This article originally appeared in Becker’s ASC Review. Here are six ways physician investors can minimize risk with new start-up ambulatory surgery centers.
1. Identify a high quality management company. One of the best ways to minimize risk with a start-up ambulatory surgery center is surrounding yourself with experts. Paul Eiseman, vice president, business development at Regent Surgical Health, says the best management and development companies should exhibit these characteristics: • Capable managed care contracting team • Strong physician relations and recruitment track record • Current data systems to foster good decision-making, such as case costing comparisons • Good contracts for equipment, supply and drug purchasing • History of strong physician voice in market operations • Demonstration of positive year-over-year results • Great references Depending on the company’s structure, they may require ownership in the facility and/or payments for their services. However, for a good company, the cost is worth the return. “People are better off trading a little equity and fees for a greater chance to be successful and have a higher margin,” says Mr. Eiseman. “If you can have a first class management company with the infrastructure to really do a great job, you’ve minimized risk.”
2. Develop a managed care strategy. In markets where it’s still possible for ASCs to utilize an out-of-network strategy, it may make sense to develop a sophisticated plan to capture as many of those dollars as possible. In other markets where in-network contracts are the only option, surgery centers are considering hospital partnerships that could help leverage managed care rates. “The most important thing right now is rates, followed by related volume that can take advantage of those rates,” says Mr. Eiseman. “It used to be that everyone was out-of-network and that still makes sense in limited markets where it’s possible to do that, but for the most part that isn’t a viable strategy. A hospital partnership is the best way to go.” Mr. Eiseman recommends choosing the hospital with the most weight in the market to leverage their size. The amount of equity a hospital requests in such partnerships is variable from market to market. “Nobody knows where the government is taking us with healthcare reform, but we believe that the stronger the system, the better relationship you have to develop things like bundled payments and accountable care organizations,” says Mr. Eiseman. “If the hospitals control where money is allocated within these structures, you’re probably better off with the stronger system than an independent or weaker hospital.”
3. Assemble a large enough group to support partnership. Conduct a market analysis to outline how many physicians you need in the group performing which type of surgery at what volume to succeed. High volume is important, but the right case mix depending on managed care rates will really make or break the business. The physicians should be highly thought of in the community, says Mr. Eiseman, and physicians should be able to trust the employees. “If you have a single specialty group such as ophthalmology where the most common procedure is cataract surgery, you could have a high volume facility with low margins because of the expense to run the center,” says Mr. Eiseman. “Spine surgery, orthopedics, pain management, ENT and urology are all specialties that are heavily managed-care oriented, and when managed properly can be valuable to the bottom line.” Mr. Eiseman says physician owners can concentrate on recruiting specialties and subspecialties that are more heavily oriented toward managed care than Medicare to take advantage of stronger rates. Case mix and projected volume information is also helpful when designing the facility — it could prevent over- and under-building.
4. Build the right ASC. The facility should be sized for the anticipated volume and have the ability to expand when needed, says Mr. Eiseman. The surgery center can either build with outward additions in mind or design a floor plan that would allow a storage area or offices to convert into operating rooms if volume dictated in the future. “If it’s possible to acquire space that can be expanded outward and is somewhat affordable to secure, allowing you to build out or shell in rooms if volume justifies it, that’s the best case scenario,” says Mr. Eiseman. “You typically need two rooms for an efficient operation but you shouldn’t design for six operating rooms if you’ll only to use three.” Pay close attention to how long each procedure will take. Spine surgeries take significantly longer than ENT procedures, so patient accessibility and flow depends on having the right number of rooms available. Additionally, a tidy surgery center will appeal to patients and physicians, but going over-the-top with amenities doesn’t make sense. “You want to construct the ASC so patients feel comfortable there and physicians are happy to bring their patients,” says Mr. Eiseman. “But you don’t want to make it so fancy that you’re adding things that don’t impact patient care or satisfaction.”
5. Find the right location. Locate the surgery center at an easy access point for patients and physicians. Entering and exiting from the facility should be relatively simple for patients, especially those who are having procedures that impact mobility. “If you end up in a place off the beaten path, even if it’s a cheaper space, it might not get you where you need to be,” says Mr. Eiseman. “You want to have it somewhere that patients can find and where they don’t feel threatened coming in and out of the parking lot.” A convenient and well-run surgery center will attract physicians and cases, especially if the scheduler is able to work around the physician’s schedule. “Accommodate the physician’s schedule so you are seen as an efficient and convenient option for the physician,” says Mr. Eiseman. “The center needs to be the first place they want to go to perform surgery.”
6. Commit to the ASC as the principal site of surgery. The surgery center won’t be successful unless each physician owner commits to the ASC as their principal site of surgery for appropriate cases. “The physicians should be actively involved in the operation of the center, which will drive a much better outcome,” says Mr. Eiseman. “This is their business and they have an opportunity — if led properly by the right management company — to maximize performance and volume which will affect the bottom line.” Physicians can also commit to the centers success by understanding supply costs and using low cost options that are appropriate for each surgical case. When there is a disparity in cost — but not quality — between physician services, the ASC is losing money on one of those cases. “Regent uses case costing, where we look at physicians doing similar procedures and compare one physician against the rest,” says Mr. Eiseman. “We relay this information back to the physician, and once he sees that other physicians are doing just as well or better than him with a lower cost structure, he might adopt a new implant or technique.” The above recommendations are based upon the general experience by Regent, but hopefully they can be viewed as a common sense approach to effectively working with physicians on development and operation of an ASC.