Extreme Makeover: ASC Turnarounds

When my wife and I bought our first house the year after we were married, it should have been a joyous occasion. We were fresh out of college; both had good jobs and our whole lives were ahead of us.

So why was my wife in tears? Well, It's because I had just informed her that we were buying the "fix 'er upper." It was the house that nobody else wanted. I won't go into details, but I will tell you that one of the bedrooms was used to raise pigeons. The previous owners had cut a hole in an outside wall so the birds could come and go as they pleased. Hopefully this provides a little insight into the tears … and what a lousy husband I am.

The house had potential though. It had a good floor plan, beautiful yard and was in a great neighborhood. I had experience with carpentry and knew I could make it into the house that my wife deserved.

It's now 15 years later and I find myself doing the same thing at work. As a leading turnaround expert, ASCOA has the unique ability to look past the pigeons and quickly size up the potential of the ASCs we invest in. From time to time we find centers that have "fatal flaws," which can't be overcome, but the vast majority of the ASCs I meet with can become profitable with a few changes. The best place to start your "Extreme Makeover" is with physician recruiting. The first place to look for additional cases is within your existing partnership. Chances are your partners aren't bringing every case that makes sense to be handled at the center. Meet with them individually to find out what the roadblocks are. The two most common reasons that I hear are equipment and scheduling. You have control over both of these.

Once you have met with all of the partners, estimate how much incremental profit could be generated if the center performed more cases. Present it to the group as a whole at the next board meeting. Be sure to take into account that your fixed costs are probably already covered so the additional cases will be mostly profit. For example, one of our centers in Florida realized a substantial percent increase in profits from a relatively small percentage increase in case volume. It's not uncommon to find $250,000-$500,000 or more worth of marginal revenue from current physicians who work at the center which is currently going elsewhere.

Once this has been completed, you can begin recruiting additional partners. It's best to get your financial house in order before pursuing external physicians. They'll want to be part of a winning team and see that they'll be contributing to a successful center and not just paying off your old accounts payable.

To begin this process, identify the specialties you would like to pursue and then meet with your surgeon partners to determine who the good targets are. I highly recommend having one of your partners make the initial call on your behalf to let them know that you will be following up to discuss the center. Otherwise you will likely go weeks without a return phone call, if at all. If an external physician is interested, have them trial the center for a few months before investing. Encourage your partners to be accommodating with the schedule and work with your vendors to rent or borrow equipment until a firm commitment is made. Recruiting isn't the only way to makeover a failing ASC, but it's a great place to start. Ninety-five percent of the struggling centers we acquire begin their turnaround with recruiting. As for my wife and I; we dried up the tears, rolled up our sleeves and ended up making a lot of great memories by turning our house into a home.

Brandon Frazier currently serves as vice president, acquisitions and development for Ambulatory Surgical Centers of America. Learn more about ASCOA by visiting www.ascoa.com.

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