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4 Reasons You Need a Minority Partner

If your ASC is losing money or not profiting the way it once was, there are likely a number of contributing factors. Some of these issues may be fixable without any outside help, but sometimes an objective third party is needed to help right the ship. Here are four reasons why you might want to consider bringing on a minority corporate partner, according to Brent Lambert, MD, president and owner of Ambulatory Surgical Centers of America.

1. Remove retired physicians. When physician-investors retire, they will often want to maintain an ownership stake in the ASC and still collect distributions even though they are no longer contributing to the center's profitability by bringing cases. This hurts profits for working physicians and can reduce the appeal of investing in the ASC by new physicians.

Physicians still working at the ASC may struggle to approach these retired physicians about this challenging arrangement.

"Because these were their friends, they see each other all of the time, to kick them out is almost unthinkable," says Dr. Lambert. "They need an objective, dispassionate partner and that's where a minority corporate partner is so valuable to them. A minority partner will sit down with everybody, including the deadwood, and say this is a luxury you can't afford any more, all of these people who aren't bringing cases and taking money out."

2. Stop costly management fees. Some physicians at ASCs receive an extra payment for serving in a management role for the facility. These physicians may know very little about effective management of the ASC and yet they receive a sizable payment for work that does not improve the profitability or efficiency of the facility. As with the challenge of deadwood physicians, physicians who are not in the management role may find it difficult to question these managing physicians about the arrangement and what the managing physician is doing to justify the fee.

"We come in and ask, 'What is this craziness?'" says Dr. Lambert. "A third-party can come in and feel comfortable pointing out that the arrangement is idiotic, and that these physicians don't know the first thing about managing a center."

3. Break bad contracts. Many ASCs lose money because of bad contracts with third-party payors. In some instances, ASCs are bound to these bad contracts for several years due to renewal clauses. ASCs may not know they have bad contracts, but an experienced minority corporate partner can identify problems with these contracts and help resolve them.

If renegotiating contracts is not an immediate option, a minority partner can do an asset purchase so all contracts are broken and the ASC starts from scratch with its payors, says Dr. Brent Lambert.

4. Set reasonable profit expectations. A good minority corporate partner will likely have experience working with and investing in successful ASCs. This knowledge can help identify bad practices and set aggressive and reasonable financial objectives and ensure accurate communication about profitability.

"A lot of centers don't keep monthly books — some of them just know there's no money available for distributions of profit," says Dr. Lambert. "A lot of places don't distribute money every month so they don't even check the bank account. A lot of people say they're doing just fine and sometimes we discover they haven't distributed profits in two years and they're having cash calls. It's really a difference in expectations."

The minority corporate partner will likely ask to review financial statements frequently and push for improvements throughout the ASC if maximum profitability and efficiency is not achieved.

Such a partner can also help to hold administrators responsible and honest about the ASC's success, a challenge when there is little scrutiny or oversight of the administrator's work by physician-investors.

"Administrators will often lower expectations because they're not doing well," says Dr. Lambert. "You might speak to an administrator who feels that as long as they don't have to ask their doctors for money, they feel like they're doing fine whereas in contrast a physician might say, 'I'm not making any money, that's not fine.' But if the administrator were to say, 'We're in terrible shape and we should be doing better,' the doctors would say 'Why aren't we doing better?' And if the administrator doesn't have an answer or plan, then they're and they're going to be looking for another job."

Learn more about ASCOA.

Read more stories featuring insight from Dr. Lambert:

1. 5 Ways ASCs Lose Money

2.
13 Major Changes Facing ASCs

3.
7 Biggest ASC Stories of the Decade

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