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Robert Carrera Archives - Pinnacle III

Oct 16
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ASC Business Strategy: Peering Through a Looking Glass into Your Organization

ASC Business Strategy: Peering Through a Looking Glass into Your Organization

By ASC Management, Leadership No Comments

I have often told groups who are interested in developing a surgery center, or who already have one, that seeking “professional help” to assist them with ASC business strategy is a smart move. Outside consultation can provide an organization with a fresh, yet experienced, point of view. This year I decided to practice what I preach.

Over the last year, Pinnacle III has been diving deep internally to refine our systems, processes, and strategy. After several months of self-assessment, we decided to seek outside professional help to realize the true benefits of our strategic planning process. We selected a consultation firm that specializes in small businesses experiencing growth. Their task? Provide us with operational, organizational, and cultural input and guidance throughout that growth process. The process of internal review and change has been challenging and rewarding.

I now double down on my original stance – organizations, especially developing or growing businesses such as ASCs, should seek outside professional consultation to assist in building and implementing business strategy.

Taking the Steps

To help you visualize how this process might work in your organization, I’ve listed the steps I took when seeking outside professional consultation.

  • First, we made an initial determination of the strategic initiatives we wanted to accomplish. This gave us an idea of the organizational goals we might need outside help to accomplish.
  • Next, we chose a strategic consulting firm. To obtain a list of the consultants serving businesses like our own, I reached out to people I respected in the business community for recommendations. I discussed with my contacts what I was trying to accomplish. After combining input from trusted colleagues and business associates with my own research, I narrowed my scope to three potential consultants.
  • Third, I interviewed each firm. The first firm operated under proven, academic-based structure, with a great deal of experience working with institutional organizations. The second firm was experienced in strategy, but typically worked with companies larger than Pinnacle III. And the third firm, the one I ultimately chose, was a group run by an individual who had started and run several companies and whose experience was geared more towards mid-sized companies. I felt this was the best fit for us.

What I Learned

Since making the decision to go down this road and choosing someone to work with, I have learned several things.

  • You must be ready for transparency. Unless you are willing to pull back the curtain on how your business is run and managed, don’t take this step. We opened our books and gave our consultant access to our management team, as well as other key members of our organization. We made it clear to our entire team no topic was off the table and all comments would be confidential.
  • You must be ready to put your ego aside. If you can’t “handle the truth” (remember Jack Nicholson in “A Few Good Men”), don’t embark on this journey. Each management team member – especially my partner, Rick DeHart and I – were provided feedback that resulted in small to moderate ego bruising. We were reminded the feedback received, both from the consultant and the team, was meant to improve our organization and meet our established goals.
  • Getting a diagnosis is worthless unless your organization is committed to the treatment plan. We went into this exercise committed to addressing the problem areas and taking the time to make changes to ensure our continued success. If you, as the leader, or members of your team are not committed to doing what is necessary to achieve the goals initially identified when the process began, you will only end up wasting valuable time and money.
  • Keep the fire burning. We are experiencing what we expected to experience. None of the initiatives are a quick fix – if they were, we would probably already have implemented them. Instead, as an organization, we have had to stay committed to our original goals and the long-term benefits we will receive from this initiative. It is up to each leader in our organization to keep us moving forward to reach our goal.

Regardless of how your business measures success, strategic initiatives need to be in place to accomplish your organization’s goals. Evaluating your organization’s current business strategy and environment relative to where you want to be is the first step toward creating those strategic initiatives. Then, when appropriate, business leaders should have the courage to seek outside consultation to structure the implementation and execution of plans designed to achieve the desired goals. Building a team capable of accomplishing the initiatives and recommendations to move the company forward is an equally important step. Working with an outside consultant can also bring clarity on how to strategically build and refine your team at a rate on pace with your company’s growth.

As established leaders, it may be difficult to admit things could be better managed, or that you may not have all the answers. A business that overcomes the ego of its leaders, incorporates input from trusted resources including outside consultants, and grows through internal process review and refinement, is a sign of a truly strong and humble leader.

Robert Carrera, President & CEO

Apr 19
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Does Securing a Team Partner Make Sense for Your ASC?

Does Securing a Team Partner Make Sense for Your ASC?

By ASC Development, ASC Management, Leadership No Comments

I recently read a theory about teams in the workplace from a variety of sources including General Stanley McChrystal’s book, “Team of Teams,” which entails a process of employing many small specialized teams to tackle large complicated issues. Hiring teams of individuals in unison to accomplish a goal is not new to many businesses. When college football teams change head coaches, for example, an entire staff of ancillary/associate coaches may accompany the new coach. Thus, a new team is hired.

In other cases, a team of individuals is assembled one at a time. For example, I have a friend in the advertising business who has worked as part of a team which was assembled over the years and hired by different agencies to provide writing and graphic design services. The individuals that make up this advertising team were hired one at a time as the agency grew. In music, there are many famous teams of song writers. In the corporate world, companies purchase other businesses and acquire teams to add a service or function they do not currently possess or offer. Think of Google’s acquisition of Android, Nest, Waze, and YouTube

Hiring teams can also occur via outsourcing. Or as I prefer to call it, by securing a “team partner.” Groups seek out organizations to partner with that specialize in ready-built teams in their respective industry, rather than build a team from scratch.

Outsourcing has at times received a negative reputation. Many business leaders question outsourcing anything. However, health care is morphing and changing daily. If a leader does not take the time to assess opportunities or approaches outside their organization’s usual way of thinking, maintaining the status quo could become detrimental and costly. It is perfectly normal, and oftentimes most beneficial, to ask for help in finding and hiring teams from an industry expert.

Why should an ASC consider hiring a team partner?

  1. Locate and tap into existing expertise. Hiring an industry team partner allows an ASC to quickly access qualified candidates with a history of success. While past success is not a sure sign of future success, it is a much better indicator than no past experience or a history of no success. While there are no guarantees a new internal team will succeed, the proven track record of a team partner is generally worth the price – both in dollars and time.
  2. Time is of the essence. You will rarely hear an organization say, “There are no time constraints to launch this project or fix this issue.” While building expertise from within, or tapping into internal resources may seem safe, it typically isn’t expeditious in our fast-paced health care environment. Learning takes time. Becoming an expert takes even more time. Often, learning on the job is not a luxury we possess. A team partner allows for immediate impact.
  3. No team bonding needed. High performing teams have a proven track record of working extremely well together. New teams, on the other hand, need time to create chemistry and build trust. Selecting experienced individuals with the proper skill-set and culture, then creating a team to elicit results and meet expectations is time consuming. Consider hiring an ASC team partner to access established teams. Bringing on an established team provides more timely dividends.
  4. Internal change is difficult. If change was easy, there would not be a multi-billion dollar industry built around helping individuals or organizations with their change management efforts. Many organizations will hire a single individual or even multiple individuals to create a new service offering. Within a few months or a year, those individuals may begin to think and act like everyone else leaving their original goals unaccomplished. Team partnering allows an organization to tap into an alternative corporate culture to advance a new initiative or gain buy-in to a critical mindset change.
  5. Acquire the crossover effect. Organizations experience a period of plasticity in their identity when there is a large influx of new employees. This period of change is known as the crossover effect. The crossover effect can be viewed as positive disruption. The spread of new ideas and new ways of working bring new life to the host organization. Often a newly hired team can affect other, more established teams within the organization via positive disruption.

Business owners and leaders are all striving for gains and improvement in the performance of their people and organizations. In many cases, changing our perceptions, practices, and personnel will be required to achieve those gains. Thoughtfully consider if hiring team partners might help your ASC acquire the individuals needed to facilitate some of those changes in the most expeditious, beneficial manner possible.

Robert Carrera, President/CEO

Mar 08
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ASC Lifecycle

The Lifecycles of an ASC

By ASC Development, ASC Management, Leadership No Comments

ASCs, like any other entity or organization, have lifecycles. I’ve found each stage in a typical ASC’s lifecycle lasts about ten years, give or take a year. As each stage of the ASC lifecycle draws to a close, a variety of issues generally begin to appear. Each of these issues need to be dealt with to prepare the ASC to enter into and thrive in its next lifecycle stage.

The Physical Plant

Diane Lampron, Director of Operations at Pinnacle III, recently posted a blog about the physical challenges of an aging ASC. The physical challenges include issues that arise with outdated and aging medical equipment, IT equipment and systems, facility design/aesthetics, etc. I won’t rehash the details; however, I encourage you to access her insights

The bottom line? ASC administrators and governing boards need to proactively consider how they will deal with looming physical plant issues, both logistically and financially, before they become insurmountable nightmares.

Space

Most new ASCs located in leased space begin with a ten-year lease with options to renew lease terms at a later date. As the ten-year mark approaches, it behooves the facility’s investors and board of managers to begin considering whether their existing space meets the partnership’s current and expected needs. Much may have changed over the ASC’s initial ten years of operations. An ASC re-examining its space and lease agreement might consider the following –

  • Is the current space too small or too large based on case volume and OR utilization?
  • Is the current geographic location still desirable?
  • Are there physical plant issues?
  • Are the physical plant issues such that moving (rather than repairing or renovating) is a better option?
  • What is the cost of relocation?

Any tenant improvement dollars provided by the landlord should be fully amortized – a fact that should be reflected in a new lease. For facilities located in space owned by the ASC’s members, the question is likely more focused on renovation or expansion. In some cases, the members may consider selling the building.

One size does not fit all. Different scenarios require different solutions. Here are three examples.

In 2016, the governing board of an ASC that was poorly designed, unattractive, and inefficient in its use of leased space, decided to move into a state of the art, investor-owned facility, despite the substantially higher cost. The new location was a new build, custom-designed for the ASC and one of its partnered physician practices. The reasons for the move included physical plant issues at the old site, improved efficiency at the new site, investment opportunities for partnered physicians, and aesthetic factors.

A facility owned by a physician partnership experienced considerable volume growth. In addition, its case mix significantly changed within a short period of time. The partnership anticipated these trends would continue. It elected to pursue a large expansion of its existing location to accommodate the ASC’s changing needs.

Finally, a leased facility used the option of relocating or downsizing its existing space as leverage to dramatically renegotiate its lease renewal.

Finances

There are numerous financial situations to consider as an ASC reaches the end of the first stage of its lifecycle. Generally, near the ten-year mark, the center’s original loans will be fully amortized and retired. Consideration now shifts to what to do with the additional cash that typically becomes available. Will extra revenue contribute to additional partnership distributions? Will funds be used to pay for some of the identified physical plant or space issues? Will future plans to address physical plant and space issues incur additional debt for the partners?

As was true with space considerations, a variety of situations can influence finance decisions at the end of an ASC lifecycle. A partnership may elect to take on the financial responsibility of a complete relocation at the time of their debt retirement. Or, the board, proceeding within its rights determined by their operating agreement, may opt to open a line of credit for the facility to handle larger unforeseen expenses so they can add the additional cash flow from the loan retirement to partnership distributions. Their plan may be to use the line of credit as a bridge if a need arises and address any draws on the line of credit with the additional cash flow.

Membership & Recruitment

ASC physician membership is one of the most serious issues a partnership may have to deal as it approaches the end of each lifecycle. At these junctures, many of the partnership’s original members may also be reaching a new stage in their personal lifecycle – considering retirement or moving, for example. The crisis level associated with physician membership is dependent on how successful the partnership has been with recruitment during the previous ten years. The manner in which an ASC and its board of managers deals with potential membership changes is critical to its longevity and its next lifecycle.

The most effective approach to the ASC lifecycle membership challenge is multi-faceted. It begins with continuous recruitment efforts throughout the entirety of the ASC’s business operations. It seeks physician and case volume recruitment targets from a variety of sources, including individual “free-agent” physicians, physician groups, and the introduction of new product lines.

Ideally, the physician retirement process begins with a review of, and familiarity with, the partnership’s operating agreement. Know the retirement requirements related to notice, investment buy out, etc. By staying well informed, the board will be prepared to act as it should. Conduct regular reviews of the ASC’s physician partnership roster. Begin communication with physician partners who may be indirectly mentioning retirement as well as those who appear close to retirement. Determine the impact their retirement will have on your ASC and develop an appropriate succession plan. Will their practice recruit an additional physician to make-up for the retiring physician’s case volumes? Is it possible for you to collaborate in that effort?

Governance

ASCs are governed by their operating agreements. And, like ASCs, the partnership’s operating agreement has its own lifecycle. A review of the agreement by the board of managers, the management company, and, in most cases, the ASC’s healthcare attorney is probably in order when a center begins to approach the end of one stage in its lifecycle and the beginning of another.

Questions to consider include: Are the provisions that made sense ten years ago when the ASC was newly launched still applicable now? Can the agreement be modified or re-written to better serve the ASC’s partners over the next ten years?

Examples of operating agreement and governance changes that occur during an ASC’s lifecycle are varied. Some centers adjust their non-compete radius to respond to growth in their community. Some facilities, with the assistance of legal counsel, adjust market value formulas to reflect changes in the market place. Partnerships who originally did not allow for entity physician investment may adopt investment concessions to accommodate the increased prevalence of physician group practices or LLCs. Partnerships may opt to allow management company membership by altering agreements that originally excluded these entities. Some ASCs that once had multiple classes of membership may alter their agreements in favor of greater equity recognizing that physicians have multiple ASC ownership options in their communities. Lastly, board of manager structures may need to change to allow for additional members or appropriate representation.

Be Proactive!

Change in life is inevitable. Change in business is expected. The end of a ten-year stage in an ASC’s lifecycle can signify a make or break moment. ASC lifecycle changes are best dealt with through anticipation and planning. The key to making it is to remain mindful of the many moving parts that require attention. Important areas to monitor include your ASC’s physical plant & space, finances, governance, and physician membership.

Plan ahead! In the ASC industry, it is better to be proactive than reactive. You will thank yourself in the long run if you are able to avoid and mitigate foreseeable issues at your aging ASC.

Robert Carrera, President/CEO

Jan 16
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Developing a Quantitative Skill Set to Become a Better Leader

Developing a Quantitative Skill Set to Become a Better Leader

By Leadership No Comments

The ASC industry is challenged by the same issues as other industries – the need to find, employ, and empower good managers and leaders.

Throughout my career, I have engaged in the search for potential leaders who possess the powerful mix of interpersonal communication skills, a background in clinical medicine and/or its operations, and financial acumen. With heavy competition to hire strong leaders in health care, we are fortunate when we secure candidates who possess two out of these three skills.

For example, many ASC administrators possess the interpersonal skill set and background in clinical medicine, but they lack a solid foundation in finance and mathematics. Oftentimes, we hire or promote these individuals and work closely with them to develop the financial and quantitative skills necessary to successfully manage and lead a surgery center.

A great starting point for health care managers seeking to improve their financial acumen is “Finance and Accounting for Non-Financial Managers.” This resource is offered through many different authors and training organizations. While one-on-one mentoring is preferred, studying the book or attending the course allows those with minimal prior exposure to these principles to achieve a reasonable to high level of competency in financial and quantitative analysis.

Recently, I read an article by Alexandra Samuel in the Wall Street Journal titled “How I Beat Math Phobia – and Became a Better Entrepreneur.”[1] In this article, Ms. Samuel discusses her “math phobia.” It opened my eyes to why many people say they are not “numbers” people. While they may be fully capable of handling numbers-related tasks (calculating a tip, balancing their checkbook), they may have an ingrained fear of complex math or be intimidated by accounting principles.

Ms. Samuels outlines four approaches anyone can take to defeat their “math phobia” and improve their quantitative skill set and financial understanding.

  1. Find a mentor to assist you with increasing your comfort with numbers. (Managers and leaders who are comfortable with math and finances, make yourselves available as a mentor or resource to team members who self-identify as “non-numbers” people.)
  2. Immerse yourself in a “passionate project” requiring numbers, math, or quantitative analysis. In the ASC industry, the project could be related to productivity, reducing waste, improving quality, increasing profitability, or monitoring business development efforts.
  3. Look for a quantitative question you are desperate to answer. Many questions related to an ASC’s performance have a quantitative basis. Ms. Samuels suggests, “All of those questions are answerable with data, and they can drive your recovery from math phobia.”
  4. Determine if your math anxiety is related to the gender factor. As a brother of two sisters, both of whom have science and health care degrees, as well as the father of two daughters who are quite competent in math, I hadn’t considered how gender may impact someone’s view of math and quantitative analysis. After reading Ms. Samuels’ article, I now recognize as a business owner, manager, and leader, I need to be cognizant a gender impact exists for quantitative and math comfort. I also realized that to effectively identify and develop talent, we need to address this issue by encouraging the use of the three tactics outlined above and other available techniques.

Math is important to every role in every organization. When “math phobia” is removed, one may find comfort in the reliability of numbers and equations. Developing a quantitative skill set and financial acumen takes effort, but it begins with support and a nudge in the right direction. No one should shy away from math and finance out of fear. Wise managers and leaders will provide team members with tools to deal with math phobia or they will miss out on the opportunity to secure the services of many talented people.

Robert Carrera, President/CEO

[1] https://www.wsj.com/articles/how-i-beat-math-phobiaand-became-a-better-entrepreneur-1511751960

Oct 19
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Outpatient Care: The New Business Model for Hospitals

Outpatient Care: The New Business Model for Hospitals

By ASC Development No Comments

The September 25th addition of the Wall Street Journal published a thought-provoking article about large hospital corporations developing outpatient facilities. The article, “Warding off Decline, Hospitals Invest in Outpatient Clinics” by Melanie Evans, indicates this outpatient migration includes ambulatory surgery centers (ASCs), urgent care clinics, and freestanding emergency rooms (ERs).

There are several interesting points raised in the article for hospital executives, physicians, and current operators of ASCs to consider.

The increase in patient responsibility

The patient’s role in controlling health care costs is increasing. It can be seen in the proliferation of high deductible insurance plans and the push to make consumers more aware of the cost of their care. The article cites RBC Capital Markets’ managing director, Frank Morgan, and the California Employees’ Retirement System (Calpers) as sources touting the responsive move by hospital operators toward providing more care in the outpatient setting. This trend has presented both challenges and opportunities for Pinnacle III’s clients. Several years ago, as patients quickly became the second most prevalent health care payer behind the federal government, we focused our partnered ASCs on the need to effectively collect patient deductibles and copays. Doing so preserved the cash flow necessary to sustain ASC operations. We also worked with our clients to improve their outbound messaging to educate the public about the cost-effective options offered by ambulatory surgery centers.

ASCs fill the need for additional options for access

While ASC development dipped a few years ago, as noted in our previous blog publications and identified in Ms. Evans’ article, this sector is growing again. The increase in patient responsibility has led many patients to actively seek out lower cost options for care. Ambulatory surgery centers address that need. Additionally, payers are encouraging patients to utilize ASCs and other outpatient venues to reduce their costs. Hospital systems and physicians witnessing this transition are identifying needs in underserved area as opportunities to grow their market share. As Ms. Evans states, this is all done, “In an effort to strengthen their hold on their market and prevent rivals from siphoning off patients.” For these reasons, we continue to experience robust de novo growth of ASCs throughout the country.

Improved technology

The article briefly acknowledges that technological improvements are driving some of this change. This point is not taken lightly by Pinnacle III. The migration of high acuity cases from the inpatient setting to the outpatient arena is a significant driver in both the growth of ASC volume and the increase in de novo activity. To move high acuity cases safely to the outpatient setting, advancements in medical technology are a necessity. Technological improvements also increase time effectiveness for physicians and provide enhanced convenience and comfort for patients. The types of care offered in outpatient settings will continue to grow as more states evaluate the efficacy of convalescent care or recovery centers as optional add-ons for ASCs. Finally, significant growth will occur once CMS begins to encourage the transition of total joints to the ambulatory setting.

While several factors are at play, one thing is clear – the health care industry is experiencing rapid growth in outpatient care, driven by hospitals, physicians, patients, and payers alike. Ms. Evans’ article provides a wakeup call to some, and validation to others, of the need to clearly define the outpatient strategy for their practice or system.

Robert Carrera, President/CEO

1Wall Street Journal article March 29, 2017 Warding Off Decline, Hospitals Invest in Outpatient Clinics; https://www.wsj.com/articles/warding-off-decline-hospitals-invest-in-outpatient-clinics-1506331804

Oct 11
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ASC Real Estate Ownership v. Leasing – What’s Best for Your Business?

ASC Real Estate Ownership v. Leasing – What’s Best for Your Business?

By ASC Development, ASC Governance No Comments

Surgery center investors, like other business owners, must weigh the pros and cons of leasing or buying the space in which an ambulatory surgery center (ASC) resides. How does one decide which option is best? Investors who understand the financial impact ASC real estate ownership or leasing is likely to have on the short- and long-term development of their business project are better equipped to make sound decisions. Only then can investors thoughtfully examine other reasons for either leasing or owning their ASC space. Let’s explore the considerations of both options.

Leased ASC Space

Leasing space for an ASC from an unrelated third party is typically the most straightforward option. It avoids many of the additional steps required in the ASC real estate ownership model described below. Best practice allows the prospective owners to determine a geographic location that ensures the greatest potential for physician partner participation. The ownership partnership then locates a space that will meet its needs – no more, no less. The ASC partnership evaluates the lease rate of the space as well as the construction costs required to convert it to an operating ASC. Costs are then evaluated against the project pro forma to determine if the space best meets the identified needs and desired financial outcome.

Owned ASC Space

The second option is an ASC real estate ownership model in which the ASC LLC, or some portion of its members, own the space where the facility will be located. This model, while providing equity, presents a few challenges and considerations for the ASC investor group.

  1. Fair market value: Regardless of who owns the space, the terms of the lease must represent fair market value for like-space in the area to ensure the entity does not run afoul of federal Anti-Kickback laws. The health system partner cannot subsidize the ASC partnership with artificially low rent; nor can the ASC partnership pay an inflated rental rate in space owned by some, or all, of its physician investors or a potential referral source.
  2. Location, Location, Location: The old real estate adage holds true in our business as well. The location of the facility is the most important factor when considering ASC real estate ownership. I have seen some centers struggle, and others fail, because fifteen minutes is too far for the partners to drive. I have also worked with partnerships who are convinced a location twenty minutes away is the better option because the ASC real estate ownership deal makes more sense for those physicians. The bottom-line? The best location is the one that will be consistently utilized.
  3. The ASC is the primary business: A business owner once told me he would have been more successful if he had made fewer of his business decisions based on the fact that he owned the building. While real estate ownership may be attractive, if the ASC meets the expectations of a well-vetted pro forma, its returns should far outpace that of the real estate investment. Thus, the primary concern for the ASC LLC partnership should be the location and lease terms that make the most financial and operational sense for the ASC.
  4. Ownership structure: Many times, ASCs include the ASC real estate ownership in the ASC LLC partnership. In every one of these instances, problems arise down the road. Our advice, while not always accepted, is to have a separate LLC own the real estate. The real estate partnership can then lease space to the ASC LLC at fair market value. The real estate entity can be structured in a number of ways – owned by the ASC LLC partners, a subgroup of partners, an individual partner, or another similar arrangement. The benefit is this structure will allow the real estate to be dealt with separately from the ASC.

Owning versus leasing the real estate in which your business operates is never an easy decision. ASC owners must consider a variety of factors, including which option makes most financial sense and what will best serve its customers, physician partners, and patients. Carefully weighing all options will yield the best outcome when deciding if you should lease or buy space for your surgery center.

Robert Carrera, President/CEO