What is the life cycle of an ambulatory surgery center (ASC)?

The life cycle of an ASC has the following stages:

  • Startup
  • Initial Growth
  • Rapid growth
  • Slowing growth
  • Plateau
  • Decline

Startup

The startup is the surgery center’s pre-development phase where you are trying to figure out what direction you want to go with your ASC and how you are going to get there. For example you are a group of busy podiatrists and your case volume shows that the pro forma will be below breakeven. Do you go out and recruit some orthopaedic or spine docs and develop your ASC with just surgeons? Do you “sell” at this point in time a piece of the project to an ASC Management Company or a hospital health system?

Initial Growth

Then you have the the initial growth phase, which is a very important stage in your center’s development towards profitability. This is when you set the tone, lay the foundation, and the physician partners and utilizers have their first impression of the operations of the center. Additionally you will be able to address the surgical case load commitment that you based your surgery center’s pro forma off of. Profits will not be there until the fix cost are covered, thus you should focus on working with the surgeons to capture the surgical volume that you put in your surgery center’s business plan’s pro forma, on operational efficiencies and containing cost. If your doctors are not aggressively shifting cases to your center you need to address it in this stage.

You need to be working towards your surgery center breaking even as quickly as possible. That being said, you should look to see if you need to be open every day or not, have minimal staffing, and recruit more surgeons that will do cases in your surgery center. There are outpatient surgery centers that are 4 or 5 years old and are not out of this stage of development. So it is important that you know how to market oupatient surgery.

Rapid Growth

In this stage you are covering the ASC’s fixed cost, have worked out the operational inefficiencies and working well with the surgeons. You are making consistent surgery center distributions and your EBITDA is expanding with each added case. As we have said many times before, once you are at break even every dollar of revenue should add between $.65 and $.85 to the bottom line.

During this expanded growth phase is where the fun begins or everything that you worked towards moves faster. Your hard work and strategic operations are paying off with results. The profits are being driven by the core surgeons.

Slowing Growth

While surgery centers can go from the Initial Growth stage to the Slowing Growth stage, skipping the Expanded Growth stage it is more than likely to happen as you capture the majority of the surgical cases that the original surgery center partners and utilizers of the ASC have. So it is possible that slow growth happens at any time in the ASC growth cycle, but most likely after you capture most of the surgical cases from the original physicians. This is when the growth slows down, the excitement is gone, the partnership matures and partners begin to decrease the number of new cases. The business’s best practices get overlooked and cost containment does not occur. This very often happens when the team forgets about the fundamentals and thinks that the rapid growth is never going to slow down.

Plateau

At the plateau stage of your ASC you are having challenges, everything has stalled, and you have an administrator with a good bit of complacency at best. Partners are disconnected and the partnership starts to break down.

Decline

As the stage name states, you center is in a state of decline. Partners are bringing cases other places, you have a tough time getting people to show up at the meetings and partners are complicated and disengaged. You will need a turnaround specialist because if you get to this stage you have missed the ability to capture the best value the surgery center once had to offer.

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