asc management
Creating the ASC's Legal Structure
We determine a legal structure for our ASC. The result is three interlocking entities.

By Larry Patterson, M.D., and Ray Mays

Early in the planning stage of our ambulatory surgery center (ASC), we needed to determine a legal structure for the business. This month, I'll explain the considerations that went into this choice and the resulting requirements for corporate governance of the ASC.

Factors we had to consider when choosing an entity included: separation of business, liability limitation, ownership flexibility, cash flow flexibility, and maximization of tax benefits. After consultation with an attorney, our accountant and our consultants, the limited liability company emerged as the vehicle of choice.

We Create Three Entities

Soon after making this decision, three new companies emerged: The medical practice became Eye Centers of Tennessee, LLC, which includes five locations and all of our employees. The ASC became Cataract and Laser Center, LLC. The ASC leased employees from Eye Centers because this arrangement lets us offer our employees group health coverage and simplified payroll. We also formed a property company to hold the real assets. The other two companies pay rent to the property company.

It's critical that you consult with a good corporate attorney prior to making your decision regarding entity selection. The limited liability company worked for us because our state has been very supportive of limited liability companies, and a "member governed" LLC has fairly painless reporting requirements.

Accounting issues will also arise with this type of structure. To minimize income tax consequences and maximize cash distributions to the members, your accountants must be very familiar with the relationships between each of the companies.

Governing Your ASC

Once you've decided on the legal entity, you must establish how the ASC is to be governed.

An ASC is unique in my experience in that it has two separate governance requirements. First is the business itself. The business has shareholders (or members in our case) who own the company and appoint the directors. The directors represent the shareholders and appoint the officers of the company to conduct the day-to-day operation of the business.

In our case, the physician-investors (members or shareholders) have appointed me to be the president and chief executive officer of the company. A nurse administrator is responsible for the surgical operations of the surgery center, and a business manager is responsible for the administrative operations of the surgery center. Together, we ensure that the business of the ASC is running smoothly and profitably.

The next level of governance is the ASC medical staff. To be licensed and certified, by-laws must be established for the governance of the medical staff. The physician-investors appoint a medical director who's charged with the supervision of the medical staff of the ASC. The medical director supervises the executive committee of the medical staff, which is charged with implementing and enforcing the by-laws.

Duties overlap, because in most cases the surgeons on the medical staff are shareholders. In addition, the nurse administrator is usually the director of nursing and a member of the medical staff. Regardless of the size of the operation, the ASC must be run as a separate business. The medical staff must have quarterly meetings to comply with licensing regulations. The directors must meet quarterly and issue a report to the members. The members must meet annually to protect the "corporate veil." We keep minutes of these meetings and mandate attendance.

Next, I'll discuss recruiting, hiring and training our ASC team.

Larry Patterson, M.D., is practice owner, and Ray Mays is practice administrator of Eye Centers of Tennessee, a general ophthalmology practice serving 300,000 residents of middle and east Tennessee. You can reach Ray Mays at raym@ecotn.com.