The most effective financing models for ambulatory care expansion combine low upfront capital exposure with long-term operational flexibility — typically achieved through joint ventures, sale-leaseback structures, or health system revenue bonds matched to project scale and strategic intent.
Why It Matters
Ambulatory care is now the primary growth engine for most health systems. Outpatient visits account for more than 60% of total hospital revenue in many regional markets, and that share continues to climb as payers push volume away from inpatient settings. The financial pressure to expand ambulatory infrastructure is real — but so is the risk of misallocating capital in a high-interest-rate environment.
Health systems in Indianapolis, IN and across the Midwest are facing the same challenge: demand for ambulatory surgery centers (ASCs), medical office buildings (MOBs), and urgent care facilities is outpacing available balance sheet capacity. Choosing the wrong financing structure can lock a system into inflexible debt service at exactly the wrong moment in the interest rate cycle or at a point when clinical volumes are still ramping.
How It Works
There are four primary financing structures used for ambulatory care expansion, each with a distinct risk and return profile. Tax-exempt revenue bonds are the traditional instrument for nonprofit health systems. They typically carry rates 50 to 150 basis points below taxable equivalents and are well-suited for projects exceeding $20 million in total development cost. Bond financing works best when a system has strong credit ratings and a clear 20- to 30-year utilization plan for the facility.
Joint ventures (JVs) with a real estate developer or physician group allow health systems to share both capital requirements and operational risk. In a typical JV, the health system contributes land or existing infrastructure while the development partner funds construction — which can range from $300 to $700 per square foot for an ambulatory facility depending on program complexity. The tradeoff is shared governance and reduced long-term asset control.
Sale-leaseback transactions allow health systems to monetize existing owned real estate and redeploy that capital into clinical priorities. A system sells a building — often an MOB or administrative campus — to an institutional investor and leases it back under a long-term net lease, typically 15 to 25 years. This structure can generate $10 million to $50 million in liquidity per transaction for mid-size systems, with minimal disruption to operations. The healthcare real estate advisory services outlined at Bremner’s healthcare real estate services page walk through how this model applies across different asset types.
Synthetic leases and operating leases offer a fourth path for systems that want off-balance-sheet treatment for smaller ambulatory sites — typically under 15,000 square feet. These are commonly used for urgent care buildouts, specialty clinic expansions, and satellite ASC locations where capital commitments need to remain agile.
Key Considerations
Before selecting a financing model, health system CFOs should evaluate three variables: the project’s payback period, the system’s current debt capacity under its bond covenants, and the intended permanence of the clinical program in that location. A flagship ambulatory surgery center with a 20-year program plan warrants different capital treatment than a leased urgent care location piloting a new service line.
Interest rate timing also matters. In a 6% to 7% rate environment, taxable construction financing adds meaningful cost to a project’s pro forma. Systems that locked in financing in 2020 and 2021 at sub-4% rates carry a structural advantage. For systems entering the market now, JV structures and sale-leaseback transactions often produce better risk-adjusted outcomes than traditional bond issuance. Lead times for bond issuance typically run 90 to 180 days; JV negotiations commonly require 120 to 240 days to structure and close. Planning horizons must account for these realities.
Actionable Takeaway
Conduct a capital allocation audit before committing to any ambulatory financing structure. Map every owned real estate asset against its clinical utilization rate, its current book value, and its potential liquidity value in a sale-leaseback scenario. Many health systems discover they are holding $30 million to $100 million in underleveraged real estate that could fund an entire ambulatory expansion program without touching the bond market. Engaging an advisory team early — as health systems working with healthcare real estate advisors have found — compresses the analysis phase and accelerates decision-making at the board level.
The practical tip: model at least three financing structures in parallel before your board presentation. Each scenario should include total cost of capital, projected lease or debt service obligations, and a sensitivity analysis on volume assumptions. This discipline consistently produces better capital decisions and shorter approval timelines. If you are ready to begin that analysis, schedule a consultation with our advisory team to establish the right starting point for your portfolio.
Bremner Real Estate partners with health systems to align real estate strategy with clinical performance and capital efficiency.
What is an ambulatory surgery center (ASC) and how does it differ from a hospital outpatient department?
An ambulatory surgery center is a licensed, freestanding facility where surgical procedures are performed on a same-day basis without hospital admission. Unlike a hospital outpatient department (HOPD), an ASC operates under a separate Medicare certification and reimbursement structure, typically receiving lower facility fees but carrying significantly lower overhead costs. The ASC model is increasingly favored by payers and health systems alike because it reduces cost per case by 40% to 60% compared to HOPD settings for equivalent procedures.
How long does it typically take to develop a new ambulatory facility from planning to opening?
The development timeline for a new ambulatory facility generally runs 24 to 42 months from initial site selection to patient-ready operations. This includes 6 to 9 months for site selection and design, 3 to 6 months for permitting and Authority Having Jurisdiction (AHJ) approvals — the local and state bodies that enforce building and life safety codes — and 14 to 18 months for construction. Lease-based buildouts in existing shell space can compress this timeline to 12 to 18 months depending on the complexity of the clinical program.
What is a sale-leaseback transaction in the context of healthcare real estate?
A sale-leaseback is a financial transaction in which a health system sells a real estate asset it currently owns — such as a medical office building or administrative campus — to an institutional investor and simultaneously enters into a long-term lease to continue occupying the space. The transaction converts an illiquid fixed asset into operating capital without disrupting clinical or administrative functions. For healthcare organizations, this structure is particularly useful when balance sheet constraints limit access to traditional debt financing for new ambulatory development.
What credit considerations do lenders evaluate when financing ambulatory care expansion?
Lenders and bond underwriters assess a health system’s debt service coverage ratio (DSCR), days cash on hand, and overall operating margin before approving ambulatory financing. Most investment-grade health systems maintain a DSCR above 2.0x and carry 150 to 250 days cash on hand. Systems operating below these thresholds may face restrictive covenants, higher interest rates, or requirements for additional collateral. Understanding these ratios before entering a capital planning cycle allows executive teams to structure the right financing approach and avoid covenant violations during the project development period.
How does a joint venture structure work for ambulatory facility development?
In a joint venture for ambulatory development, a health system and one or more partners — typically a real estate developer, private equity-backed physician group, or health plan — co-invest in the development and operation of a facility. Each party contributes capital, infrastructure, or referral volume in proportion to their agreed ownership stake, which commonly ranges from 51% to 80% for the health system. Governance rights, profit distribution, and exit provisions are defined in an operating agreement negotiated before construction begins. JV structures are most effective when both parties bring complementary assets — such as a health system contributing land and a developer contributing construction expertise and capital markets access.
