What do buyers typically do after they purchase an ASC to improve it? Can an ASC do any of that prior to the sale to increase the value of the center?

The actions that buyers of your surgery center would look at and possibly make adjustments to for improvements all relate to value drivers. More specifically they will look for every way to decrease cost, increase revenue and increase efficiencies. Even in the most advantageous market, many owners of ASCs leave substantial money on the table when they sell their surgery center — most often because they do not truly have a handle on what they can do to maximize the multiplier basis (the metric buyers use to multiply and get a final price) or they don’t want to invest the required time and effort. However, the buyer will take the time and effort to make these changes after they purchase your center. So the question is do you want a multiple of the profit derived from the changes or do you want a percentage of those changes that you will get after the buyer makes the changes? Examples: Look at your staffing levels and cost right size that. Look at your cost per OR min and see if you can gain any efficiencies there. Supply cost-surgery centers can reduce surgical supply costs by consolidating suppliers. As a standalone center you can push for price reduction, but an investor that has multiple surgery centers can typically get a better supply cost. You want to perform an analysis on the different suppliers currently used at the surgery center, this will help the materials manager identify which cases use the most supplies — often also the cases that are performed most frequently at the center — and work on cutting the number of companies from several down to one or two if you can get that price down by doing so. You need to know what you are spending per item for surgical cases. Many centers don’t track spending levels deeply enough and as a result there are lost profits. Physician preference items often cost the surgery center a great deal if the physicians don’t partner with the ASC to reduce materials costs. Make needed adjustments. As you determine which suppliers have the best deals, work with surgeons to consolidate their preference items for the lowest cost high quality provider. Benchmark your costs against yourself and others.There are many benchmark surveys for most of the categories that you can turn to if need be. Renegotiate your lease on the ASC space, equipment etc. Renegotiate vendor agreements-all of them! Renegotiate third party payor agreements-even if you have a year left. New cases are the lifeblood of a successful ASC. Ask each partner and physician that is doing cases in your center if there are any cases that they could bring to the center that they are currently taking...

How do you prepare to recruit new physicians to your surgery center?

The preparation all depends on what stage of the life cycle that the surgery center is in, but a good bit of the process is the same. Let’s start the discussion from the pure recruiting physician’s angle around an existing and operational center cycle. In the physician recruitment area, one of the first steps is to evaluate the ambulatory surgical center to see if and why any of the current physicians are not bringing all of their qualified cases to the ASC and then what the barriers are to them bringing their cases. Meet with each of the physicians and ask the question: “What can we do differently that will make you more comfortable in bringing all your appropriate cases to the outpatient surgical center?” One of the first steps is to understand where the shortfalls are occurring. The reason that this step is very important is because going forward, ASC operational inefficiencies will strongly affect recruitment and retention of cases and recruiting new doctors to your ambulatory surgery center. How do you prepare to recruit new physicians to your surgery center? Some of the typical responses Preferences with equipment or instruments not available at the ASC Investments in another surgery center or a procedure suite at their office Hospital politics/pressures Confusion around out-of-network vs. in-network contracting at the ASC Confusion with the surgery center facility cost for cash pay patients Staff or scheduler non-compliance Lack of adherence to start times Lack of familiarity/comfort with ASC staff Lack of transparency – both financially and with executive decisions Third party payer contracts Lack of background research on /compatibility with providers Lack of partner enthusiasm / partner frustration It is imperative that leadership understands that their top priority is to remove as many barriers as possible so that it is easy for the surgeons/physician to perform all of their qualified cases in this center. Create pro formas that can quantify the financial benefits adding only a few more cases per month. ASC surgeon-owners must clearly see how incremental case volume growth leads directly to higher margins (given that overhead costs are largely fixed when centers are at breakeven). This helps make the case that the investment of their time in the recruitment process is very profitable. Evaluate each surgeon’s block times – some surgeons may be able to or open to being flexible with their scheduling in order to accommodate new physicians. Define the kind of physician you want and can support ,or how you would support physicians that are not married to another ASC. For example, a natural fit for a spine surgery center center is to add pain or other orthopaedic and podiatry. While we at one time could pick and choose...

What are the goals of the preparing to sell stage?

When you think about selling your ambulatory surgery center, you as the surgeon owners will have a few outcomes that you want see. Typically some of those outcomes are peak price and terms as well a corporate partner that will help grow your surgery center business, etc. In order to put your surgical center business in the best position possible to reach those outcomes you must work hard in preparing your surgery center for sale. The goal of the prepare to sell stage is to prepare you surgery center so it looks as appealing as possible to potential buyers. Just as you would put a new coat of paint on your house before selling, you should make your company look as attractive as possible. This takes time, effort, money and foresight. Physician owners might find that their ASC runs better with all of these value enhancing factors in place, which makes their implementation a good idea for all parties involved. Surgery center buyers and ASC investors will find that preparatory work enables them to recognize the right acquisition fit when it comes across their desk. Making sure your surgery center is as appealing as possible requires us to look at it in a multidimensional manner. Some of the goals are to: Increase the speed of the process Make the process more efficient Manage and increase the overall perception of the buyers (which directly affects the value) Learn as much about your business as you can You want to properly position your business and articulate its investment merits. This process also allows for the identification of potential buyer concerns on issues ranging from growth sustainability, margin trends and case or procedural concentration, contingent liabilities and any physician partner issues. You need to understand the assumptions that drive your surgery center’s financial model. This is very important as this forms the basis for the valuation that will be performed by the prospective buyers/investors. Therefore you must approach your surgery center’s financial projections from the buyer’s perspective and gain comfort with the numbers, trends and key assumptions driving them. You need to understand the valuation methodologies that ASC buyers will use in their analysis (comparable companies, precedent transactions, multiples of trailing EBITDA, DCF analysis and sometimes LBO analysis-which is using debt) The more questions that you answer upfront the fewer you must answer during the process to get the surgery center buyers familiar with your ambulatory surgery center’s story. The longer your surgery center business is on the market the easier it is to lose momentum. Time kills deals, speed matters, thus this process matters. Efficiency.  The more information you provide the buyer the more quickly they can determine their interest level...

When should an ASC recruit physicians, undergo syndication or engage in resyndication of the surgery center?

Ambulatory surgery centers sometimes look at physician recruitment as a one-time “event,” carried out at some stage in the development, which can later be forgotten about during the center’s day-to-day operation. The most successful surgery centers understand and make surgeon recruitment an ongoing process. For some centers, this will be a paradigm shift and one that they will need to make. The market is changing, and centers that do not adapt will not survive. If you are not at 100% utilization and your goal is to grow the center, you should always be recruiting. Each dollar of revenue once you are at breakeven point can add up to between $.65 and $.80 of profit to the bottom line.  Successful recruitment campaigns are as, if not more, important to the success of your ASC than strong payor contracts and business best practices. The most successful surgery centers have owners that have adopted a physician recruitment mindset. A large part of your administrator’s job needs to be on going physician recruitment. At least 20% of their time needs to be in the field meeting and recruiting new physicians. Physician partners should be recruiting as well. There should not be anything going on as far as what doc is doing their cases where in the market that the administrator does not know about. Nothing! That takes a commitment and lots of work. Remember that each additional dollar of revenue can add up to between $.65 and $0.80 of profit to the bottom line once an ASC achieves breakeven financial status. Each partner needs to keep that in mind when considering how physician recruitment results in increased patient volume and profitability … their ultimate conclusion will be that case load recruiting is a highly profitable investment of their time. Syndication can primarily take on one of two forms: (1) syndication of a “de novo” or start-up ASC; or (2) selling interests in an existing ASC to physician utilizers or potential utilizers. The sale of ownership interests to physicians who bring cases to the ASC is an important factor in determining an ASC’s success. Selling equity interests in the ASC to physicians who regularly use the facility strengthens their relationship to the surgery center. Also, physician ownership is often a prerequisite to consummating a sale of the surgery center. Leading up to a sale of the surgery center is another optimal time to syndicate. Adding 100 cases a month of pain to your orthopaedic ASC could help you receive double digit multiple of trailing EBITDA as we have pointed out in the...

How should an ASC define its wants, needs and desires?

Whenever you start the prepare to sell process or even a little before you need to understand the physician owner’s and the ambulatory surgery center company’s wants, needs and desires. This will help you in a couple of ways. It will help you get a handle on how you can tell your story or in other words sell your surgery center, the strategic position of the surgery center in the market place as well as understand what you need in a new partner. Additionally, know what you want out of a ASC sales transaction. We can discuss some of the typical wants, needs, and desire but this is mostly very center and owner specific. We ask each surgery center partner what they want to see in a buyer and what they want out of a sale of their surgery center. This helps get a handle on the questions, but also helps with physician buy in. We want to take a look at the thought process in a more strategic fashion. What we do if we are brought in early enough in the decision making process is to recommend doing a SWOT (Strength, Weakness, Opportunities, Threats) analysis. There are others that you could use to get to the same place, but it is the one most of us have heard about and it is fairly easy and straightforward. A SWOT analysis guides you to identify the positives and negatives inside your Ambulatory Surgery Center business (S and W) and outside of it in the external environment (O and T). This will help you to develop a full awareness of your situation, which will help with creating a plan and making the decision. Do you hold or sell, and what is your path forward if you sell or hold? You can list internal and external opposites side by side. Answer these simple questions: what are the strengths and weaknesses of your physician group, your ASC, your market, and your efforts or actions, and what are the opportunities and threats facing it? Some of the elements typically found in a SWOT for a surgery center: Strengths Young engaged partners Multi-specialty case mix Well paying long term contracts Weaknesses Low volume High Debt Disengaged partners Low paying contracts Over built center Opportunities Ability to take on more cases or expand Improve payor contracts (e.g. an ASC that sold with payor contracts at 100% of Medicare. This was a huge buying point for the strategic buyer because it was an easy opportunity to increase revenue shortly after they bought the center.) Recruitable surgeons in the market Lower expenses Improve business best practices Internal cases that can be brought to the center Able to establish a direct to patient marketing...