Brent Lambert, MD, founding principal of ASCOA, says the company evaluates about two "broken" ambulatory surgery centers every week to consider for a potential partnership and a subsequent turnaround. Here are six elements Dr. Lambert and Luke Lambert, CEO of ASCOA, identify as critical to turning around a struggling ASC.
1. Ability to recruit. When ASCOA buys into a turnaround situation, it tends to be a resyndication effort, says Luke Lambert. The company typically buys out some inactive partners and, at the same time it's buying into the ASC, ASCOA assembles a group of 6-15 additional physicians who join in buying into the ASC at the same time.
"That can have a dramatic positive impact on volume for the ASC," says Luke Lambert. "Some ASCs might have been doing less than 1,000 cases in a year and then after that recruitment effort, your case volume might be 4,000 or even better depending on the situation. Cases are the lifeblood of any ASC; they drive revenue and it's hard to make any money if your top line is not good."
If ASCOA finds there are not many new physicians in the ASC's community to recruit, either because they are already in the surgery center, at another surgery center or employed by a hospital, the company will typically walk away from the potential partnership because there's no opportunity to increase the case volume. However, in one rare instance, involving an ASC in South Carolina, this was not the case.
This surgery center was an all-orthopedic ASC, and a struggling one at that. Then the local hospital hired every one of the surgery center's surgeons. As employees of the hospital, the surgeons started to do all of their cases at the hospital.
"We were told nothing could be done because there were no physicians to recruit in town," says Dr. Lambert. "So what we did was we went around to the surrounding communities and found physicians for the ASC, with some surgeons coming from as far as 30 miles away.
"And as it turns out, there actually were some physicians we could recruit locally, but the ASC had never been able to do so because the facility was never a good option for them," he says. "Now that we had a viable center, the busiest eye surgeon in the whole area and a local neurosurgeon started bringing their cases. They were there for the picking but they couldn't be recruited by a failing center."
2. Reimbursement enhancement. Dr. Lambert says one of the first pieces of information ASCOA obtains from prospective ASC partners is the surgery center's average reimbursement per case. If the ASC says it's below $1,000 and the center is not exclusively pain management or GI but rather a more typical, multi-specialty case mix, Dr. Lambert says average reimbursement per case should be around $1,200-$1,300. "If they're getting $800, we know we can do something just by renegotiating contracts with the payors," he says.
Payor contract renegotiation is a fairly detailed and complex process that is specific for each individual ASC based on the payors in its market. In some instances, payor contracts can be terminated if the ASC is purchased on an assets basis.
"When you buy the assets, typically you can shed any prior contracts the ASC might have had and that gives you an opportunity to go back and renegotiate those contracts," says Luke Lambert. "If you're buying the ownership, then you need to go through the renegotiation process. Depending on the payor, this can be a lengthy process and it can be a year to get where you want to be."
3. Labor costs reduction. Dr. Lambert says staffing costs should be 20 percent of collections or less. If an ASC is paying more for labor, this becomes an area ASCOA will immediately target for significant cost reductions. "If it's 38 percent of collections, already I know I can save 18 percent of collections just by running the ASC right," he says.
Staffing savings is usually best achieved by compressing the surgical schedule, says Luke Lambert. "Sometimes you see these low volume centers, maybe they're doing 30-50 cases during the week but they're open and staffed every day of the week," he says. "That really drives up your labor costs on a per case basis, so high that the center may not be profitable. If you have only enough surgery to justify being opened one or two busy days, then just be open one or two busy days and get the surgeons to bring their cases on those two days. The staffing model of staying open five days a week can really cripple a center."
4. Supply cost savings. Like staffing costs, supply costs should be 20 percent of collections or less, says Luke Lambert.
"The way you drive those down is really an exercise in detailing what's being spent on a per case basis, reviewing it with the physicians and comparing it against what the cases are getting paid," he says. "That type of case costing allows you to identify ideas for improvement and identify which payors aren't paying enough to justify doing the cases."
5. Manageable debt. If ASCOA meets with an ASC with too much debt, the company loses interest quickly. "Let's say they have $5.5 million in debt," says Dr. Lambert. "I'm not interested in coming in and paying off debt for seven years. Our threshold is really about $3 million in debt."
Luke Lambert says there are some poorly performing ASCs so eager for a partner that they would allow one to buy in to the surgery center for virtually nothing if the partner agreed to share in paying down the debt, but even in these instances, sometimes the debt is too big to make the partnership worthwhile.
On the other hand, if an ASC is void of debt, this catches ASCOA's attention, and in a very positive way. "Now I'm interested because anything I can bring to the bottom line, I don't have to use to pay off the debt; it can go in everyone's pocket," says Dr. Lambert. "We've done some turnarounds where it was a difficult market to be in but because the center was debt-free, we could make it work and make it an attractive center."
6. Appropriate lease. An ASC with a bad lease raises a red flag to Dr. Lambert. "Let's say an ASC has lease that is 15 percent of its collections," he says. "I wonder why this is when it's usually, and should be, well under 10 percent. We found one ASC that was probably paying three times market rate for its lease. We walked away from the potential partnership because we're not interested in making a landlord wealthy."
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