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8 Strategies for Smart ASC Physician Investors to Prepare for the Future

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Luke LambertAmbulatory Surgical Centers of America CEO Luke Lambert talks about eight strategies successful ambulatory surgery center physician investors are considering to prepare for the future.

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1. Partner with a hospital. Many physician investors have begun considering hospital partners to help them navigate through the changing healthcare landscape. Ambulatory surgery centers can leverage hospital partners for better managed care contracts and potential access to more patients from hospital-employed physicians and primary care referral sources.

"Hospitals employ more primary care physicians today and they are frequently steering referrals away from independent surgeons that take the referrals to their own ASCs, but if you are partnered with the hospital you can gain that support and increase case volume," says Mr. Lambert. "Additionally, If you can get their help with case contracting as well, you will be paid more for what you're doing."

2. Leverage your market position. Hospital partnership opportunities depend on the market. If you are in a small community with one hospital, that hospital is unlikely to partner with you. "They may want to own the ASC 100 percent, which could be an attractive liquidity even for the physicians," says Mr. Lambert. "Some hospitals will work with physicians on a comanagement basis so physicians can continue to be engaged and receive some income from the center."

In a larger market with competing hospitals, physicians are in a better position to negotiate a partnership depending on their location.

"Your best partnership opportunity is likely the hospital that sees the center as a strategic play to grow their market share or initiate a new relationship with physicians who aren't currently affiliated with them," says Mr. Lambert. "Hospitals are keen to expand their networks, so you might be across the street from one hospital that would prefer to own the ASC 100 percent whereas the competing hospital across town may be more keen to participate in a partnership."

3. Prepare for health insurance exchanges. Health insurance exchanges — which begin enrollment on Oct. 1 and launch Jan. 1, 2014 — likely mean additional patients will have access to your surgery center. However, these patients will likely have high-deductible plans and insurance companies will lower reimbursement per case.

"To some extent, the plans offered on the exchanges will cannibalize better paying private insurers right now," says Mr. Lambert. "Medicaid has the potential to grow the paying patient population. It's a lower average reimbursement rate but more potential for cases. I think centers have to be careful because you don't want to be in a position where you are doing a lot more work but not making money on that work."

A continued focus on efficiency, physician recruitment and contract negotiations will be important over the next several years.

4. Don't give up on managed care contracting. When payers balk at providing reasonable rates for surgery centers, many physicians choose to go out-of-network and assume the payer will never agree to negotiate a decent in-network contract. However, as leadership and strategy changes within the insurance company, payers may be more willing to negotiate than in the past.

"From time to time there is a policy or personnel change at the insurance company you'd be negotiating with," says Mr. Lambert. "After a few years they may be more receptive to what you are asking for in the contract negotiations. People get discouraged when payers offer a terrible proposal and there might be hard feelings, but if you go back a few years later there could be a different person or policy and the opportunity can change."

5. Become more proactive about capturing cases. Surgical schedulers at physician offices often take charge of where patients are scheduled. ASC administrators should develop a better relationship with physician office schedulers and make it easy for them to choose the ASC. Physicians can mention the cost and quality differences to patients when deciding where to have the procedure.

"Many beneficiaries have higher copays and deductibles compared to a few years ago and they are paying more attention to the personal economic impact the facility selection will have," says Mr. Lambert. "Typically, it's either the surgeon or the scheduler that communicates those options and the benefit of going to the ASC as compared to the hospital."

6. Take advantage of small case volume increase opportunities. For the individual physician and surgery center, even the smallest increase in case volume makes a difference. "If you can add another HMO that you haven't had access to, or work a personal connection to get on a panel with a new payer that adds 5 percent patient volume, that could be a good add on to your business," says Mr. Lambert.

Another tactic for increasing case volume is physician recruitment. Constantly look for new surgeons in the market, including with established practices or other organizations that previously weren't interested in bringing cases. "There are always evolving dynamics with physician practices, so successful centers are re-examining who is available for recruitment on a frequent basis," says Mr. Lambert. "Look at whether you can go back to the group and see what partners might be interested now."

7. Combine with other local surgery centers. There will be more opportunity in the future for surgery centers operating under capacity to merge with other centers in a similar situation. The combination brings surgeons under the same roof, saving on rent and other fixed costs while improving surgery center utilization.

"It doesn't have to be a desperate situation to look at this option because you might be profitable at 25 to 30 percent utilization, but if you combine with another center or brought in the competitor, it allows you to drive more volume to one place," says Mr. Lambert. "The best time to consider the combination is when your own real estate lease is up for renewal, or if you can figure out when the competitor's lease is up. Initiate the discussion a year ahead of time to give you the opportunity to see whether it would be more efficient to combine centers."

Mr. Lambert has seen these types of combinations succeed in the past and is exploring this strategy as a possibility for ASCOA centers in some situations.

8. Engage with supply costs. Many physician investors leave supply chain management to their administrator and materials manager, but physicians are the ones making decisions about what materials to use in their cases. Become more engaged with the price of implants and supplies to take advantage of new cost-saving opportunities.

"Some surgery centers do quite well on controlling their supply costs by looking at implants and purchasing generic screws and plates that are just as good as the brand name suppliers but cost less," says Mr. Lambert. "Watching nickels and dimes can add up over the course of the year. Some products may not have less expensive alternatives but often there are cheaper alternatives that are of the same quality. If you can get the physician owners onboard and examine what they can do to decrease costs, they will make decisions that will significantly impact the ASC's profitability."

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