10 Strategies for ASCs to Thrive in the Recession.
Lori Ramirez, the founder, president and chief executive officer of Elite Surgical Affiliates, offers 10 ways ASCs can overcome the financial challenges of the recession and stay profitable despite declining reimbursements and increased competition.
1. Work with small and local banks. Ms. Ramirez recommends ASCs seek out local and small banks that have historically been shouldered out of ASC deals by larger banks. "Their terms are generally better, and they're more flexible and less risk averse," she says. In addition to providing better terms, local banks are often more aware of the local market and its key players. Rather than struggling to negotiate with a large chain that may not be sympathetic to your location's financial situation, your ASC should consider a bank that understands your finances based on the state of the local economy.
2. Take over a failed surgery center rather than developing a new one. Instead of developing a new center, a process that can take a year and a half to complete, Ms. Ramirez recommends investigating failed surgery centers and "one-man operations" that can be taken over. Ms. Ramirez's company recently took over a facility that had been sitting empty for a year. Though the facility needed around $700,000 in tenant improvements, the center was operational in four months. "You may pay the same [to take over a center as to develop a new one], but you're looking at cash flow for a center that's ready in four months versus more than a year," she says.
3. Build smaller with expansion capabilities. "One of the critical mistakes in developing a new ASC is overbuilding," Ms. Ramirez says. "All too often, physicians and administrators will overestimate the number of cases a physician can bring to the center and therefore build an operating room that stays empty most of the time." She says a new ASC should estimate around 100 cases per OR per month, meaning a center that schedules 200 cases per month will need two ORs. "Whatever the physician tells us [he or she can bring], we plan for half of that amount," she says. "This leaves room for future expansion without burdening the center financially by investing in unnecessary space."
Ms. Ramirez says ASCs also have the option of asking the developer for right of first refusal on contiguous space. "We built two ORs and a treatment room, and we had right of first refusal on unleased space that backs into the ORs," she says. "We had 18 months to make that decision, giving us enough time to ensure that expansion was necessary."
4. Ask your developers to finance tenant improvement. Instead of borrowing from the bank to finance tenant improvement, ask your developer if they can finance tenant improvement through capital or adjustments to rent. "Often developers are in the same financial situation as you, and they're eager to get deals," she says. "If developers can finance tenant improvements, the amount you have to borrow from the bank is less, which reduces your risk and can often create better terms."
5. Buy refurbished equipment or lease directly from vendors. Ms. Ramirez says her company has been able to save money by increasing its use of refurbished equipment and directly leasing from vendors. "A lot of these vendors are eager for business, and they need to sell their equipment," she says. "Not many people are buying new equipment, and fewer people are buying the latest-and-greatest fancy toys, so vendors need to get their product moved," Ms. Ramirez explained. She says Elite Surgical Affiliates has found vendors accommodating on lease agreements because of the down economy, and she recommends that ASCs take advantage of that fact.
6. Focus on high-revenue physicians. Rather than opening your doors to as many physicians as you can find, pursue high-revenue cases such as spine cases, Ms. Ramirez says. "Five spine cases a month can increase your revenue by as much as $500,000. You have to be smarter in your decisions. Instead of saying, 'Come one, come all,' we're trying to be very selective in who we target," she says. "We want to bring in someone who can contribute a lot of impact for the same amount of ownership. Identify your most and least profitable cases and physicians so you know where to make cuts if you need to."
7. Focus on physician-to-physician referrals. Don't waste your time cold-calling physicians to increase your referrals, Ms. Ramirez says. In the past, ASC administrators went out and marketed directly to physicians, a policy that she says wastes time and resources. "The best way to get interest from physicians is through their peers," she says. "We find physicians that have influence, and we task them with recruiting other physicians when we start the partnership." Ms. Ramirez says when you're initially discussing the partnership between the physician and your ASC, ask the physician if he or she is willing to take responsibility for physician referrals. "Then follow up regularly to keep track of who your physicians are talking to and what the response is."
8. Increase loyalty by working with your physicians beyond the scope of the ASC. Ms. Ramirez says ASCs can improve physician loyalty and commitment by building relationships that transcend the ASC partnership. She says Elite Surgical Affiliates started its own orthopedic and spine group to help physicians with running their day-to-day practices – including billing and collections — and she's currently exploring setting up ancillary businesses such as physical therapy and sleep labs. "You can't just have a relationship with these physicians at the surgery-center level and [expect the same loyalty], she says. "In a tough market, you have to have a relationship with your partners from A to Z." She says getting involved in other aspects of the physicians' work will also increase their willingness to recruit other physicians.
9. Be pro-physician. The structure of your business and partnership is very important in guaranteeing physician loyalty and participation, Ms. Ramirez says. "If you're in a situation where you're not a majority player, you can let the physicians have a majority ownership and a lot of the say [in business operations]," she says. "If you're a majority player, you have to make sure the physicians know that even with less ownership they're the number one priority. This could be a concern when a management team works with a third party such as a health system. The management team and health system have to put the physicians’ interests at the forefront." She says she's surprised by how many ASCs neglect physician relationships. "With competition being the way it is, physicians need a little more love," she says.
10. Have a strategy for declining reimbursements. In the current market, it's inevitable that your ASC will see reimbursements steadily decline. Ms. Ramirez says your ASC can survive these decreases if you plan for a drop in reimbursement. ASCs located near a major health system can consider building a relationship with the system to negotiate better contracts. ASCs that are the only provider in the area can use that status as leverage for re-negotiating contracts. If the ASC is located 20 miles away from a hospital that wants to expand its services, talk to them about developing a new center. "You have to have a strategy to deal with reimbursement changes," she says.
Learn more about Lori Ramirez and Elite Surgical Affiliates.
See this article on it's original source: Beckers ASC Review