If You've Ever Thought of Building an ASC 
Key trends indicate that now may be a better time than ever.
By Stephen C. Sheppard, CPA, COE

If you're always on the lookout for additional sources of revenue that don't put onerous new demands on your already crowded work schedule, now is the ideal time to explore the idea of building and operating your own ambulatory surgery center (ASC).

In my many years helping ophthalmologists plan and construct their ASCs, I've rarely seen the key economic factors that largely govern the success of these facilities more favorable than they are today. In this article, I'll explain why you owe it to yourself to at least look into building a practice-owned ASC if you aren't already operating one.

Good news for small and large practices

While large group practices that perform 1,500 surgical procedures a year can consider building their own free-standing ASCs, even smaller practices that do 500 anterior segment cases annually should find it financially feasible to add a surgical suite with one operating room to existing facilities.

Why am I so "bullish" on practice-owned ASCs?

Consider the following:

• Favorable demographics. The baby boomer generation is now moving into the 55 and over age cohort, a time in their lives when they're most likely to develop cataracts, glaucoma, age-related macular degeneration and other eye diseases. The number of practicing ophthalmologists in the United States is expected to remain relatively stable, but the demand for your services will almost surely grow. Though a practice-owned ASC typically requires a sizeable initial investment, having such a facility will position your practice to profitably and efficiently handle the increase in surgical procedures that you can expect to perform over the next decade.
  And while refractive surgery normally deals with a different demographic group, you can easily incorporate refractive surgery into your ASC plans if you so choose.
• An easier regulatory climate. The good news here is that many states have eliminated the requirement for a "certificate of need" (CON) for ambulatory surgical centers. Fewer than 20 states now have a CON requirement. Of those states that still require a CON, many have been relaxing the restrictions that in the past have discouraged practices from building their own ASCs. Some states have recently adopted regulations that specifically exempt ASCs and/or one-room surgical suites from the most stringent requirements.
  I want to emphasize in the strongest terms that the requirements for building and licensing both single-specialty and multispecialty surgery centers can still vary widely from state to state. If you think that building a surgical facility might be right for your practice, the first thing you should do is check your state's regulations regarding ASCs and evaluate whether the potential obstacles to construction outweigh the possible rewards. There are some states, such as Michigan, in which it's still very difficult to receive approval to build an ASC. Conversely, if you looked into the possibility of building a surgery center several years ago and found your state's regulations too daunting, take another look. You may find that the rules have changed.
• A narrowing reimbursement gap. The gap between reimbursement for hospital-based ophthalmic procedures and those performed in ASCs is slowly being closed as hospitals lose some of the billing preferences traditionally given to so-called "Part A" providers. In fact, new Medicare regulations that are already being phased in will soon put "Part B" providers (ASCs) on more equal footing with hospitals when it comes to ophthalmic surgery reimbursement.
  The narrowing of the reimbursement gap was re-emphasized in May when the Health Care Financing Administration (HCFA) agreed to add 66982, the new CPT code for complex cataract surgery, to the list of services eligible for payment to ASCs. While the 66982 code may apply to only a small percentage of your cataract procedures, the ruling is indicative of the trend for Medicare and other payers to steer more surgical cases to the lowest-cost providers.
• Low interest rates. In building an ASC, you'll typically need both a construction loan and a mortgage. With interest rates falling rapidly over the past 6 months, you're now in a position to obtain the most favorable terms in years for financing your ASC. Even taking into account the several months of evaluation and planning time that you'll need before actually beginning construction, you should be able to take advantage of a friendly interest rate climate. Lower interest payments can have a significant effect on the bottom-line profitability of your surgery center.
• More efficient operation. Without exception, my ophthalmologist clients who've moved into their own ASCs report that they're much happier, can do several more procedures each day, and are bringing considerably more dollars to the bottom line than when they performed surgery only in hospital-based facilities.
  You can't overestimate the benefits of controlling your own surgical environment. In addition to receiving a facility fee for each procedure performed in your surgery center, you'll be able to implement numerous operational efficiencies that can enable you to be a low-cost provider -- making your practice more appealing to managed care plans that may have previously ignored your presence.
  I urge my clients to develop what I call "the ASC mindset." That doesn't mean compromising on the quality of care you deliver. It does mean that you should approach an ASC in a different way than you would a hospital outpatient department. You need to have a willingness to innovate, to try new things, and to recognize that while the cost of care isn't the paramount variable in the equation, it's a significant one. Owning and operating an ASC will give you a tremendous amount of independence and flexibility, providing you with more opportunities to use the entrepreneurial skills that I believe most ophthalmologists possess.

Crunch the numbers

Given the overview I've provided here, you may now find the idea of building your own ASC highly appealing. But there's no "cookbook" formula for planning and constructing a surgery center. Before going forward, you must conduct a thorough evaluation that will enable you to chart a specific course of action that's best for your particular practice.

Once you're satisfied that your state's regulations won't be a major obstacle, the next step is to bring in your accountant and an experienced ASC consultant to determine what type of project -- if any -- is financially feasible.

You and your advisers should consider the following factors:

• Projected ASC revenues. Estimate your predicted surgical volume and case mix for the next 5 years by ASC group, taking into account the age of the population in your market area. Typically, the large majority of your procedures will fall under the CPT codes for cataracts and YAG laser capsulotomies. Then multiply these numbers by your anticipated reimbursements for the next 5 years. This should give you an idea of the revenue you can initially expect from your ASC.
  You should also consider your payer mix, particularly if managed care Medicare-risk plans make up a significant part of your reimbursements. Most private plans pay more than Medicare, so be ultra-conservative in projecting revenue by assuming 100% of your surgical volume will be Medicare-based. If the numbers still look good using this conservative approach, it's an indication that you'll be able to move ahead with the project.
• Projected expenses. There are a number of expense categories, but labor will be your largest. Labor costs are controllable within a reasonable range once you have a good idea of what your staff size and skills requirements are going to be. You'll need a clinical director -- preferably a registered nurse or a certified registered nurse anesthetist -- to manage the ASC under the supervision of your practice administrator. Factor in the cost of that key hire, as well.
  Surgical supply costs are highly dependent on surgeon preferences in such items as intraocular lenses, viscoelastic and other intra-operative supplies. You'll be able to better control these expenses if you align yourself with one or two major vendors who can provide most of your supplies. This gives you leverage to obtain favorable pricing.
  ASCs tend to be very dollar-intensive spaces. Make certain you have a good idea of what type of facility you want to build and how much you can spend on equipment, furnishings and construction before hiring an architect and contractor.
• Competition. It's important to make an assessment of the existing and potential competition in your market area. In small towns, the local hospital is often the key provider of outpatient surgical services. If this is the case, you may want to avoid competition and enter into a joint venture with the hospital to construct an ophthalmic ASC. Another alternative is having an ownership interest in a multispecialty surgery center run by a large corporation. As a general rule, I believe that the more partners you take on, the more problems and less independence you're likely to have.

It's a team effort

When this financial evaluation is complete, you'll know whether to proceed with your plans for an ASC or end the process. If you decide to go ahead, you'll need to form a first-rate project team. The key here is to hire people who have experience in the planning and construction of successful ASCs. Building a surgery center is a highly specialized project requiring specific knowledge and experience. You want to bring in people with proven track records.

Your project team should include:

• an attorney who can help you navigate the regulatory and legal process
• a consultant who understands the smallest details of building an ASC from the ground up
• an architect to develop plans and specifications; preferably a firm with significant ASC development experience
• an interior design firm that can meet your needs while staying within a budget
• a general contractor who will hire subcontractors, build the project, ensure compliance with life safety regulations and meet Department of Health requirements for your state.

An experienced project team will spare you from having to endure costly delays and unnecessary aggravation.

Dealing with details

When you've assembled your project team, you can start focusing on the more specific elements of your ASC. These would include:

• Location. If you choose to build an addition to your existing offices, the location of the new facility is predetermined, but you may need to find a way to provide additional parking. In choosing a new location for a free-standing ASC, you'll need a site that's convenient to your patients and staff. The location is even more critical if you're planning to perform refractive surgery in the ASC. Refractive surgery requires consumer marketing, which means that visibility and a good location can contribute to the success of that part of the practice.
• Expansion plans. Look at least 5 years down the road. If you're primarily interested in improving the professional environment and profitability of your current practice, then a smaller facility may be all that you need. If you're looking to grow the practice, add subspecialists and double or triple procedure volume, your architect will need to make provisions that will allow future expansion. Your vision for the future will have a major impact on such elements as the size of the site, parking lot layout and even anticipated traffic patterns.
• Financing arrangements. How are you going to pay for your ASC? An established practice typically has good banking relationships to cover variable-rate construction financing and a fixed-rate mortgage loan. Generally, a successful practice can meet the financial requirements of building an ASC, as long as the overall cost of the surgery center is appropriate for the anticipated case volume and projected reimbursement.
• Certification and accreditation. You'll need to obtain Medicare certification for your ASC. If you have significant reimbursement from managed care plans, they'll probably insist that your ASC be accredited by the Joint Commission on Accreditation of Healthcare Organizations, the Accreditation Association for Ambulatory Health Care or another accrediting organization. You should know in advance what the certification and accreditation processes entail so that you can meet these standards.

Plan now; profit later

The key is to do as much planning as possible before construction actually begins. Planning should also cover your computer and management information systems, as well as the equipment and staffing relating to administering anesthesia. The more details you can cover in advance, the less chance you'll encounter complications and delays.

Your ultimate goal should be to build a high-quality surgery center that meets all licensing requirements from day one and that runs smoothly and profitably thereafter. If you can achieve those aims, the time you and your team spend on analysis and planning will be well worth it. 

Stephen C. Sheppard, CPA, COE, is senior consultant for Medical Consulting Group, Inc., an ophthalmic consulting firm based in Springfield, Mo. He can be reached at steve@medcgroup.com.