OASC | MARKET OUTLOOK
The ASC Is Still the Place to Be
IS NOW A GOOD TIME TO GET INVOLVED?
By Desireé Ifft, Contributing Editor
Trailblazers in the ASC market decades ago, physicians and physician groups still hold at least partial ownership in most of the country’s ambulatory surgery centers. If you’re a surgeon who has yet to become involved with an ASC, experts say it’s not too late. Although the outpatient surgery market looks somewhat different than it did in its infancy, the benefits of the ASC environment — for patients, surgeons, and the healthcare system — have only become more relevant with time.
Efficiency is the cornerstone of the ASC. Facility owners can create efficiency because they are in control of scheduling, staffing, OR turnover, and all other factors that can boost or bust the business. They’re also in control of costs and quality. With astute management of these variables, they provide high-quality care while lowering the cost of care for third party payers. “That’s what ASCs are able to do compared with hospitals and other more complex organizations that are very inefficient,” says Blayne Rush, president of Ambulatory Alliances, LLC, a healthcare investment banking and merger and acquisition brokerage firm that advises physicians and ASCs. “Everybody wins. This is where health care is going — and where it needs to be.”
There are a variety of ways a surgeon can take advantage of what the ASC market has to offer, starting with becoming credentialed to use blocks of surgery time in an established facility. (See “Surgeon Recruitment for Existing ASCs.”) The differences between operating in an ASC versus a hospital are immediately obvious, says John R. Grant, MHA, MBA, ophthalmology division president with ASC management company AMSURG. “I often hear from doctors that working in an ASC is so efficient that they can finish their cases in half the time,” he says. “They can use the newfound time to take time off or spend it in the clinic; they can enjoy that time however they want. They say it makes for a better quality of life.”
For physicians who would like to own or partner in an ASC rather than just operate in one, it’s a solid investment. “Generally speaking, the business returns on an ASC investment are very strong and more predictable than most other practice investments,” says practice management consultant John Pinto. “The typical return on capital invested is 30% or higher, and the profit margin can range from 20% to 40%. For the average ophthalmologist, an ASC is one of the best financial investments to be made aside from his medical education. The trend on that has been very stable for 15 to 20 years, and the future prospects are very good.” Viewed another way, how would becoming part owner of an ASC typically affect a surgeon’s income? Pinto explains, “A well-run center will generate a net profit anywhere from $100 to $300 per case, so for the typical cataract surgeon who performs 500 cases per year, that adds $50,000 to $150,000 dollars of income, which can help offset falling fees and rising costs, and support the adoption of the latest technological advances for patient care.”
Know Your Numbers
Physicians can choose one of two ways to invest in an ASC: develop a new facility or buy into an existing facility. According to most advisers, the latter is more likely to be feasible in today’s mature market. As Rush explains, the feasibility of developing a new center hinges on the collective case volume, case mix, and payer mix of the potential founding partners. For example, regarding case volume, if each potential founder sees 100 patients per week in their respective clinics, how many of those are surgery candidates? The types of cases in the collective case mix must be analyzed in terms of the time each requires and the amount of patient-paid facility fee or third party facility reimbursement they will generate. The new ASC also must be able to secure adequate contracts with third party payers. Once case volume, case mix, and payer mix are evaluated, the revenue they represent must be compared with the costs of building the facility (or building out an existing building) and running it. Rush advises his clients to evaluate their revenue numbers critically and conservatively. “You have to make sure you have enough in place to make it work, which means basing your decision to proceed on your worst-case — rather than your best-case — scenario,” he says.
Surgeon Recruitment at Existing ASCs
According to ASC experts, current market dynamics suggest that surgeons seeking operating time or a partnership opportunity with an existing facility can likely find it. While the pool of surgeons not already affiliated with an ASC has shrunk, center owners want to recruit as many surgeons as possible because more volume means a more profitable venture, says John R. Grant, ophthalmology division president with ASC management company AMSURG. And, according to John Blanck, senior vice president of operations with ASC management company Surgery Partners, “ASCs are looking for quick, efficient, capable surgeons who reliably start and finish on time. The amount of available OR time varies by center, and some of the most desirable times may be a bit more difficult to secure in busy centers. However, owners typically work hard with their physician ‘clients/users’ to find convenient block times for all surgeons because they know their success depends on it. At times, an ASC’s capacity — such as the number of ORs — can be increased to support a growing need, or surgical days are added or extended based on demand.” On the other hand, Blanck continues, in areas where ASCs struggle to find unaffiliated surgeons who want OR time or to buy in, the ownership may need to rely more heavily on organic growth. “Growth may have to come more from increased efficiencies and new procedures added to the CMS ASC-approved list and less from recruitment of additional surgeons,” he says.
John Blanck, CPA, senior vice president of operations with ASC management company Surgery Partners, elaborates: “Most markets are saturated with ASCs; therefore, unless you can engage a significant number of unaffiliated surgeons who have sufficient volume, new ASCs carry increased risk. It’s also challenging and often not possible for new centers to secure contracts with commercial payers. As a result, the conditions for de novo ASCs are somewhat limited.”
For physicians and groups of physicians who don’t have sufficient numbers to open a new ASC, buying into an existing center is a great option.
Investing in an Existing ASC
ASCs that are up and running today fall under a few different ownership models. While many are physician owned (sometimes, but rarely, by only one doctor), an increasing number are joint ventures between physicians and a hospital or physicians, a hospital, and an ASC management company, such as AMSURG, Surgery Partners, or American SurgiSite Centers.
Depending on how a facility’s operating agreement is structured, physician owners in the latter two scenarios may or may not hold the majority stake, control over management and governance, or the greatest number of seats on the governing board. Also, they may or may not have control over the ASC’s daily operations.
Physicians with an opportunity to partner in an existing ASC should be sure they have a full understanding of its operating agreement before proceeding. Blanck says they should also be confident they’re buying into a profitable enterprise with proven operations, a proven revenue stream, proven distributions, and a solid ownership group. And he points out, “These are not liquid investments. They’re intended to be long-term partnerships. Therefore, it’s critical that the surgeon meet with the ASC’s executive team, including key physicians, to understand the expectations and commitments for all partners. I would also strongly recommend using the center personally before making the decision to buy in. Perform a few cases there and make sure you’re happy with everything — the equipment, the staff, and so on.” Grant concurs, noting that an ASC’s financials are a primary concern, but “Don’t focus only on the money. Ask yourself: Are these the type of partners you want to work with? What is their reputation and the reputation of their center? Will your patients have a good experience in this facility?”
Insights from Veteran ASC Owners
The Ophthalmic ASC asked Robert J. Weinstock, MD, and Steven M. Silverstein, MD, FACS, some questions about their experience as ASC owners and how it might differ from that of doctors entering the market today. Highlights are below. But first, a little background about their surgery centers.
■ Dr. Weinstock (The Eye Institute of West Florida, Largo, Fla.) and several of his practice partners built an ASC from the ground up, along with a new clinic, in 2003. They had been operating in someone else’s ASC. “We recognized that if we owned an ASC, we’d have better control over delivery of care in terms of personnel, quality of care, and the patient experience — and of course, there’s a financial upside,” he says. Dr. Weinstock explains that the ASC, Largo Ambulatory Surgery Center, is a somewhat rare entity because it’s a true extension, at the same location, of his and his partners’ practice. “This approach comes with pros and cons,” he says. “It’s great for us, for operational flow, and for our patients who have true ‘one-stop shopping’, but we can’t expect to attract outside doctors, ophthalmologists or otherwise, to operate there. They have the perception that they’d risk losing their patients. For this setup to work, we had to have enough business from our own practice to sustain the ASC.”
■ Dr. Silverstein (Silverstein Eye Centers, Kansas City, Mo.) built his ASC from the ground up 13 years ago, hiring a consultant to walk him through the process from designing to staffing and certifying it. “It’s quite fun when you have advisers who have been through the process multiple times,” he says. The ASC, Blue Ridge Surgical Center, is a partnership between Dr. Silverstein, who serves as medical director, and ASC management company Surgery Partners.
How would you characterize the current environment for doctors thinking about getting involved with an ASC?
Dr. Weinstock: It’s excellent. There is some concern about the possibility of office-based cataract surgery becoming reimbursable, but I don’t see that happening, at least not in the near future. There are too many challenges, too many potential strikes against quality patient care. At the same time, it makes no sense that cataract surgery would migrate back toward hospitals. That’s not in the best interest of Medicare or insurance companies, and they know it. Care is less costly in the ASC. So the biggest risk we face would be reimbursement cuts to the surgery center, but reimbursement has been very stable for cataract surgery. Relatively big cuts to facility fees for some glaucoma procedures have been made recently, but I suspect there may be a backlash and CMS may have to revisit those decisions. Cuts to facility fees for some GI procedures have been made, but they haven’t been as steep as cuts to surgeon fees. I don’t foresee a trend toward reimbursement cuts that render ASC surgery financially unviable. That would force ASCs to close and patients would have nowhere to go. They would voice that issue and it would have to be addressed. As long as the case volume is adequate, an investment in an ASC is a good one to make.
Dr. Silverstein: There’s never been a better time to be involved in any way possible with an ASC. At a minimum, using block time provides extreme efficiencies compared with operating at the hospital. At the other end of the spectrum, buying in is an investment.
What questions should a doctor consider to determine if and how to proceed with becoming involved with an ASC?
Dr. Weinstock: How much time do you want to spend in the OR versus the clinic? To make your own center work, in general, you or you and your partners need to have a minimum of close to 700 cases per year. You also have to evaluate your ability to borrow the money. Land and real estate costs vary in different areas and could be a huge expense. Can you retrofit an existing building? Is there an existing ASC to buy? Either may be a good alternative to building from the ground up, but you’ve got to put together your pro forma for the building costs and operating costs. A rule of thumb is to expect to spend a minimum 50% of revenue on overhead, but more likely it will be 65% to 75%.
Dr. Silverstein: How much autonomy versus how much management help do you want? That dictates what kind of a contract or operating agreement you want to enter. Sharing ownership with a hospital or facility management company can provide support, but doctors shouldn’t be afraid to go it alone either, because consultants or service providers can be hired individually as needed.
How do you think the experience of a physician entering the ASC market today would be the same as or different from your experience?
Dr. Weinstock: Costs have risen, and rules and regulations, all the way down to sprinkler systems and lighting, have gotten more extreme. Equipment costs have increased, too. However, success is all about the case volume, so investing in an ASC is still a good path if you have that.
Dr. Silverstein: Years ago, the learning curve was much steeper. Today, building or operating an ASC is templated, and numerous consultants are available to help from start to finish. They can easily tell you whether your volume merits developing an ASC, and they know all of the metrics and benchmarks very well. Certificate of need (CON) requirements have less of an impact today on how easy or difficult it is to open a new ASC because, in many states, they’ve been done away with or relaxed. The ability to recruit surgeons to your ASC depends in part in some areas on how long ago that occurred. In some markets, where that happened long ago, it’s difficult to attract doctors because most have already partnered in some way with an ASC. But in areas where CON requirements are still in place or were only recently relaxed, there are plenty of surgeons looking to partner in a facility or secure surgery time. When a group of ophthalmologists doesn’t have case volume sufficient to develop an ASC, or would like to increase its number of partners, good specialties to recruit are gastroenterology, pain management, and podiatry. Except for the equipment, these specialties are synergistic with ophthalmology and can help to create economies of scale. Compared with other specialties, they have shorter case times, quicker OR turnover, and reasonable costs for the facility. Our facility had podiatry partners for a time and we’re currently evaluating a potential partnership with a gastroenterology group. ■
Whether the goal is to build a new ASC or buy into an established one, physicians would be wise to utilize business consultants and legal and other experts to advise and guide them. “Today, there are roadmaps out there for doing all of this successfully,” Rush says. “If you get the right people around you, it’s much less risky.”
A Bright Future
As in any field, challenges to success aren’t absent in the ASC market. Government regulation in particular, including reimbursement levels for services provided, can have a significant impact. ASCs and their advocates must remain vigilant in understanding and adapting to changes and asserting their voice in the healthcare arena. Despite the Center for Medicare and Medicaid Services’ recent inquiry into potential reimbursement for office-based cataract surgery (which he believes won’t come to fruition), Pinto sees the current ASC regulatory climate as stable. “I don’t anticipate any sweeping change that will make an existing or prospective investment in an ASC a bad investment,” he says.
Furthermore, demographics, mainly the aging U.S. population, should ensure high demand for outpatient surgical services in ophthalmology and other medical specialties, and the list of procedures approved for reimbursement when performed in an ASC is expected to continue to grow. In addition, says Grant, “The healthcare landscape will continue to become more value-based and focused on providing the best possible experience for patients — and these are areas in which ASCs excel.” ■
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