Physicians and hospitals alike recognize the role ambulatory surgery centers (ASCs) play in the delivery of quality, cost effective, customer focused health care. They are a popular business model to employ. If you are ready to enter into the ASC market, a significant question remains: Where do I begin?
As is true for most endeavors, developing an ASC should begin with a strategy and plan. The goal is to not overbuild or under-build your center. Rather, the goal is to develop a profitable facility with both short-term and long-term growth in mind. At Pinnacle III, a feasibility analysis is used to assess the potential viability of a project. It provides a high level, realistic projection of the facility’s financial outcome through the collection of data from interested investors. The data is used to create the following:
- Projected revenue
- Projected case volume
- Projected case mix, which will determine the medical equipment, staff, and size requirements
- Estimated expenses
- Estimated capital
- Projected profits/losses
This information helps determine whether or not a development project should move forward.
A feasibility analysis is also used to assess a given market’s current managed care contracts. Skipping this part of the process is inadvisable – often, valuable information is obtained during this phase which could very well affect your decision to proceed. For example, imagine you discover the key PPO for your market contracts with a health care system that operates competing surgery centers. This PPO might decline the opportunity to align with you believing the current health care system arrangement provides them with appropriate access to care for their customer base. That lack of expected volume could kill your entire project.
The analysis can be thought of as a “red light/green light” exercise. A green light indicates the project makes enough sense to proceed. A red light signifies a project in its current state does not make sense. It is possible for a feasibility analysis to produce a “yellow light,” indicating that you should proceed with caution. This could mean that the project would eventually be profitable, but not for many years, or projected net revenue would be marginal at best. In these instances you will need to go back and see if you can optimize the situation to move the yellow light to a green light. For example, maybe you need more physicians involved to produce higher revenue numbers or find a way to cut down on real estate costs to minimize your expenses. The project may not be dead, but it should be postponed until a better outcome is projected.
Some of the things you will want to consider as you move forward into the development phase include, but are not limited to:
- Do you own land and/or have an existing building? Or do you need to find a site to purchase or space to lease for your facility?
- What are the capital requirements?
- What are the legal and regulatory considerations?
- Should you bring in more specialties that require you to recruit new surgeons?
Beyond just the numbers, conducting a feasibility analysis helps shed light on non-measurable factors that greatly affect your surgery center’s potential for success. Conducting an analysis may uncover philosophical differences among physicians that could complicate the operation going forward. For example, one or more of the physicians committed to the project may be invested in multiple ASCs which could severely impact their ability to deliver the case volume necessary to initiate and/or sustain your project. Because there are many nuanced, potential project pitfalls, it is valuable to consider working with an unbiased, third-party consultant to help uncover roadblocks.
It is no secret the development of an ASC is a complex process. Remember, the feasibility analysis is crucial to proceeding in a thoughtful and objective manner allowing you to avoid costly mistakes and move forward with confidence. Successful planning and preparation help establish the necessary benchmarks that guide your surgery center from initial concept to regulatory certification.
By Trista Sandoval and Lisa Austin