A physician, years ago, informed an audience that the life span of a surgery center was exactly 13 years. We had never put an exact time frame on it. That stated, his comments and thoughts resonated as often true. If a surgery center is not refreshed and does not have an ongoing business plan, it generally suffers reduced profits as the physicians who formed the venture move into different stages of their careers and as the business climate and opportunities change. Moreover, in the accelerating times that we live in today, we view this more as less than a 13-year rule. However there are many surgery centers still performing well after 15 years in business.
There are several steps that a surgery center can take to offset the effects of aging on the business. These steps include.
1. Always be recruiting. A surgery center should always be recruiting. It is not the big offering every couple years that leads to ongoing success but constantly adding individual physicians, whether as owners or as utilizers of the surgery center. In essence, one should constantly be adding doctors. Further, it is impossible to match up the selling of shares with the buying out of physicians. Thus, do not make the two events conditioned upon another.
2. Succession planning. ASCs are active living businesses and do not perform well as partners enter the wind down phase of their medical practice. An ASC should be aggressive in discussing succession planning with key partners with a goal of getting the ownership into the hands of the younger physicians. Be a facilitator of the process.
3. Great management. It is critical that ASCs have "A" level employees at every single level. Whether the scheduler, the administrator, the director of nursing, or anyone else — an ASC must have an "A" team.
An administrator must block and tackle to make sure the train runs efficiently and on time. However, this alone does not make somebody an A. To truly be an A administrator, he/she must do an outstanding job of marketing and recruiting doctors and cases to the center. The prerequisites of the job is great blocking and tackling. The movement to A player status requires adding cases and marketing as well.
ASCs more than ever must have the right team, which includes the number of employees and the right type of employee. Two questions to ask when evaluating your team: Is the individual capable of doing the job you expect them to do and are they willing to meet your expectations?
An A administrator understands what it costs to perform a case in relation to the revenue the case will generate. The business is a much more challenging business than it was 5-10 years ago. In a great reimbursement climate everybody looks smart. In contrast, in a challenging reimbursement environment, the difference between great managers and greatly run centers versus poorly run centers is very clear and distinct. ASCs more than ever run on their profits and distributions.
4. Long-term debt and high expenses can be crippling. We use two words to describe long-term debt and high real estate costs: cautious and crippling. Centers must be extremely cautious about taking on significant long-term debt and/or lease obligations.
When somebody says let’s relocate a profitable center and spend $4 million to do so, we become very cautious. The first question is why? It will be expensive and it will take a long time. Can you predict how your volume will look in two years? It is a time to be very careful when taking on fixed expenses that cannot be varied up and down with the revenues of the facility.
5. Hospital relationships are helpful but not a panacea. In many situations, hospitals can be helpful for managed care contracts. However, they are not the absolute trigger for better contracts. Most not-for-profit hospitals are reluctant to get involved in contract negotiations of physician-owned entities. But for avoiding conflict and competition, it can be very helpful to have a hospital partner. In many situations, hospitals are employing surgeons. This often becomes a critical issue as most employed physicians will not be allowed to invest in a surgery center even if the hospital is a partner in the center.
6. Build on your strengths. If the center has an outstanding strength, the first goal is to double down on that strength. For example, an ASC with a great orthopedic program should work to accelerate its orthopedic development to become the premier orthopedic facility in the area. This could include new equipment, new procedures, rebranding the name of the center to include orthopedics, adding podiatry (very similar equipment) and pain. An outstanding staff along with quality care as demonstrated through patient and physician surveys can allow an ASC to double down on marketing, branding it as the best place to work for physicians and staff.
7. Keep it fresh. Often we see ASCs that are showing their age and look a bit run down from the lobby to the back door. Why? Are partners overly focused on distributions or are the employees and physicians simply too comfortable with their home. Is the equipment up-to-date? When the center opened it likely had the best equipment in the community. If the center no longer has current technology, it will be difficult to recruit new surgeons.
8. Develop a positive relationship with your managed care representative. Think about what you can do to help the representative look at your center’s data in a way that is beneficial to you. You may have to do some of their work but you also understand your center much better than anyone else. People like to work with people they feel can help them.
9. Review your fee schedule at least annually by comparing your rates to your best managed care agreement. Most payors pay contract rates or your charge, whichever is lower.
10. Review and rebid all service contracts every few years. There may be a better deal today on maintenance contracts, laundry and linen and other outsourced services.
These are just 10 ideas on expanding the life spans of surgery centers. In the past, surgery centers could have become complacent and survive. Today, complacent surgery centers go out of business. Should you have any questions about any of the ideas in the article, please contact Scott Becker (sbecker@mcguirewoods.com) or Rick Pence (rpence@natsurgcare.com).