It's a risky time to develop a new ASC, but development can be done successfully if investors take the time to create a strong business plan and stay honest about the financial challenges. Christian Ellison, vice president of Health Inventures, discusses seven steps to developing a successful de novo ASC.
1. Explore less risky alternatives. The first step to developing a de novo ASC, according to Mr. Ellison, is to make sure building a new center is the right approach for accomplishing your goals. "The market is a much more competitive than it used to be, and there's much more risk than there's been historically, mainly around achieving patient volume," he says. "With the continued pressure on reimbursement, make sure you evaluate other alternatives."
He says the reasons a physician, for example, might want to develop a surgery center are the same as they've always been: more efficient environment, more control and more share of the healthcare dollar in terms of access to facility fees. But before deciding to build a new ASC, he or she should look at whether the same goals can be accomplished for a lot less risk — by investing in an existing center, for example. If developing the surgery center will provide a unique set of opportunities and benefits that outweigh the risk, it is a more intelligent investment.
2. Find strong physician leadership. According to Mr. Ellison, finding strong physician leadership will be necessary in any case, whether the center is a hospital-owned, joint-venture or physician owned facility. "The ones that are successful have strong physician leadership, and those physicians can really get their colleagues to make good, sound decisions and commit themselves to the venture," he says.
He recommends finding physicians who are influential among their peers and represent enough business to support the center. "In the end, volume is key to success and also the biggest risk," Mr. Ellison says. "If the volume doesn't materialize, [the center will struggle], so the doctor must either have enough business to support the center or represent a larger group of doctors that does."
3. Choose the right partners. If your ASC is partnering with a management company, real estate developer or a hospital, Mr. Ellison says you should sit down and have an honest discussion with your partners before you start planning. Make sure physicians are committed to bring cases to the center and providing leadership. Make sure the hospital is prepared to support physician recruitment, marketing and payor contracting. "If you work through some of those hard decisions on the front end, the partnerships will tend to work better downstream," Mr. Ellison says. Address any concerns you may have about volume, reimbursement, referrals or the development process while there is still time to adjust your business plan.
4. Hire experienced professionals. According to Mr. Ellison, this may mean consultants, legal advice or any other ASC expert that "flattens the learning curve and reduces your risk." If you work with someone who has prior experience developing ASCs, you'll be able to avoid common development pitfalls. "[Hiring experienced professionals] will also improve your speed to market, so the consultants or lawyers should pay for themselves," he says.
5. Develop a comprehensive business plan. The three most important issues to cover in your business plan are:
• Volume. Make sure you know where your volume will come from and which physicians will bring the majority of your volume. An ASC that depends on the majority of its volume from a small number of physicians is more risky than one that spreads out case volume over a group of physicians.
• Case and payor mix. Mr. Ellison says your mix of specialties should complement each other. "Can you use the same equipment for different specialties and cases?" he says.
• Reimbursement. "Make sure you're going to get paid what you think you will for the work you do," Mr. Ellison says. This may mean foregoing a certain specialty that reimburses less, or expanding one area to make up for lower reimbursements or volume in another area.
Mr. Ellison says these three aspects of your business plan should all work together. It will influence other aspects of your plan such as facility size and equipment costs.
6. Find a good location. In Mr. Ellison's experience, convenience is the number one reason physicians use a facility, regardless of investment. In many cases, the financial impact of performing more procedures in less time far outweighs the return on investment a physician gets from a center, meaning location and efficiency is key. If your surgery center is miles away from the physicians' practices and the hospital, you will likely see lower patient volume and therefore decreased revenue. "Time in a car is a big negative for doctors," he says. "If you locate the facility miles from where they spend most of their time, they won't use it as much as they think they're going to."
Mr. Ellison says the most successful ASCs are generally located near a hospital, whether or not a hospital is involved. "Most surgeons spend some of their time in the hospital, and their offices are often nearby as well, so they're more likely to squeeze in a case at the surgery center if they're close," he says. ASCs should be built in communities that have a group of physicians whose needs are not accommodated by the current health facilities in the area. There may already be two surgery centers in a town, but if they aren't accommodating 10-15 physicians in the area, a new ASC may still be a good investment.
Mr. Ellison adds that while urban centers may find it easier to boost case volume, a surgery center in a rural area that can get a committed case volume may be a better investment because reimbursement rates are often higher and less competition exists.
7. Don't overbuild. Overbuilding is one of the most common errors in developing a new ASC, Mr. Ellison says. "Most ASCs in the United States are under-utilized, so often they run at 40-45 percent capacity, and that's a big risk," he says. "Doctors that are your partners today may be employed by a hospital tomorrow."
The uncertainty of the market means your case volume could easily be impacted by economic downturn, competition, departing physicians or other issues. He says to keep in mind that building small doesn't mean staying small; you can always expand if your case volume exceeds your space. "Once you feel good about your volume and case mix, make a conservative assumption and build to that volume," he says. "If you think you might expand, try to design the center in a way that's easy to expand if you have that good fortune in the future."
Learn more about Health Inventures.
Read more from the team at Health Inventures:
-4 Ways ASCs Can Improve Efficiency in Anesthesia Provision With Dr.Thomas Wherry of Health Inventures
-8 Ways to Prepare for Accreditation
-4 Ways to Improve ASC Profitability From an Anesthesiologist's Perspective
1. Explore less risky alternatives. The first step to developing a de novo ASC, according to Mr. Ellison, is to make sure building a new center is the right approach for accomplishing your goals. "The market is a much more competitive than it used to be, and there's much more risk than there's been historically, mainly around achieving patient volume," he says. "With the continued pressure on reimbursement, make sure you evaluate other alternatives."
He says the reasons a physician, for example, might want to develop a surgery center are the same as they've always been: more efficient environment, more control and more share of the healthcare dollar in terms of access to facility fees. But before deciding to build a new ASC, he or she should look at whether the same goals can be accomplished for a lot less risk — by investing in an existing center, for example. If developing the surgery center will provide a unique set of opportunities and benefits that outweigh the risk, it is a more intelligent investment.
2. Find strong physician leadership. According to Mr. Ellison, finding strong physician leadership will be necessary in any case, whether the center is a hospital-owned, joint-venture or physician owned facility. "The ones that are successful have strong physician leadership, and those physicians can really get their colleagues to make good, sound decisions and commit themselves to the venture," he says.
He recommends finding physicians who are influential among their peers and represent enough business to support the center. "In the end, volume is key to success and also the biggest risk," Mr. Ellison says. "If the volume doesn't materialize, [the center will struggle], so the doctor must either have enough business to support the center or represent a larger group of doctors that does."
3. Choose the right partners. If your ASC is partnering with a management company, real estate developer or a hospital, Mr. Ellison says you should sit down and have an honest discussion with your partners before you start planning. Make sure physicians are committed to bring cases to the center and providing leadership. Make sure the hospital is prepared to support physician recruitment, marketing and payor contracting. "If you work through some of those hard decisions on the front end, the partnerships will tend to work better downstream," Mr. Ellison says. Address any concerns you may have about volume, reimbursement, referrals or the development process while there is still time to adjust your business plan.
4. Hire experienced professionals. According to Mr. Ellison, this may mean consultants, legal advice or any other ASC expert that "flattens the learning curve and reduces your risk." If you work with someone who has prior experience developing ASCs, you'll be able to avoid common development pitfalls. "[Hiring experienced professionals] will also improve your speed to market, so the consultants or lawyers should pay for themselves," he says.
5. Develop a comprehensive business plan. The three most important issues to cover in your business plan are:
• Volume. Make sure you know where your volume will come from and which physicians will bring the majority of your volume. An ASC that depends on the majority of its volume from a small number of physicians is more risky than one that spreads out case volume over a group of physicians.
• Case and payor mix. Mr. Ellison says your mix of specialties should complement each other. "Can you use the same equipment for different specialties and cases?" he says.
• Reimbursement. "Make sure you're going to get paid what you think you will for the work you do," Mr. Ellison says. This may mean foregoing a certain specialty that reimburses less, or expanding one area to make up for lower reimbursements or volume in another area.
Mr. Ellison says these three aspects of your business plan should all work together. It will influence other aspects of your plan such as facility size and equipment costs.
6. Find a good location. In Mr. Ellison's experience, convenience is the number one reason physicians use a facility, regardless of investment. In many cases, the financial impact of performing more procedures in less time far outweighs the return on investment a physician gets from a center, meaning location and efficiency is key. If your surgery center is miles away from the physicians' practices and the hospital, you will likely see lower patient volume and therefore decreased revenue. "Time in a car is a big negative for doctors," he says. "If you locate the facility miles from where they spend most of their time, they won't use it as much as they think they're going to."
Mr. Ellison says the most successful ASCs are generally located near a hospital, whether or not a hospital is involved. "Most surgeons spend some of their time in the hospital, and their offices are often nearby as well, so they're more likely to squeeze in a case at the surgery center if they're close," he says. ASCs should be built in communities that have a group of physicians whose needs are not accommodated by the current health facilities in the area. There may already be two surgery centers in a town, but if they aren't accommodating 10-15 physicians in the area, a new ASC may still be a good investment.
Mr. Ellison adds that while urban centers may find it easier to boost case volume, a surgery center in a rural area that can get a committed case volume may be a better investment because reimbursement rates are often higher and less competition exists.
7. Don't overbuild. Overbuilding is one of the most common errors in developing a new ASC, Mr. Ellison says. "Most ASCs in the United States are under-utilized, so often they run at 40-45 percent capacity, and that's a big risk," he says. "Doctors that are your partners today may be employed by a hospital tomorrow."
The uncertainty of the market means your case volume could easily be impacted by economic downturn, competition, departing physicians or other issues. He says to keep in mind that building small doesn't mean staying small; you can always expand if your case volume exceeds your space. "Once you feel good about your volume and case mix, make a conservative assumption and build to that volume," he says. "If you think you might expand, try to design the center in a way that's easy to expand if you have that good fortune in the future."
Learn more about Health Inventures.
Read more from the team at Health Inventures:
-4 Ways ASCs Can Improve Efficiency in Anesthesia Provision With Dr.Thomas Wherry of Health Inventures
-8 Ways to Prepare for Accreditation
-4 Ways to Improve ASC Profitability From an Anesthesiologist's Perspective