Should You Open an ASC?
Will it boost revenue, or simply drain resources? Here's how to find out.
BY RAY MAYS
If you are reading this article, I am assuming that you have a desire to build your own ambulatory surgery center (ASC). Perhaps that desire has been stoked by a recent CMS ruling that has increased overall ASC reimbursement and taken much of the uncertainty out of ASC operation. Those are good reasons to at least preliminarily explore the possible potential of a practice-owned ASC, but you will have to answer some hard questions before even thinking of going ahead and hiring an architect for that new facility. There may be other options that better fit your practice profile.
Napoleon Hill (author of Think and Grow Rich) says that "desire is the starting point of all achievement, not a hope, not a wish, but a keen pulsating desire which transcends everything." But is desire enough when it comes to opening an ambulatory surgery center? This article will deal with the business side of your practice and offer guidance on how an ASC may — or may not — fit into your overall practice picture.
Acquiring Patients is Key
The first question that anyone who owns a business must answer is: "What business am I in?" Your profession is ophthalmology, but do you understand what business you are in? How could Sam Walton open a small store in rural Arkansas and within 50 years dominate the retail universe, while on the same day that he started Wal-Mart there were probably hundreds, if not thousands, of entrepreneurs all over the world — equally intelligent, equally ambitious and willing to work just as hard — who opened similar-type stores but were out of business within 5 years?
Sam Walton understood what business he was in. He was clearly a professional retailer and had been in the retail industry for years prior to opening his own store, but he understood that his real business was acquiring customers.
The only way to acquire customers is through marketing and innovation. As the business owner, your most important job is to bring in the business. Everything else can be delegated to others, but at the end of the day the responsibility for generating revenue rests solely on the person who owns the business. As the business owner, you are a professional marketer and innovator. Marketing is the process of identifying the wants and needs of a group of people and then satisfying them better than the competition. Innovation is any superior benefit that customers will value.
When Domino's Pizza understood that people would love to have pizza delivered to their homes but were afraid to try it because of their perception that delivered pizza took hours and was usually cold … that was marketing. When Domino's figured out a way to guarantee hot pizza within 30 minutes … that was innovation.
Who "Owns" Your Patients?
The next question to be answered is: "Are you a business or a promotion?" As we just discussed, the business of a business is to acquire customers. I prefer to make a distinction between customers and clients. A customer is someone who makes an isolated purchase; a client is someone who is searching for a trusted adviser and is seeking to establish a long-term relationship.
In our industry, there is a definite difference between the 25-year-old who comes in for a foreign body removal and the 65-year-old who comes in with trace cataracts. One is a valuable customer, but the other is a potential client. It's not that one is more important than the other, it's just that the 25-year-old may not need to see the ophthalmologist again for another 20 years or so. Because the purpose of this article is to offer guidance on whether to build an ASC, we must now determine who "owns" the client.
If your practice is a referral-based medical/surgical practice, then you do not really "own" the patient. You are dependent upon your relationship with your referral sources for customers. In some parts of the country, insurance companies own the customer and if you build an ASC and do not obtain permission from the insurance companies to allow their customers to do business with you, then you are almost assured disappointment. However, if you have systematically developed a comprehensive, multi-faceted practice that has over the years built a large and loyal patient base, you will be far less dependent on others to drive your business volume.
Synergies Drive Procedure Volume
Jay Abraham, who I believe is the best small-business consultant in the world, teaches that there are only three ways to grow a business:
► increase the number of people who purchase from you
► increase the number of transactions per year
► increase the average transaction price.
At our practice, Eye Centers of Tennessee, we try to achieve those goals by looking at our ophthalmic business as a combination of seven key revenue streams:
- exams
- medical surgery
- optical dispensary
- refractive surgery
- other elective procedures
- ASC
- real estate
These seven "pillars" are mutually supporting and work together to maintain our business. If we have a down year in one area, we can count on the other pillars to keep supporting us. Having an estimate of total practice revenue broken down by profit center will help you assess the potential gain from adding an ASC. The worksheet at left can help.
I searched the Internet for the "average ophthalmic practice" and will use it as an example. The average practice sees 40 patients per day, 4 days per week for 48 weeks. The average transaction including exam fees and surgical fees is $150. Forty patients times 4 days times 48 weeks equals 7,680 exams multiplied by $150, or $1,152,000 in revenue.
If only 30% of those patients purchase a $150 pair of glasses, that is 2,304 times $150 for an additional $345,600 in revenue. If 1% of those exams (77 people times 1.7 eyes) results in a refractive surgery procedure at $2,000 that is $261,800 in additional revenue. If 10% of those exams results in a procedure that can be performed in an ASC at an average transaction of $735, then that is 768 times $735 for $564,480 in additional revenue. Our total now from those same 7,680 exams is $2,323,880, or $302.59 in revenue per exam.
The purpose of this example is to illustrate how the ASC works within the context of a complete ophthalmic business. My advice to anyone thinking of opening their own ASC is to maximize the other areas of the ophthalmic practice first. They are much less risky and much less expensive.
| Seven Steps to ASC Success |
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| By Ray Mays If you have already developed a comprehensive practice with a large patient base, several key revenue streams and the potential to attract a minimum of 1,000 cases a year to your surgical facility, you may be ready to tackle the task of obtaining the necessary regulatory approvals and building your own ASC. Be prepared for a real challenge. I can tell you from my own real-world experience in planning, developing, building and operating our own ASC that making the following seven critical decisions can spell the difference between achieving success and encountering major problems that lead to delays and mounting financial pressures. 1. Don't try to do it alone. Put together a good team. Your team is an investment, not an expense. Each member of the team needs to bring a certain expertise that contributes to the overall mission. This begins with a consultant. The consultant first needs to assist you in determining if your project is feasible and from there help develop a plan of action. Next is the architect. The architect and the consultant must be able to work together to design an ASC that fits your particular style of practice. Only after this process is completed can a budget for the project be determined. 2. Build a cash flow model. About 2,400 years ago, the famous Chinese military strategist Sun Tzu wrote: "The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but a few calculations beforehand. Thus do many calculations lead to victory and few calculations lead to defeat." The spreadsheet is the most powerful business tool ever created. Use it. Build your model and then "what if" every possible scenario. Challenge your assumptions. Know what the "worst case" is. Make sure that everyone understands the cash flow demands while the project is in planning, in the construction stage, and especially in the first few months of operation. 3. Bring the contractor in early. The contractor's knowledge of the local market is valuable, and can save time and money during the planning stage. He's especially valuable in determining a budget and a timeline. In our case, a simple suggestion about a style of brick that was more available in our area resulted in a savings of several thousand dollars but did cost us some time added to the project. 4. Have financing in place. Before the first shovel of dirt is moved, develop a good working relationship with a lender. The lender should understand what it is that you're doing and how you plan on doing it. Banks want and need to lend money to you, but (especially in the current tight credit environment) they want strong assurances that their money will be paid back. Prepare your package from the banker's point of view and use bankers' language, not ophthalmic language. Include your accountant and banker in your team and the process should go fairly smoothly. Be prepared for the lender to get nervous toward the end of the project, especially if there are cost overruns (which there will be) and project timeline extensions (which there will be). Keeping the lender's representatives informed will calm them and keep them confident in your team. 5. Hire the nurse administrator at least 3 months before opening. This person needs at least this long to organize, schedule and coordinate inspections, hiring, training, in-servicing, ordering, stocking, inventorying, writing the operational manuals and preparing for the first surgery. This is a hectic and frustrating period; give yourself plenty of time to get everything done. 6. Get busy with third-party payers. Contact your provider reps early and keep them informed. Prepare applications in advance so that as soon as your state and Medicare assign your number, these applications can be sent. 7. Lastly, get efficient. It's okay to make mistakes, but learn from them. Visit other ASCs. Have your staff attend seminars. Have your consultant assist in developing plans, policies and procedures that make your operation smooth and efficient. Everything counts — each bandage used unnecessarily affects profitability. |
Explore Other Options
A new ASC requires a tremendous investment in both time and money. It is heavily regulated and administratively intensive. I would encourage potential owners to visit several ophthalmic ASCs and, if you still plan on moving ahead, hire the best consultant available to assist in the start-up phase of the business. Unless a practice can be sure of at least 1,000 procedures per year that can be performed in an ASC, I would encourage the owners to consider partnering with another practice or buying into an existing facility. Many times this type of investment will yield double-digit returns in the first year with little to no risk.
I would suggest that the decision to build an ASC will be the largest and most important decision that an ophthalmologist will make in his/her career. If entered into with the appropriate amount of due diligence, it can be both professional and financially rewarding. Entered into lightly, it holds the potential to destroy a practice. OM
| Former Marine officer Ray Mays is the practice administrator for Eye Centers of Tennessee, head-quartered in Crossville, Tenn. He has written extensively on the promise and potential pitfalls of ASC ownership and conducts a 2-day course on practice and ASC operations. He serves as a manager and/or member of nine limited liability companies, two C-corporations and serves as a director for two not-for-profit corporations. |
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