Pedro Vergne-Marini, MD, managing member of Physicians Capital Investments discusses five considerations for physicians when deciding whether to invest in a new surgery center.
1. Does it make sense to invest in an ASC? With declining reimbursement rates, physicians have to figure out how to generate additional income, says Dr. Vergne-Marini. One way to do that is by investing in real estate, such as an office building or an ASC. Surgeons working out of surgery centers have the potential to receive a higher percentage of the reimbursement from the cases they perform. "Every time a patient is admitted to a hospital, the bill generally is two to three times higher than it would be in the ASC. Furthermore, the physician doesn't receive the additional compensation," he says. "A procedure that would cost $1,800 in an ASC, the hospitals might charge $6,000 or higher per patient. Physicians operating in ASCs will make a higher profit while at the same time will improve the quality of care and decrease the overall cost of healthcare."
2. What does it take to begin building an ASC? For most surgery centers, you have to get a loan of $2 million for the building (if built from ground up) and $1 million for equipment for a 7,000-square-foot structure. The banks will require you to submit several documents, including a financial statement from the "guarantors" and the practice. A pro forma based on your present and projected procedures must be prepared to show the feasibility of the project. You must also hire architects and engineers to develop and manage the project, all of which generate upfront costs. In the past, medical students were steered away from taking business classes to complement their medical studies, which could help them with the business aspect of investing in a surgery center. "People thought if you were learning about business, you were going into medicine for the wrong reason: for money instead of taking care of patients," he says. "Now, there's a new mindset in which physicians are spending extra time obtaining MBAs."
3. How will you approach legal and regulatory issues? Physicians must be aware of Stark Law and referral issues to avoid accidentally breaking the law. They must also be aware of the potential for malpractice suits and be prepared for any action that could come their way. Select a competent "health lawyer" who can guide you through any issues that might arise. They will be helpful in assessing partnership contracts, as well as regulation issues. "The physicians have to understand how the wording in a contract could increase their liability," says Dr. Vergne-Marini.
4. How will you run your office? Knowing what kind of personnel you will need and how each person contributes to the success of the office is crucial for building a thriving practice. "There are some physicians who end up having their wives or nurses running the office without proper qualification," says Dr. Vergne-Marini. "In this environment you need qualified and trained personnel knowledgeable and fully trained in complex billing issues, regulations, HIPAA, etc. If they bill incorrectly, the commitment of 'fraud' could be assumed and you as the 'Captain of the Ship' can be held responsible." A compensation package offered to employees should include health insurance and workers' compensation. It's important to offer a competitive package to attract the best personnel to your facility.
5. How will you begin financially? It's important for physicians to establish good financial relationships with banks to receive initial loans. "Some people have to learn the hard way through trial and error," says Dr. Vergne-Marini. "Others bring in quality people, such as executive directors or accountants, who can track finances." For younger physicians partnering to invest in a surgery center, it makes more sense to purchase the property instead of leasing. This is a relatively safe way to increase your net worth and to compliment a retirement plan. "When it is a physician occupied building, you can get some pretty decent loans from small businesses and the bank," he says. "When you own the building, your property will have value. You are paying with pretax dollars and doing something for protection at the same time. You can also depreciate the building so you get an additional tax benefit by doing so."
Learn more about Physicians' Capital Investments.
Read other coverage on surgery centers:
- 5 Steps to Bring Total Joint Replacement Into Surgery Centers
- 9 Steps to Add Spine to a Surgery Center
- 5 Ways an Ambulatory Surgery Center's Size Impacts its Business
1. Does it make sense to invest in an ASC? With declining reimbursement rates, physicians have to figure out how to generate additional income, says Dr. Vergne-Marini. One way to do that is by investing in real estate, such as an office building or an ASC. Surgeons working out of surgery centers have the potential to receive a higher percentage of the reimbursement from the cases they perform. "Every time a patient is admitted to a hospital, the bill generally is two to three times higher than it would be in the ASC. Furthermore, the physician doesn't receive the additional compensation," he says. "A procedure that would cost $1,800 in an ASC, the hospitals might charge $6,000 or higher per patient. Physicians operating in ASCs will make a higher profit while at the same time will improve the quality of care and decrease the overall cost of healthcare."
2. What does it take to begin building an ASC? For most surgery centers, you have to get a loan of $2 million for the building (if built from ground up) and $1 million for equipment for a 7,000-square-foot structure. The banks will require you to submit several documents, including a financial statement from the "guarantors" and the practice. A pro forma based on your present and projected procedures must be prepared to show the feasibility of the project. You must also hire architects and engineers to develop and manage the project, all of which generate upfront costs. In the past, medical students were steered away from taking business classes to complement their medical studies, which could help them with the business aspect of investing in a surgery center. "People thought if you were learning about business, you were going into medicine for the wrong reason: for money instead of taking care of patients," he says. "Now, there's a new mindset in which physicians are spending extra time obtaining MBAs."
3. How will you approach legal and regulatory issues? Physicians must be aware of Stark Law and referral issues to avoid accidentally breaking the law. They must also be aware of the potential for malpractice suits and be prepared for any action that could come their way. Select a competent "health lawyer" who can guide you through any issues that might arise. They will be helpful in assessing partnership contracts, as well as regulation issues. "The physicians have to understand how the wording in a contract could increase their liability," says Dr. Vergne-Marini.
4. How will you run your office? Knowing what kind of personnel you will need and how each person contributes to the success of the office is crucial for building a thriving practice. "There are some physicians who end up having their wives or nurses running the office without proper qualification," says Dr. Vergne-Marini. "In this environment you need qualified and trained personnel knowledgeable and fully trained in complex billing issues, regulations, HIPAA, etc. If they bill incorrectly, the commitment of 'fraud' could be assumed and you as the 'Captain of the Ship' can be held responsible." A compensation package offered to employees should include health insurance and workers' compensation. It's important to offer a competitive package to attract the best personnel to your facility.
5. How will you begin financially? It's important for physicians to establish good financial relationships with banks to receive initial loans. "Some people have to learn the hard way through trial and error," says Dr. Vergne-Marini. "Others bring in quality people, such as executive directors or accountants, who can track finances." For younger physicians partnering to invest in a surgery center, it makes more sense to purchase the property instead of leasing. This is a relatively safe way to increase your net worth and to compliment a retirement plan. "When it is a physician occupied building, you can get some pretty decent loans from small businesses and the bank," he says. "When you own the building, your property will have value. You are paying with pretax dollars and doing something for protection at the same time. You can also depreciate the building so you get an additional tax benefit by doing so."
Learn more about Physicians' Capital Investments.
Read other coverage on surgery centers:
- 5 Steps to Bring Total Joint Replacement Into Surgery Centers
- 9 Steps to Add Spine to a Surgery Center
- 5 Ways an Ambulatory Surgery Center's Size Impacts its Business