Q: Have you seen a change in ownership arrangements in de novo projects?
KG: We have not seen structural changes for de novo projects. However, we believe there will be significant consolidation in metro areas where there are a number of small (one- or two-room) ASCs with a limited number of physician-owners. ASCs’ successes are predicated on volumes, and with the economic slowdown, volumes have dropped significantly in certain areas of the country.
Q: Are more hospitals and management companies looking to partner in freestanding ASCs? Likewise, are physician groups more open to different arrangements than sole ownership?
KG: Hospitals do seem to be entering the market with the few remaining “free agent surgeons.” There will probably be more joint ventures started this year compared to 100-percent physician-owned centers. Management companies, in general, are still bullish on the prospect of starting a center.
That being said, most of the calls we are receiving are from hospitals looking to partner with physicians. I believe the community hospitals are seeing an opportunity to work with the surgeons due to the tightening of the credit market. A hospital guaranteeing their pro-rata share of the loan is viewed as a safety net by the surgeons.
Q: Has it become more difficult or easier to develop ASCs?
KG: The credit crunch has made financing new centers more difficult. However, debt financing, rather than equity provided from the outside (what we refer to as “unproductive equity”) is still the cheapest alternative for financing a center.
Q: What are some of the challenges that still exist for developing de novo ASCs?
KG: The same challenges exist that have been in place for years. It still takes high-quality surgeons and a culture of caring for the patients, the employees and the surgeons. If these three “customers” are treated in an excellent facility, the end result will be financial gain. Unfortunately, garnering a favorable loan agreement is delaying the process — but not completely extinguishing it.
Q: What advice do you have for groups looking to develop an ASC?
KG: You can’t do a good deal with a bad person (or bad management company). Make sure there is a level of trust and camaraderie with the partners — including the hospital partner and management company. Bigger, in this economic environment, is better. No matter how good the management, you can’t support a center without volumes. Make sure you have a large enough group of surgeon-investors to bring the required volumes, and don’t go it alone. The regulatory environment is such that delays in the Medicare licensure process could cost you more than using a consultant whose expertise can compress the timeline.
Lastly, for those centers that are struggling: Bury the hatchet, swallow the pride and consider merging with the ASC next door. Everyone’s slice of the pie will be smaller, but the pie itself will be much, much larger.
Mr. Goldammer is senior vice president of financial services for Surgical Management Professionals. SMP is in the business of development, management and equity partnerships with other physicians and organizations whose vision encompasses the concept of physician owned, controlled and managed ambulatory surgical care. Learn more about SMP.
