ASC Long-Term Success from the Developer’s Point of View
Planning a successful Ambulatory Surgery Center (ASC) is not as simple as drafting a single plan and opening the doors to instant fortune. Yes, there is obviously a plan involved in the process, but there is so much more that needs to be considered when planning for long-term success for a new ASC. From operation agreements to conversations that need to be had with investors and physicians, there are many paths to take that will help lead a physician owner or developer on the road to a long lasting ASC.
Joan Dentler, President & CEO of Avanza Healthcare Strategies says that when making the first moves to planning long-term success for an ASC there needs to be candid conversations with potential physician investors and users to understand realistic case volumes that would be realized by the ASC when the doors open. Dentler says it is also important to understand the existing healthcare facilities that may be competitors for the services the ASC intends to offer, as well as what the market is for potential partners in the future and/or referral sources.
When planning an ASC, putting together a project team that may include the ASC;s future administrator and other managers (clinical and business), architects, attorneys, consultants and representatives from partnering organizations (e.g., hospital/health system for an ASC joint venture) is important, Dentler says.
Joseph Zasa, founding partner of ASD Management says that when developing an ASC and choosing advisors for the business, he would personally look for people that have developed many surgery centers and has a good track record in the industry.
“I would then make sure that they actually have that track record by calling references. I would then have them put together the business plan based on their extensive knowledge.”
As far as some other best practices to follow when planning out the idea of starting up an ASC, Zasa says that putting together a solid business plan is absolutely essential. Zasa says such a business plan should have very strong predictive data that can be backed up.
“You have got to have a good foundation and you start that with laying the ground work with a good, well thought out business plan.
Dentler agrees and adds that developers need to put together a development timeline.
“This timeline should address the tasks that must be accomplished to get the ASC built, licensed, accredited and opened along and designate responsibility parties and due dates,” she says.
When drafting an Operating Agreement for an ASC, the developer’s goals are foremost to understand in deciding what they want to incorporate in an Operating Agreement, and what not to incorporate.
In all cases, the first thing owners need to do is create financial projections associated with the proposed surgery center and need to understand the cost and how those costs are going to be funded.
In many instances, owners have to find the right location, the ability to build on the property, and get all regulatory approval. In some states there might be some large hurdles that need to be overcome in building a new ASC.
Lucas Hutchison, Senior Consultant with Pinnacle Healthcare Consulting says that there are a few main things to keep in mind when thinking long-term value.
“I think off the top of my head, demand for service or product is important, depending on the type of business that you are. For healthcare, physicians need to be looking at what sort of different types of services that physicians can offer and modify. They also need to be keeping an eye on what sort of services may be in the future or provided by another type of provider. They need to be aware of what other sort of competition there may be for service providers,” Hutchison says.
Hutchison states that obviously, during the development/startup phases, things like expenses are important to pay attention to.
“Then, as you mature, you want to become a dynamic business that pays attention to other opportunities. This includes opportunities to expand, diversify, enter other markets. Those are things that you want to be paying attention to as your business is maturing. Then, when you get to even later stages of maturity, what you want to be paying attention to is making sure that your business is sound and will be for a long time, especially when you are considering participation in an acquisition,” he says.
“On the startup, the most important aspect of planning is financial planning. You really need to be doing a good job at looking at your predicted revenue and expenses. Then you need to take that plan and use that as a strategy guide for your business as it gets to the level of a more stable operating environment.”
Hutchison explains that the goal should be to use the plan to set one’s business up to be in a position to be acquired. He says that a business that is financially healthy and has growth prospects, are an obvious choice for prospective buyers seeking an acquisition.
Dentler says that when planning long-term success for an ASC, developers need to remember not to rush the job and to give themselves time to properly plan their next moves.
Dentler says developers should take as long as is necessary to best ensure strong, complete and compliant development.
“For some ASCs, this can take six months. For others, it may be a few years. Rushing this process to meet an arbitrary deadline will likely lead to corner cutting that can have significant short- and long-term financial, operational, clinical and even legal ramifications. It is easier to “get it right” in the beginning when a plan is in writing than try to fix problems at the end when brick and mortar involved,” she says.
Common Setbacks and Successes
As far as setbacks and mistakes, Zasa says that overbuilding based on unrealistic expectations is the first issue at the top of his list.
“Number two, would be not securing commitment from enough surgeons to perform the requisite number of cases at the surgery center. Those two would be the most common things that we see in our experiences in the industry,” Zasa says.
After the plans have been completed and the ASC’s doors are opened, Zasa says that at this point in time there is still room to examine ways to establish long-term success via management.
“Having enough working capital on hand is going to be an absolute critical thing that a lot of people don’t have. I think the management company needs to be aware that start of the center, start of licensing, start-up with payor contracts, getting Medicare certified and accredited….all of those things take time and the first year, it is absolutely essential when you get the center started up to have enough working capital to get over the hump and start getting paid on a regular basis,” Zasa says.
Dentler says that other mistakes that can be made during development is working with firms lacking surgery center specific experience. One example that she gives is engaging an architect that doesn’t understand the ASC licensing requirements and approval processes in one’s state can wind up costing a lot in lost time and wasted resources.
“Also, hiring outside consultants that end up making you do all the work. Be sure you understand the roles and responsibilities of everyone on your project team. Don’t pay for services that you don’t need or don’t provide value. Making projections that are overly optimistic is also an issue. Confirm and reconfirm case volumes and procedure types. The projected volumes are the building blocks of your financial proforma. The number and types of cases your anticipate impacts the size of your facility, the number of staff and types of equipment. Be sure you validate information from primary sources and experts,” Dentler says.
“When discussing ASC success, it all comes back to that business plan. The business plan should have that factored in and have the business prepared for the inevitable cash-flow issues,” Zasa says.
Dentler says that one of the main challenges faced during development is delay in construction or approvals. Also, the timing of many of the required milestones are dictated by regulatory bodies and developers cannot control their schedules. Making allowances for delays in the business’ timeline and funding is critical.
Denter also adds that waiting months for a Medicare survey is not unusual and most third-party payers will not engage in contract discussions/negotiations until the ASC is opened and accredited. Both of these can limit revenue for what will feel like an extended period of time. Setting expectations appropriately and building in cash for delays in cash flows is essential.
Dentler admits that 9pening a new ASC is a challenging process, so it should be considered quite a success to finish the development process, and the first procedure performed should be celebrated.
If you would like to learn more about the concepts covered in this article, want to sell your business or discuss how Ambulatory Alliances, LLC might be able to help you out, contact Blayne Rush, (469)-385-7792, or Blayne@ambulatoryalliances.com.
If you have suggestions for future topics, email Blayne@ambulatoryalliances.com.