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Download a PDFWhat Young Surgeons Need to Know About Investing in Existing ASCs
By Amanda Kane, Business Development Manager
Today, young surgeons face many choices when they complete their training and begin to establish their practices. An increasingly common decision – and one of the most important they will make – is whether or not to invest in an ambulatory surgery center, or ASC. It often happens that the ownership group of an existing surgery center asks a young surgeon to join. That requires a large investment – anywhere from $50,000-$100,000, which can seem daunting for surgeons with young families, practices just getting off the ground, and large loan balances left over from medical school.
However, given the successful performance of Blue Chip-affiliated centers and our proven approach to ASC growth, we believe that it makes a great deal of sense for young surgeons to join existing ASCs. We have seen firsthand how expansion benefits both the new partners and the existing owners, and strengthens the foundation for long-term business success. In fact, we consider it our specialty to expand and grow existing centers with the addition of qualified surgeons who are a good fit.
However, we understand that young surgeons take these decisions very seriously and may be reluctant to make such a large commitment of money and energy. The balance of this article will outline the Blue Chip approach to recruitment and ASC growth, which is designed to answer the questions frequently asked by potential ASC investors (and especially young surgeons).
Why Invest in an ASC?
Outpatient surgery centers have achieved dramatic growth in the last dozen years, primarily because they offer significant value and benefits to patients, payers and surgeons. Patients love the convenience and comfort, while payers appreciate the lower costs of many treatments when handled at outpatient surgery centers.
From the perspective of surgeon-owners, successful ASCs offer a compelling value proposition. For example, surgeons gain more control of their operating and work environment. They are free to hire the staff they want to work with and standardize their operating schedules. They also have greater freedom to focus on patients and spend less time handling the minutiae and paperwork of the business.
Generally speaking, surgeons can be much more productive in efficient ASCs. Faster OR turnarounds means surgeons can do more cases in shorter amounts of time compared to inpatient environments. Of course, some surgeons choose to spend this "found time" with their families or pursuing their hobbies. Improved work-life balance is important to many of the surgeon-owners at Blue Chip-affiliated ASCs.
Lastly, the financial benefits for ASC owners are potentially huge. The steady stream of ancillary income can be comforting at a time when capital markets remain turbulent. At some of our centers, initial investments have lead to life-changing equity events within a few years. Quality care always comes first, but the financial potential of ASCs should not be underestimated.
Asking the Right Questions
Again, we are strong advocates for ASC ownership, but recognize that prospective ASC investors have a lot of questions on their mind. In fact, we encourage our potential partners to ask lots of questions as we go through the recruitment process. Here are a few of the most common, and our perspective on how to best address them.
Should I invest in a new or existing center? There is no easy answer to this. Surgeons should consider their own needs and goals, financial position and market conditions before choosing. While new centers offer the opportunity to get in on the ground floor, existing centers provide the opportunity to "try before you buy" – that is, you can bring cases to the center, meet the partners and staff, and understand the culture. Further, successful centers may offer a lower-risk investment, even if Fair Valuation laws dictate a larger initial investment or new investors must buy smaller stakes.
How do I know if this is the right center or ownership group for me? This question has a couple of dimensions. On the personal side, you want to get along with and have professional respect for the other surgeons at the center. It's critical that high clinical standards are maintained at all times. Good working relationships with the staff are important, too. You simply must be comfortable working alongside these individuals. However, it's not required that all partners are best friends. On the business side, it's critical that the surgery center maintain an effective mix of cases. If a new specialty is being added, it should complement the existing caseload and volume. Scheduling overlaps, OR capacity and new equipment are other variables to consider.
What happens if the center struggles or I want out? Every ASC business plan should have detailed exit plans for individual investors and overall dissolution plans. Blue Chip has created these, but fortunately we have never had to execute them.
Must I demand a full ownership share? Especially at successful ASCs, new partners may be offered a smaller ownership stake (i.e., fewer shares) than original surgeon-investors. Some new investors may feel slighted, but consider that many existing owners may be resistant to "diluting" their ownership stakes in the first place. We strongly believe that long-term growth requires a fine balance here. New investors need to remember that buying into a profitable center is a great opportunity, and most likely they will have the chance to increase their stake in the future, as initial investors retire. Existing investors must recognize that strong ownership prospects don't grow on trees and the time to recruit is always. In other words, top-performing centers look continuously for new investors to keep the business on a strong growth trajectory as it matures.
What's the role of a management partner? Management partners should bring expertise and best practices to the financial and operational aspects of the surgery center, liberating the surgeons to focus on delivering excellent care. Business partners should share information freely, explain why certain steps are necessary (e.g., supply standardization is proven to boost profitability) and promote efficiency (especially in running organized board meetings that don't last all night). They should be visible and available to answer questions and back up ASC staff. They should foster trust and share in both the risks and rewards of the business. Look for skin in the game!
Can I trust the numbers? Detailed financial pro formas should be openly shared with potential investors. You have every right as an investor to assess the overall health of the business. The specific areas to review include overall revenue, case volume, case costing, billing and payment cycles and cash flow. Get the right amount of detail for you, and your advisors (see below). Some surgeons are quite sophisticated with the principles of finance and accounting, while others prefer a higher-level view. Both can be excellent ASC owners. (Remember: you have a business partners to handle these matters.)
A Process for Success
Given that this is a big decision, we encourage all young surgeons to take the following steps to ensure they end up with the right investment at the right center, with as little risk as possible and high upside:
- Try before you buy: Given the importance of partnerships, we think it's critical for younger surgeons to "date before they marry" an ASC. Bring enough cases to the center over the course of 60-120 days to get a real feel for the facility – its clinical standards, the strength of its team and its operational efficiency. At Blue Chip centers, we take care of all credentialing and preference cards in advance to make this a smooth transition in the interim.
- Understand Your Commitment: Because engaged surgeon-owners are the most important factor in successful ASCs, you must take very seriously your commitment to deliver cases in line with your projections. This is an imperative. In fact, Blue Chip conducts due diligence to validate caseload estimates and only recruits surgeons who have the cases and a strong clinical reputation. Otherwise, your management responsibilities are not burdensome at Blue Chip-affiliated centers – attend periodic board meetings and abide by agreed protocols for standardized supplies and equipment.
- Familiarize Yourself with the Market & Regulatory Landscape: The complexity of the healthcare market today is simultaneously a driver of ASC growth and an obstacle for surgeons who may feel overwhelmed by the legal and regulatory issues involved. Again, ask questions of your potential management partner. They should be able to explain the impact of fair market value laws, anti-kickback statutes and safe harbor regulations. Further, they should be experts in the unique payer environment in your market. Ideally, they would have established and productive working relationships with the payers and hospitals, as well as deep expertise around Medicare reimbursement and policies.
- Talk to friends, colleagues and advisors: Ask your medical school colleagues and other surgeons you trust about their experiences with ASC ownership. Your practice manager may also have insights to share. Review the numbers with your attorney and financial advisers, if appropriate. And don't forget to talk to your spouse as this is an investment with both personal and professional implications!
The Bottom Line
Our successful track record in growing and expanding successful ASCs businesses gives us full confidence that long-term growth lies ahead for the industry. The keys are a strong and dedicated ownership group, a baseline understanding of the business, and a recognition that strong partnerships foster long-term success.