The ASC business model, examined

For surgeons, ASC ownership is a key component of building wealth and long-term financial security. For new surgeons to have ownership in an ASC, current owners must be prepared to sell shares to those new surgeons. Adding productive owners will increase the ASC surgical volume, grow the business, and continue the high performance of ASCs.

Surgeon-owners of mature ASCs have the opportunity to divest ownership shares in an accretive method that reduces their percentage of ownership while potentially increasing their distributions because of the incremental volume brought in by new partners—building opportunity for new surgeons and rewarding experienced surgeons for their contribution over the years of ownership.

Succession planning is an important component of building and growing an ASC. Enabling young surgeons to invest modestly and grow their stake in the ASC as they grow their practice is instrumental to the success of the ASC and its owners.

A physician contemplating building an office-based surgery (OBS) suite should consider whether investing in an ASC, where the majority of their surgical procedures will be performed, may yield a greater return than an OBS that will accommodate fewer than 30% of cases—based on Medicare and private payer coverage as well as patient health qualification.

ASC and OBS Business Models

The chart on the previous page comparing business models includes actual ASC data supported with an in-depth proforma. The OBS projections are based on statements from an OBS management company’s marketing materials.

>> Business model assumptions and rationale:

• Approximately 45% of cataract patients are Medicare, eliminating them from OBS volume due to lack of existence of a facility fee.
• Approximately 30% are Medicare Advantage patients. It is speculated that the OBS may secure a small percentage of such contracts at potentially lower rates than ASCs. It may take a number of years for contracts to materialize.
• Approximately 25% of patients have private insurance. It may take a number of years for contracts to materialize, at potentially lower rates than ASCs.
• Additionally, 88% of patients have two or more comorbidities that could prevent them from having surgery at an OBS, because these facilities are neither equipped nor have personnel (e.g., anesthetists) to perform such surgeries.
• Consequently, based on current industry and market data, it is estimated that a maximum of 30% of a practice’s cataract cases could be performed in an OBS.

>> Syndication assumptions:

• Existing ASC with $1 milllion EBITDA.
• Purchase 35% at a 4X multiple EBITDA.
• Accretive to existing surgeons, meaning their remaining 65% of now $1,615,000 equals $1,049,750.

>> OBS case assumptions:

• Medicare will pay no facility fee for cataracts, yags, or any other procedure in OBS.
• Medicare Advantage plans will rarely pay a facility fee for cataracts, yags, or other procedures done via OBS.
• Commercial plans will rarely pay a facility fee for cataracts, or other procedures if done in an OBS setting.
• For medical reasons, some patients are not suited for OBS.
• Insurance won’t cover devices and implants in an OBS setting.

Conclusion

Cataract patients deserve safe, effective, and affordable care. They expect a favorable outcome with limited risk of complications, yielding a significant improvement in their daily lives. ASCs and hospitals deliver the established cataract standard of care in Medicare-certified, state-licensed, and appropriately accredited facilities tended by specially trained professional staff. Ophthalmic ASCs have capacity to perform more cases and the market has growth potential. Surgeons do not need to forego facility payments.

When compared with a hospital or a large multi-specialty ASC, an OBS suite may offer more control of surgical environment and technology. The cases appropriate for an OBS will be limited, the revenue will be limited, and the investment return will be significantly less in an OBS. OBS facilities are not certified, licensed, accredited, or otherwise regulated as a surgical facility, consequently presenting a higher risk to the patient, for the physician, and for payers.

The ophthalmic ASC remains, after decades of proven results, the best solution for patients and physicians as well as the best investment for physician-owners. ■