know, we definitely, not to keep talking about COVID, I think everybody wants to just like stop talking about COVID. But, you know, we did feel, you know, there's a noticeable disruption in the supply chain during COVID. So that's why I bring it up.

[00:11:15] [SPEAKER_02] And I think it, you know, it made it real to the facilities and, you know, all the providers that you can't just assume that you can order whatever supply that you need and it'll be there. So you have to think about it in a way that's a little bit more strategic, smart. You know, maybe just don't rely on a single prime distributor. Maybe, you know, start forming multiple relationships, have a secondary, you know, option, things like that.

[00:11:44] [SPEAKER_02] Start thinking about rethinking, you know, par levels and things like that. So I think, yeah, I think right now everybody's a little smarter than they were, you know, five or six years ago on supply chain. But we'll see. We'll see where things go.

[00:11:58] [SPEAKER_02] So I will say, though, that I have seen a lot of technology come out recently, you know, overlaying AI and some other technology out to supply chain, trying to maximize, you know, efficiencies that way from a, you know, physical effort, labor perspective, but also from a financial perspective. So it'll be interesting to see what happens with that.

[00:12:22] [SPEAKER_00] Yeah, it's a great point. Do you think that's an area that you are, you know, eager to invest in or like when you think about the future and, you know, where you're going to place your bets, where you can't begin?

[00:12:33] [SPEAKER_02] Yeah. So, you know, 10 different companies reach out to us every day, you know, so there are a lot of different ideas and then a lot of people doing the same idea in slightly different ways.

[00:12:45] [SPEAKER_02] So I think we're really, you know, when any new technology or service comes out, you're sort of in this phase where, you know, at least for us, we're trying to just kind of keep an eye on the landscape, see where things go, see if there's a product that truly, you know, provides value to the team.

[00:13:07] [SPEAKER_02] What I would hate to do is, you know, just rush into a relationship for the sake of having technology and, you know, realizing that the technology is actually not really helping us out or it's actually causing more work for the team. So we're, we do think that it will be helpful in the long run, but we're taking our time to evaluate and assess.

[00:13:29] [SPEAKER_00] That sounds like such a pragmatic approach because, you know, we talk to clinicians all the time and it's funny how often we hear you say, you know, the system was really excited about implementing this, but actually it doesn't make my life easier at all. But I'm sure there's certainly opportunities for tech and AI.

[00:13:46] [SPEAKER_02] Yeah. I think something about the surgery centers themselves is they're naturally already efficient.

[00:13:50] [SPEAKER_00] Yeah.

[00:13:51] [SPEAKER_02] They've kind of been created that way. And so to find additional efficiencies is difficult. But not impossible. I think, you know, with new technology that we haven't had before, you know, I think that's very possible. So we'll see.

[00:14:06] [SPEAKER_00] Do you think there is anything really innovative that your center is doing that you think other ASC leaders would benefit from hearing about or being aware?

[00:14:16] [SPEAKER_02] Looking at the technology, assessing it all is something that we're doing every day. I don't think that this is a, you know, there are some things that centers can sort of ignore and it'll be fine or they like, you know, nothing will happen. But I do think that with this kind of technology, with AI and robotic process automation, there are just a lot of efficiencies to be gained.

[00:14:46] [SPEAKER_01] Is there something that you remember hearing from your mom about being an owner operator that is like cornerstone of like, you're like that she got she nailed that? Or on the flip side, is there something like, I really thought my mom knew it all. And she was a little bit off on this one thing.

[00:15:02] [SPEAKER_02] You know, so, yeah, it's funny you ask that. So she didn't really give me that much advice, actually, about running the center because there's just so much you have to do as an operator. You know, of any business, you're just, you know, firefighters putting out fires all day. She only really gave me one pearl of wisdom, which is you have to make sure the money coming in is more than the money going out.

[00:15:28] [SPEAKER_02] And the more I deal with like problems, I'm like, everything is kind of if you're running a business, sort of boils down to that. You know, obviously, there's the clinical side of it all, the patient satisfaction you have to do right by, you know, the patient and surgeon. But run the business, everything boils down to like those two widgets. Yeah, it's kind of funny. At the time, I was like, oh, thanks, mom, for that insight. But it's true.

[00:15:54] [SPEAKER_01] Thinking about the future and for your AAC specifically, what do you feel like success is going to look like three years down the road?

[00:16:05] [SPEAKER_02] So, you know, we are very, very busy. We're booming. We're very lucky to be, you know, successful in that regard. So I think I would love, you know, to just be, you know, our ORs to be fully utilized, you know, and everything to be operationally stable and, you know, no speed bumps or anything like that. We just operationalized an additional day of the week. So we open Saturdays.

[00:16:34] [SPEAKER_02] So we're at 50% of, you know, the capacity already on the Saturdays. We started about three months ago. We're going to fill the other, you know, set of ORs, you know, hopefully. And then I guess Sundays, I don't want to work Sundays, but, you know, but if the demand is there, you know, I guess we would operationalize a team to cover, you know. So, yeah, we're blessed in that sense. Demand is high for our services.

[00:17:03] [SPEAKER_02] Part of the surgery centers being a great place to work is that there's a great work-life balance. So, you know, you have set hours. You don't have to do an overnight shift. You know, I used to be able to say you don't have a week, you know, a weekend shift. So there is a sort of sense of like, you know, Monday through Friday sort of set schedule for these outpatient surgery centers. But, yeah, it's a great option. Patients love it. They don't have to miss work, like you said.

[00:17:33] [SPEAKER_02] Surgeons, they might not have to go. If it's a large group, they don't have to go every weekend. They could kind of, you know, alternate with their other partners. So, yeah, they get up with additional OR times. Yeah, I think it's great for everybody.