asc management
We Prepare to Build a New ASC
We gauged many scenarios to determine the most cost-effective way to expand the practice.

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

In January of 2000, Eye Centers of Tennessee, our five-location practice serving a large portion of middle and east Tennessee, faced a space problem.

Our 4,800-square-foot Crossville location could no longer keep up with our growth. We found ourselves short of parking spots, waiting areas, and optical and administrative space. Our lot size wouldn't allow for expansion, and adding a second level was not only cost prohibitive, but would have required several months of interrupted operations. Our choices were to stop accepting new patients or build a new facility.

Making Our Decision

After much discussion, we chose to explore the option of building a new facility. Moving forward in our planning process, we soon realized that the costs of constructing a facility that would sustain our growth rate over the next 10 years would create a financial burden. This realization spurred our decision to explore the possibility of adding an ASC to help share the cost of the new facility.

We built a spreadsheet model of both Eye Centers of Tennessee and the projections of what we called Cataract and Laser Center. Our models enabled us to "game" many scenarios, including cataract volume, LASIK volume, subspecialty volume and Medicare reimbursement. All of our models predicted that at current and projected volumes an ASC would allow us to operate more efficiently and provide sufficient cash flow to help offset the costs of the new facility. Our next step was obtaining permission to build.

For our planning to continue we needed to apply for a Certificate of Need (CON). The application process in our state is expensive, political, and time-consuming. We anticipated and budgeted for a 6-month period. Our approval process took 9 months and cost us about $100,000.

We Refine Our Plans

The state requires submission of a completed set of blueprints prior to a CON being granted. This meant we had to continue the planning process during the review period so that we could quickly begin construction after receiving state approval.

In January 2001, we began going through the plans square foot by square foot. We wanted to break ground as soon as weather conditions permitted. The last few months of planning were particularly stressful and required a tremendous amount of time from the doctors and staff.

The last few revisions of the plans are critical, as these are the plans that the subcontractors use to actually build the building. At this point, what is drawn is what is built. The time invested at this stage translates into fewer "change orders" because change orders are expensive. We broke ground in May of 2001 with an anticipated completion date of May 2002.

Does an ASC Fit Your Practice?

The planning process is crucial, especially in making the initial decision on whether to begin an ASC project. Key questions that must be answered by the physician-owners are:

• Where does an ASC fit into my personal financial plan?
• Where does an ASC fit into my (our) business plan?
• Does our current cash flow provide the excess funds that will be required during planning, construction and start-up?
• Can we obtain financing?
• Do we have the team and the time to develop, execute and supervise the entire process?
• Is the return on investment worth the risk and time required to build and operate an ASC?

Next month, we'll discuss how we put our team of consultants, attorneys, architects, engineers and contractors together.

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.