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 should a physician go about getting buy-in from partners?

It cannot be stressed enough how important it is to have candid and open communication with all parties. Deals have blown up at the 11th hour or in the red zone (to use a football term) because of trust, when it could have been prevented with better buy-in and consistent OVERcommunication. Some of the pros to selling your surgery center (a huge part of getting partner buy-ins):  Convert future income into today’s dollars with advantageous tax rate-pay capital gains rates today rather than income rates over time. Take money off the table and diversify your investments. Reduce your risk exposure and debt-no one has a crystal ball to see what the future holds, all business ownership carries risk. Better management, contracts, pricing, improved physician recruitment, efficiencies. In some cases you get your life back, meaning someone else is responsible for the IT problems, personal problems, replacing that nurse of office staff, etc. and you can concentrate on practicing medicine. Some of the cons of selling your surgery center are: You are no long the only decision maker; now you have a corporate partner. Have to pay management fees, and in some cases pay even if you are not making a profit. You have to share the future performance of the center. You might have chosen the wrong partner and they may not benefit you long term. You need to speak with the partners and discuss the pros and cons of selling your ambulatory surgery center and keep them informed throughout the process in order to keep that buy-in. This needs to be spoken about early on and not held until later in the process or it can kill the deal. Buyers want partners who are serious about the transaction, can make decisions and know what they want and do not want. Do not wait until you are in the negotiation stage to educate and get the buy-in of your physicians. You do not want them learning about this piecemeal though half-true rumors, which leads to assumptions and...

How should an ASC handle underperforming surgeons?

Underperforming physicians are a problem in most centers. Once upon a time, a surgery center had 20 to 30 partners, but only a few were truly committed to the ASC and used it exclusively for their cases. Times have changed and those committed physicians are increasingly getting upset with the underperforming physicians and those underperforming physicians reduce the value of the surgery center in the eyes of the buyers. Even though we are discussing this in the context of preparing your surgery center for sale, we believe that you need to constantly reevaluate the ownership structure of your facility to reflect its current users. This will help keep the incentives of the owners properly aligned to maximize the ASC’s value, which puts your center in the best light for an acquisition. Fairness and group persuasion might be the best and easiest ways to convince partners to sell some or all of their shares. Have someone, or a group of someones, approach the offending physicians and ask them to sell their shares. There are two ways to redeem the outgoing physician’s shares. An existing physician or physicians can purchase  them. The ASC can purchase the shares from the selling physician. When the ASC is buying back the shares, it typically holds them until a new physician-investor is identified, and then the ASC sells the shares to the new physician. A new physician-investor can purchase the shares directly from the selling physician. Most ASC documents have agreements in them whereas all partners must fulfill the one-third test, which means that for a physician owner, one-third of his income derived from performing outpatient surgery  must be performed at the surgery center in which he has an ownership stake. The ASC safe harbors. If the physicians are not adhering to that, the typical agreement allows for removal for non-compliance by some method. Additionally many ASC documents have the “no cause” termination or defaulting partnership provision within them, enabling a vote be it the board or a supermajority of owners (usually 65 percent to 80 percent) to remove an owner for any or no reason or because of a defaulting event. If your operating agreement doesn’t contain any of these and you are looking at this in the preparing to sale context, you should be able to squeeze them out by their paying FMV for their shares and not being allowed to be part of the new company that you would create with the buyers and with the docs that are committed to the surgery center. Remember, this is general information and you need to be working with your lawyer to execute...

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...

When should an ASC recruit physicians for 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. When should an ASC recruit physicians for the surgery center?   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...