3 Questions to Determine the Turnaround Potential of an ASC

Management and development company ASCOA develops new surgery centers and buys troubled surgery centers and works to turn them around, says ASCOA CEO Luke M. Lambert. The number of ASCs in need of turnaround services is increasing.


"Troubled ASCs have become more common than they have in the past for a few reasons," he says. "There are fewer people employed now, so there are fewer people with insurance and that means there are fewer people getting their elective surgery; that's cut down volumes for a lot of ASCs."


ASCs are also struggling to obtain cash as lenders have become less optimistic in their outlook of surgery centers. "In the past it might have been reasonably easy for ASCs to get a line of credit or easier terms to do the borrowing they need to do," he says. "Today, banks are tough and money is hard to get and that puts physicians and practices in the position of deciding whether they are going to support or feed the surgery center. Practices have faced a lot of the same pressures that have faced ASCs, so as a result the willingness of practices to support their centers has decreased.


"All those things come together and ASCs are more readily reaching out for more strategic solutions to their problems," Mr. Lambert says.


Unfortunately, not every struggling ASC is fixable. He discusses three questions that help determine whether a struggling surgery center can be saved.


1. Can more cases be recruited? If there is a lack of available specialists, an ASC will subsequently struggle to add cases, says Mr. Lambert "With hospitals actively buying more and more practices than they have in the past, that's limiting the recruitment potential," he says. "When you go out to recruit new people to your surgery center, if they have the potential to become a partner down the road, it makes it easier to recruit, but if they're employed by the hospital, their employer isn't going to let them do that."


Another challenge in the recruitment process is if primary care physicians in the community are employed by the hospital. "They will frequently tell the specialists that if they give a referral, it has to be taken to the hospital," Mr. Lambert says. "If they don't take it to hospital, then the PCP will often stop giving more referrals."


ASCOA is occasionally able to acquire a center and bring specialists in from adjacent communities, but Mr. Lambert says that isn't always possible.


2. Can reimbursement be improved? Some centers may have signed contracts when they first opened their doors and have never revisited those contracts, Mr. Lambert says. Now the ASCs are getting paid under old reimbursement rates, and these contracts often do not have inflation updates built into them, meaning the rates could be 10 years old. The good news is you can often go back and renegotiate those contracts.


Here are two factors Mr. Lambert says can influence how strong your negotiating leverage is:


- If your ASC can work with its physicians to decide where the cases are going to be performed, this could give you some leverage. For example, performing a shoulder procedure can be quite expensive and if an ASC's contract is paying Medicare-type rates for the case, the surgery center might struggle to make money on it. If that case goes to the hospital, it might get paid dramatically more for that same procedure, which is costing the payor more money.


"If you're able to send those cases to the hospital, do that for a few months and then go back to the payor," says Mr. Lambert. "Say, you stopped doing these cases because you were losing money and if you can work out something that's more reasonable, you will bring those cases back to the ASC."


Your ASC can accept less than what the hospital is receiving but still ask for enough to make a profit — a win-win situation for the ASC and payor.


"If your physicians are willing change their practice patterns and use where the cases are performed to enable better negotiating with a payor, it really strengthens your hand quite a bit," Mr. Lambert says.


- If the enrollees in an insurance plan have good out-of-network benefits, you might be in a position to consider dropping a contract, Mr. Lambert says. "Usually you'll lose some case volume because of that, but sometimes you'll make it up [in reimbursement]," he says. "You can say to payors, 'we'd like to improve this contract with you or we'll have to drop the contract;' the payor can see what will happen and that can strengthen your hand.


Unfortunately many plans are reducing their OON benefits, so some ASCs might struggle to use this tactic to their advantage.


3. Can costs be reduced? There are many areas ASCs can focus on to reduce costs, but real estate is one component of cost that tends to be contractually rigid, Mr. Lambert says. "You've bought a building, now you have a mortgage and maybe it's too big, you can't support it and you're stuck with it," he says. "Or you've signed a long-term lease — that's too expensive and it's making it difficult for you to make money at your center. Both of those situations are contractually firm and long-term."


In those situations, if your ASC is actually going to default on your lease or mortgage, it opens an opportunity for a negotiation either with the lender or the landlord, he says. The ASC can state that it was able to support the mortgage or lease for a period of time, but circumstances dictate that it can no longer afford to do so.


"See if you can work out something that allows the ASC to survive and still gives the landlord or lender value it's looking for — sometimes you can negotiate terms in those difficult situations," he says. "Generally speaking, especially with lenders, it's hard to renegotiate unless the borrower is actually in default. They realize that if they went to foreclose on your equipment, meaning they get to sell your equipment, they're going to get pennies on the dollar. If you can come in and offer them something better than that, it can get them back to a position where they feel better than the alternative."


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