Physician Owners Saving Money to Get Ahead
Physician owners in the urgent care and ASC industries are on the constant journey of trying to improve their business to attract patients to their centers. However, when it comes to purchasing basic needs like supplies or tests, equipment and adding services, the price tag can sometimes be a lot more than a physician owner may expect. The Ambulatory M&A Advisor spoke with professionals in the industry and brings its readers some insight on ways to improve one’s business through capital investments without making the move too painful on the pocketbook.
Adding Machinery and Other Equipment
Maurice Reid, MD, CEO of Express Care Urgent Care says that although he can only speak about his own experience with equipment vendors, for him it is a matter of having a volume discount with those types of items.
“So, if I have a vendor that I use exclusively for X-ray equipment, I am able to squeeze a little bit more, because they know that I will use them for future clinics. I will also use that leverage of buying equipment with a maintenance contract which in their analysis of how much they price a product, they can recognize it, may have to sell the equipment to me at a lower price, but in the end, might benefit from having future sales to me as well as being able to do maintenance,” Reid says.
“In summary, for me, it has been the most cost effective to use a volume discount as much as possible. This may not apply to every urgent care proprietor in the country, but for the most part, that has been a way to save for me.”
The other thing Reid says is that physician owners should consider refurbished equipment that has a strong name in the industry, and finding a nice refurbished product that comes with a warranty.
Typically, on refurbished equipment there is a limited warranty, and it is a used piece of equipment. Reid says the downsides may be that there are things that you just did not consider, or that the manufacturer didn’t consider when they refurbished it, that may break down later.
“You really have to stick to a product that has a good reputation, and one that, if it does break down, that you are able to find parts for. You don’t want to find some obscure X-ray machine or outdated X-ray machine that breaks down after your 18 month warranty is gone. Now you can’t find parts to replace it. It is very important that you aim to stay with a brand that is reliable,” he says.
Bruce Latourelle, Regional Sales Director at Soma Technology, says that aside from refurbishment, leasing new equipment, while it may not seem as cost effective, can offer physician owners specific tax breaks at the end of the day.
Latourelle says lease-to-own is an ideal option that reputable equipment companies will offer, and is a great option to utilize if an expensive piece of equipment breaks.
“Say you had a C-arm that had an electrical failure, and it’s totally destroyed,” Latourelle says. “You need another one, but you just can’t afford it right now. You’re a good candidate for lease-to-own.”
Before making a decision on any purchase of equipment, Latourelle says it’s important to do the required homework.
“Like used car financers, these medical equipment vendors could hit you with a high interest rate,” Latourelle warns. “Don’t take the first offer; shop around.”
“It boils down to analyzing your financial situation and weighing the pros and cons of both leasing and purchasing,” Haynes says. “Take some time at the outset to learn how each scenario could play out. The best decision you can make is an educated one.”
Another situation that Latourelle discusses is the situation where a physician owner may just need a piece of equipment for a specific amount of time, or they may be unsure of how much they will actually use the equipment.
“If you’re unsure of how much you’ll utilize a piece of equipment, you can rent equipment for a short period of time,” Latourelle says.
“The ideal length of time to rent a piece of equipment would be about one or two months. Rent it for a month, see if it fits your needs, and if it doesn’t, you’ve only paid one month’s rent. If you decide you want to keep it, you can then pay for it in full, or go through a financing company and then pay it off over a longer period of time.”
Supplies and Vendors:
Kyle Williams, Director of Development with ASD Management says that a reliable way to save money on supplies is through the reviewing and standardization of GPO contracts. According to Williams, the more products and services aligned with a group purchasing organization contract, the better rates ASCs achieve.
“Individual centers can review GPO contracts and make sure all products and services are included, especially if they recently added procedures or specialties. Administrators can also compare the contract to rates received and make sure they match,” Williams says.
Williams says that the process is really about comparing and making sure that the business involved in purchasing the supplies is getting a good price in a contract. One way to ensure this is to form alliances with similar organizations that might allow a business to reduce costs by banding together.
On the topic of saving money with new vendors, Reid says that one thing he would recommend is to not give away a budget.
“You don’t want to mention to the vendor what you are willing to spend. Oftentimes, they will price you at what your level was, so it is best to get a proposal from them, and let them know that you are seeking other proposals even if you are not. It is important to let them know that you are getting other vendors to show you proposals, and you want that first best price. I always find it irritating when I speak to a vendor and they give me that best price after the third iteration of their proposal. That tells you that they were not negotiating in good faith from the very beginning,” he says.
“Now, what I tell them is, I want their best price up front. I don’t want to go two or three times to get their best price, I want it up front and I am not going to tell them how much I am willing to pay. That method has served me well with new vendors.”
Another tip that Williams gives is using lower cost controlled substances. According to Williams the centers he works with use a McKesson electronic program to order controlled substances.
“The online platform allows materials managers to input which products they want to order and makes the purchase. This helps reduce the chance for error when compared to manual orders,” Williams says.
Willaims goes on to state that businesses should participate in a freight management program.
“While shipping for individual deliveries isn’t very expensive, our ASCs send and receive packages on a daily basis and those costs add up. Participation in freight management can easily save a center tens of thousands of dollars a year,” he says.
Another thing that Williams says that providers need to watch out for is the issue of resusable equipment waste.
According to Williams, reusable equipment is often accidentally disposed adding replacement costs. Managers need to mark this type of equipment with special tape, or hold a program for staff education to prevent accidental loss and save money in the long-run.
On purchasing in bulk, Reid says the pros come back around to receiving a volume discount.
“If it is a product that you know at some point you are going to use; it is not going to expire or go to waste, I always recommend buying as many of those as you can afford. You are going to go through them, so you should get the best price that you can with a volume discount,” Reid says.
“The downside is that you can’t apply this method to every product. If there is a product that potentially can expire or might be seasonal, or may not continue to be reimbursed at a certain level, then you don’t really want to spend a lot of money on that. There are certain things in our industry that you know that you are going to always use like band-aids and gauze. So, buy as many of those as you need, because you are going to use them. There are some things that you don’t want to buy in bulk like a Mono test. Most clinics don’t do a lot of Mono and that test does expire. So if you buy a year’s supply, you are going to be left with product that you have to dispose of. You have to be careful in terms of buying bulk and making sure that it is truly product that you are going to go through.”
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.