Physicians Capital, a Nashville-based lending organization for ambulatory surgery centers, offers loans to physicians seeking buy-in financing. Unlike banks, which typically collateralize a physician's personal assets before granting loans, Physicians Capital analyzes the ASC cash flow to determine whether the distributions are sufficient to repay the loan and then, if the loan is accepted, Physicians Capital is repaid from those ownership distribution payments.
The physicians who discuss obtaining a loan from Physicians Capital will often ask questions of the company's leadership — Shannon LeRoy, CEO and managing director, and Douglas Lewis, managing director — which they would not ask a surgery center attempting to recruit them. Here are six of those questions asked of Mr. LeRoy and Mr. Lewis.
1. How did other physician-investors afford to buy into the ASC? Mr. Lewis says many ASCs do not realize that the physicians they are recruiting often lack the money needed to invest in the surgery center. "They sometimes don't tell the recruiting people they don't have the money because they're embarrassed about it," he says. "They may make a lot of money" but haven't saved enough cash necessary to cover the buy in cost.
2. How does an ASC's distribution process work? Since the physician's distribution will cover the promissory note signed with Physicians Capital, the physician will ask about the ASC's distribution process. "We take them through the structure of the ASC, through the distribution process," says Mr. Lewis. "Some of these guys might not be completely knowledgeable [in this area]. They don't mind asking us the question because they don't know us or see us since we're speaking over the phone. They feel more comfortable asking us than asking someone at the ASC they're face to face with."
3. How will health reform really affect the ASC? This is a question most physicians ask Mr. LeRoy and Mr. Lewis. "They always want to know our thoughts on what's happening that they don't see," Mr. Lewis says. "Health reform is a fluid process that we try to stay current on."
4. How is the ASC going to perform going forward? Physicians are eager to get any outside perspective on how their possible investment is going to perform. "I always tell them, 'Doctor, we analyze the center, we try to tell you if the distributions are going to pay your note and going to pay the principle and interest and give you a little bit of money periodically for taxes,'" says Mr. Lewis. "We have to be careful with how we answer those type of questions because all we can answer it from is the financial perspective we see. We can tell them what it looks like today, what the projections look like and how we're comfortable enough to lend the money but there is always a reaching out beyond the center asking questions about what [others] think about this deal."
5. Is investing in the ASC a good deal? "They're getting pitched by multiple centers, multiple companies, and what they're looking to find out is if the ASC(s) they're considering is a good deal" says Mr. LeRoy. "Again, we have to be careful with how we handle those types of questions. They know the quality of the center and how the scheduling is going to be, but what they really want to know is whether this is going to work out for them."
Mr. Lewis says the second part of that question usually is, "If it doesn't work, then what happens? There are going to be underperforming months. We understand this business, so we provide the flexibility to work it out."
6. What are the ramifications of violating the ASC's operating agreement? ASC operating agreements vary significantly in their level of strictness, says Mr. Lewis, and physicians often ask him and Mr. LeRoy about what could happen to their investment if they violate a recruiting ASC's agreement, whether accidentally and intentionally, and are subsequently sued or have other actions taken against them by the ASC. "They want to know what happens to their investment if that occurs and they also want to know who is expected to pay the [promissory] note to us," says Mr. Lewis.
Note: While a core component of the Physicians Capital business is loans to physicians seeking buy-in financing for ASCs, the company provides other loans including those to current ASC owners who pledge their ownership shares to cover personal expenses, physicians interested in buying into physician-owned hospitals to replace physicians selling their ownership stake, companies interested in acquiring ownership in a physician-owned hospital and companies interested in expanding an ASC without touching their existing lines of capital
Learn more about Physicians Capital at www.physicianscap.com.
Read more from Physicians Capital:
- Credit Crunch Impacts Physician/ASC Investor Loan Firm But Demand Remains
- Company Profile: Physicians' Capital Investments