Barry Tanner of Physicians Endoscopy Shares 5 Challenges and Opportunities Facing GI-Focused ASCs

Barry Tanner, president and CEO of Physicians Endoscopy, an ASC development and management company focused on GI endoscopy, discuses five challenges and opportunities facing GI in ASCs.

1. The economic climate has limited access to capital.
"GI facilities were hit the hardest by the Medicare reimbursement reductions … the higher the percentage of Medicare, the steeper the hill is to climb for any GI-focused ASC," Mr. Tanner says. "In addition, the economic crisis affected our de novo business pipeline. We see physicians increasingly reluctant to make any major investment decisions. Like most of us, physicians have seen their retirement nest eggs erode substantially, and many physicians who were eyeing retirement in two to five years have made the decision to add another five years to their work schedule."

For physicians that have not yet developed their own endoscopy ASC (EASC), now might be the time to do so, he says.

"Developing their own EASC is the best, most controllable and most manageable investment that physicians will ever make," he says. "Where else can physicians make an investment and actually have some control over the return that investment will yield?"

2. Physician retirements threaten healthcare facilities.
 "For GI physicians in general, one challenge we see is that there are more GI physicians nearing retirement age than there are new physicians to take their place," Mr. Tanner says. "For most GI practices, physician recruitment is going to play an ever-important role. For new physicians entering practice, the potential for ASC ownership is a key-determining factor. For GI physicians who do not yet have an EASC, mostly the smaller one- to three-physician practices, they need to consider forming a coalition of GI specialists to work cooperatively to develop an EASC both for the sake of practice efficiency, as well as for physician recruitment and financial security."

3. The cost of delivery is dragging down centers.
"Another major challenge within the GI specialty is the need to balance the ever-increasing cost of delivering the service (e.g. equipment, staffing, regulatory, insurance), which can easily outstrip any potential increase in reimbursement and the impact of increased patient volume," Mr. Tanner says.

4. It is critical for ASCs to bolster their referral base and look for new sources of revenue.
"There is little that can be done with the fixed cost of operating a facility; however there are things that must be done to maximize performance," he says. "First of all, ensure that you make every attempt to eliminate unused or underused block time that is staffed. Matching staff costs to block utilization is key. Examine your accounts receivable. What are your days sales outstanding (DSO)? If your DSOs are greater than 40 days, and more than 5 percent of your total accounts receivable are over 90 days old, you are missing valuable cash flow."

Mr. Tanner says it is vital for ASCs to make a list of all major service contracts such as linens, scope maintenance, supplies, cleaning, insurance, etc.

"It is important to methodically go through the list and determine if each arrangement is a) meeting the current needs of the facility and b) being priced appropriately," he says. "Put each contractual arrangement out to bid if you haven’t done so recently. Examine your third-party payer contracts. When was the last time each major contract was renegotiated? Does your facility work with a group purchasing organization (GPO)? If the answer is no, then you need to look at the benefits of participating in one or more GPOs. Look at what you are paying to outside consultants, legal, accounting, coding, regulatory compliance, etc. Be sure that each such arrangement is adding relative value commensurate with the cost."

In addition, capital equipment purchases should be part of a long-term strategic plan, Mr. Tanner says.

"There will always be some level of unplanned capital purchases," he says. "These, while unavoidable, can be expensive both from the standpoint of cost, staff and physician time and can consume valuable current cash flow. The best advice is to plan for a certain level of major capital purchases annually and have the resources set aside or in place to manage both the planned and unplanned expenses."

Mr. Tanner also advises physicians look for opportunities in their referral base.

"If the credentialed physicians at the EASC have not engaged in a well thought out strategy for marketing their specialized services to their existing and potential referral base, then this would be a great time to come up with such a plan," he says. "When times are good, it is easy to get comfortable and to take for granted the fact that your referral base knows who you are and that they are satisfied with the services you provide, as well their access to you and your office staff.

"In a tight market, I would strongly recommend that physicians re-examine both access, ease of referral, marketing and education," he says. "Also look at potential new sources of revenue such as the possibility of incorporating hemorrhoid banding into your procedure mix. If your facility has excess capacity, look at other physicians who might be interested in utilizing available block time. If your EASC uses anesthesia, explore opportunities to bring that service in-house to gain some financial benefit."    

5. Professional management is integral to success.
"It is important to incorporate professional management services into your center’s overall plan for success," Mr. Tanner says. "With good management and focused physicians, it is possible to overcome the negative effects of many of these issues [discussed]. Despite the country’s current economic crisis, all of Physicians Endoscopy's partnered facilities experienced growth in 2008 and overall performance in 2008 was better than in 2007. In 2008 we’ve opened two new EASCs, and we currently have three additional facilities scheduled to open in 2009. This is a time for direction, focus, and professional oversight. Having someone constantly 'minding the store' is critical in every area that impacts the facility."

The future economic climate would also seem to suggest many ASCs will consider and may be better off bringing in a management partner.

"With the prospect of an increasing capital gains tax rate or even the potential for its elimination in 2010, I continue to believe that many physician-owned EASCs will seek to take some money off the table at the current 15 percent capital gains tax rate while simultaneously securing professional focused management to secure the future of their continuing investment," he says.

Barry Tanner (btanner@endocenters.com) has worked for Physicians Endoscopy since 1999. Prior to joining the company he was the CFO of Navix Radiology Systems and the COO of HealthInfusion. Physicians Endoscopy was formed in July 1998 and offers design and development services, management services, billing services and offers consulting on physician partnerships, portfolio management, and hospital joint ventures. Learn more about Physicians Endoscopy.