Making the decision to invest in an ophthalmic ASC can feel daunting. But industry experts say the best time to invest in an ASC is, essentially, as soon as possible. With cataract surgery reimbursement continuing to decline, and the continued push by health plans and consumers to shift outpatient surgeries to the ASC setting, the time is ripe for ASC investment.

Blake K. Williamson, MD, MPH, MS, refractive, cataract, and anterior segment surgeon with Williamson Eye in Baton Rouge, LA, says buying into an ASC is probably the best financial decision a busy surgeon can make. And he advises doctors to consider it as soon as they’re financially able.

“While the cataract reimbursement fee continues to get cut—and we know that’s not going to stop—the payments to the ASC have actually gone up,” Dr. Williamson says. “ASC ownership is a way to insulate ourselves from the race to the bottom of reimbursements to the physician for cataract surgery. I would say that the time to buy is as soon as you can afford to get the loan.”

Many physicians feel as though they should wait until they have enough personal capital to make the financial leap into an ASC, but given the missed earning potential of waiting, most industry experts say taking a loan makes a lot of sense.

“There are financial companies that will loan money using the ownership of the ASC as collateral,” says John Grant, division president, AMSURG, who partners with physicians at more than 250 ASCs across the United States. “While the debt may be daunting, once you become a partner or owner in an existing surgery center, there should be immediate cashflow back. While a portion of the cash distribution will go toward repayment of the loan, you should have a complete return within two to four years if you’ve performed your due diligence. Then anything after that is excess return.”

Performing Your Due Diligence

Ensuring that you’re making a wise decision starts with performing your due diligence. According to Stephen C. Sheppard, CPA, COE, managing principal of Medical Consulting Group, LLC, who has assisted many physicians with ASC ownership, the process should start with a detailed financial pro forma which should include the total project cost of the facility—both of the building and the equipment—but also the funds needed to get through a regulatory process to get a license in the state and certification in the Medicare program.

→ REVENUES: “In terms of a financial prediction, CMS does us a favor with their fee schedule on ASC reimbursement in each location by CPT code,” Sheppard says. “For the last several years, that has been pretty stable. Therefore, you can do a very good job of projecting revenues based on your historic case volumes and practice payer mix. For anterior segment surgeons, obviously a good part of their volume will be Medicare—around 60% to 70%, generally. So, you need to look at those historic surgical volumes and the current reimbursement rates as you come up with your projections.”

→ EXPENSES: After that, Sheppard says it comes down to expenses. Most physicians already have a good idea of what those will be. The costs they’re calculating now are essentially the same as their clinic—including rent, utilities, various taxes, and other routine operating expenses. These are fixed expenses that don’t vary based on volume of activity, Sheppard adds. Whether you’re doing 1,000 or 1,500 cataracts each month, your rent and many other costs remains fixed.

→ WAGES: In ASCs, the major expense categories that successful operations can impact are the fully burdened labor and surgical supplies costs. For labor costs, you must consider new hires that you may not currently have, such as pre-op and recovery nurses, circulating RNs, surgical technicians, and sterile processing technicians. Certainly, you may already employ some of these professionals, Sheppard says, but you need to consider what additional personnel you might need in the ASC setting.

“Take a close look at what the wage rate looks like for surgical staff and nurses in the ASC setting and what your labor hours per week will be,” Sheppard advises. “Then take those hourly rates and add an additional 25% to project benefits expense, including employer payroll taxes. That will help you calculate your overall labor cost.”

→ SUPPLIES: Equally impactful as labor expenses are surgical supplies expenses. Sheppard says that most doctors already have a good idea of their surgical supply cost based on their previous surgical experience and the major vendor they work with. Depending upon the implant or other techniques that you utilize, you can determine an average case cost. By factoring all of these elements, you should have a strong projection.

Between these two categories—labor costs and surgical supplies—you have accounted for about 70% of the operating costs of an ophthalmic ASC.

“In my 22 years of experience, I’ve said many times that there are only two ways this can really go awry,” Sheppard says.

“The first is to overbuild—to have such a high construction cost that you can’t carry the debt,” he explains. “The second, and probably most common way, is to be unrealistic about your case volume. When you perform these calculations, you have to look at what cases you are currently able to bring to the ASC—that is, historic case volumes. You should not be performing these calculations with the idea that you’re recruiting a ton of new cases.”

Investing in Young Surgeons

As the financial landscape of ophthalmology evolves, one of the biggest trends to emerge has been the private equity acquisitions of an increasing number of ASCs. Some are questioning what this may mean for young surgeons—and what it means for the future of the field in the long-term.

“I believe that senior partners selling their shares at fair market value to junior partners is what’s right in the long-run for ophthalmology,” says Dr. Williamson.

“I think the generational transfer of knowledge and experience is one of the things that makes ophthalmology so special. Private equity may offer a higher multiple, and it’s tempting to take that money and run—after all, senior doctors have worked very hard to build their ASC and were the ones to take the risk—the ultimate conglomeration of all of these ASCs in private equity may not be in the long-term interest of our field.”

In fact, Dr. Williamson says that it could bring changes to way ASCs run—even in the operating room.

“I think private equity buyouts disincentivize being creative and nimble and efficient with our time in the operating room,” he adds. “I really believe that surgery suites are best owned by doctors, and not corporations.”

While Sheppard absolutely believes that now is the time for young doctors to think about ASCs—after all, the number of cataract surgeries only continues to increase—he also recognizes the barriers. In fact, in his own business, he’s told more doctors not to build an ASC than he has told to build them. But, he says that when the proper due diligence is performed and the proper team is assembled, partnership can be an incredibly valuable decision.

“ASCs are expensive to get into, and as appealing as the potential profits may be, it’s not something to do lightly,” Sheppard advises. “The work performed on the front end must examine the financial feasibility with the utmost care. And the team you will need to pull together, from the consultant to the architects to the general contractor, and then all of the subcontractors, is a big undertaking. But if you’ve truly performed your due diligence and you’ve made sure that every piece works before anyone swings a hammer, then you can go into it confident, and knowing that it was a wise business investment.

“The bottom line is that you must get it right the first time,” he says. “There’s no going back once you jump in.” ■