While the economy finally appears to be stabilizing, there's no indication that it's on a strong trajectory upward. But even just the feeling of stability is providing courage to those wishing to once again start developing new ambulatory surgery centers, says Paul Skowron, senior vice president, operations, for Regent Surgical Health.
However, he says the landscape has changed dramatically in the last year regarding the environment for starting a new ASC. "It has changed with respect to large, well-capitalized healthcare systems absorbing smaller, less-capitalized healthcare systems and purchasing physician practices at an alarming rate."
With this and other industry and economic trends in mind, Mr. Skowron identifies seven dos and don'ts for entrepreneurs to consider before moving ahead with a new ASC.
1. DO more robust underwriting. Mr. Skowron says more robust underwriting is required with respect to the specialty volume commitments made by surgeons.
"In the past, ASCs have been started with 'soft commitments' made by physicians with regard to the volume by specialty," he says. "There have been some huge disappointments with the profitability of the center specifically because the commitments did not materialize, forcing the ASC after one year to be looking for a new base of investors. We are in a different economic climate now, and more robust underwriting is required to ensure that in the first year the ASC is profitable."
Note: The same sentiment applies to expanding an existing surgery center. "You need to know how much you trust the volume a physician or a new specialty group is committing," Mr. Skowron says. "Also, the bank is going to require more solid information before they're going to lend additional money for an OR expansion."
2. DO more investigation of additional ASC ownership. As you're performing the underwriting, Mr. Skowron advises a thorough investigation to help identify investments physicians may have in other ASCs in the marketplace.
"There have been too many failures in the last year or two that can be associated with small investments by surgeons in multiple centers," he says. "I am finding that it is most often the younger surgeons who don't understand the impact of that. We want to avoid the casual investors looking for an easy return."
3. DON'T rely on single specialty. "While I think we've been saying that for the past 10 years, it couldn't be more appropriate now when we don't know from year to year which specialty is going to be reduced in its net reimbursement," Mr. Skowron says. "The only thing that is predictable is that on a net basis, the government will try to have an increase of zero or negative going forward, and we don't know which specialty will take a hit in a given year."
4. DO look for a hospital partner. Finding a hospital partner is beneficial in at least two ways for a new ASC, Mr. Skowron says. It can enhance an ASC's managed care strategy and increase confidence levels of prospective physician-investors.
"We want to convince the potential surgeon-investors that there is an alignment of goals between the surgeons and the hospital — it's easier to sell shares that way these days," he says. "The physicians know their colleagues are being courted and/or purchased by the local hospital, so it's better to be in alignment with the goals of the hospital than feel like you're the man standing on the outside competing with the hospital."
Mr. Skowron says that through his experiences with Regent Surgical Health partner facilities Surgery Center of Mount Dora in Florida and Midland Surgical Center in Sycamore, Ill., two ASCs with hospital partners, he has found hospitals to employ large treasury and accounting staffs who perform a more thorough due diligence than those performed by independent surgeons.
"They ask for much tighter monthly, quarterly and annual reporting," he says. "They themselves are doing a more thorough job of understanding the volume commitments of the potential surgeon-partners."
5. DON'T rely on out-of-network. While out-of-network reimbursement hasn't disappeared yet, Mr. Skowron says there are diminishing opportunities for OON by payor and the net revenue per case is decreasing across the board as well.
"There's also the fact that the valuation companies are reducing multiples as a center shows a higher reliance on OON," he says.
6. DO plan ahead for the technology platform. With a focus on cost consciousness, Mr. Skowron says ASCs are looking for the best "EMR lite" system they can purchase. But before they commit to a system, he advises ASC leadership to ensure the system will integrate with existing billing systems.
"My experience [with one of our partners] was that the EMR was brought in as an afterthought, it was not planned for up front, so the integration was not smooth and was labor intensive," he says. "If it had been planned ahead, it could have provided for a shorter time commitment for the training and installation of the actual billing system."
7. DO prepare for increasing quality reporting requirements. Mr. Skowron doesn't believe the increasing ASC quality reporting requirements beginning this year and becoming more labor intensive going forward in the next three years are receiving proper attention.
"I think [to meet them] will require a skill set higher than you see in an average director of nursing," he says. "The center needs to plan ahead to have those skill sets available. Why is that important? Because the government is now tying reimbursement to quality standards."
He says such a skill set will include extensive knowledge of Joint Commission standards "because the Joint Commission tends to incorporate both hospital and ASC safety standards and readmission rates," he says. "Potential hospital partners in a new joint venture will be looking for this skill set either in the DON, administrator or the clinical management team of the management company."
Learn more about Regent Surgical Health.
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