This article shares some of the thoughts and insights from a larger article, "Establishing an ASC -- A Primer from A to Z," which will appear in the March/April issue of the Becker's ASC Review. This section specifically focuses on ownership issues, including a discussion of which specialties, whether or not to have a management company or hospital partner, and several related issues.

1. Management and equity ownership. A group must determine whether or not it will have a management company as an equity partner. An experienced manager can help with myriad aspects of the project, such as financing, financial planning and analysis, Medicare certification, equipment planning, construction planning, and physician recruitment. A good management company can significantly reduce the likelihood of problems in completing the project, operating the center, financing the project and ultimately prospering from the project.

The key downside to having a management company as a long-term equity partner relates to the disparate quality of companies that provide services to ambulatory surgery centers, and the profits that are shared in bringing in a management company. As a general rule, physician ownership alone, under the right circumstances, can be very attractive. However, having an experienced management team substantially lowers the risks, and, in the overwhelming majority of situations, can provide substantial benefits and actually improve profitability. Further, an equity owner/advisor often will have a much greater level of concern regarding the project's success, even when it owns only 15 percent to 30 percent of the center.

Deutsche Bank in its 2008 ASC Report, reports that the 25 largest management companies own interests in aggregate in about 1,000 of the country's 4,700 Medicare-certified ASCs. (Contact Darren Lehrich at 212-250-2629 for more information.)

2. An ASC can have too many physician investors. You can have too many physician partners. With too many physician investors, there is often a dilution of individual physician responsibility and ownership interests. With too little ownership, physician investors often lose their commitment to the ASC and look for other alternatives. Further, a great deal of resentment can develop between productive and less productive parties. Of course, with too few physician investors, the price of buying in will be greater, there will be more risk of case volume losses with a smaller number of investors, and the overall case volume of the center can suffer. The number of investors is a delicate balance that requires significant forethought and planning. The average number of physician owners in an ASC is approximately 15.1, according to the Deutsche Bank 2008 ASC report.

3. Hospitals as partners. Approximately 25 percent of the surgery centers in the country have a hospital partner. In many situations, a hospital can add value through either helping with managed care contracting, making it easier to recruit physicians or otherwise reducing physician concerns regarding being excluded from privileges or having other types of retaliatory action taken against them by the hospital. On the other hand, it is critical in surgery centers that physicians own a significant amount of the equity and that they remain interested and excited about the venture. We have seen hospital partners own from 10 percent to 30 percent of the venture on the low end to 60 percent to 70 percent on the high end. There are a number of lawyers representing hospitals who believe that they have to own 51 percent or more. In contrast, many lawyers believe that hospitals can own a smaller interest and either agree to treat the income as taxable income or otherwise have separate special powers to help ensure that the venture serves exempt purposes. From a business perspective, having a hospital partner in many circumstances has been helpful. However, it is not a panacea for surgery centers, and there are a great number of ASCs that have hospital partners that still underperform.

Here is what Tom Yerden says about hospital partnerships: "Some hospital-physician joint ventures never survive the transition form a 'spirit of negotiation' to a 'spirit of partnership.' Regardless of the strength of the projections (business plan), those JVs that I have seen fail do due to lack of trust among the parties."

4. Ophthalmology procedures can still be profitable. Do not make a blanket decision to exclude ophthalmology as a specialty. ASCs can still profit from ophthalmology procedures if the ASC has significant volumes and effective internal cost control; in other words, the ASC must run very efficiently. Here is what Luke Lambert, the CEO of Ambulatory Surgical Centers of America, says about the specialty: "Most mature eye practices are already participating in surgery centers. When ophthalmologists start working in an ASC they never want to go back to the hospital [because] the the fast nature of eye cases plays to ASC strengths."

5. Pain management and anesthesiologists. Pain management services are often provided in an office setting. Centers are increasingly concerned that physician investors will perform their pain management procedures in their own offices rather than in the ASC. Medicare's site-of-service differentials, which often pay more for in-office procedures, along with other incentives, may very well encourage physician investors to perform these procedures in their own offices. ASCs should plan accordingly and diversify services to accommodate a potential loss of pain management revenue. CMS has also implemented relatively large reductions in pain management reimbursement for ASCs. In order to control the flight of pain cases from the surgery center to physician offices, it is necessary to engage in a frank conversation with pain physicians fairly early in the planning process to clarify which procedures will likely be performed in their offices versus those that will likely be performed in the surgery center. For financial planning, it is critical that both parties fully understand the expectations for these types of cases.

Notwithstanding these concerns, "Efficient pain specialists can be a pillar of strength in a successful ASC," says Mr. Lambert. Howerver, "ASCOA recommends against inviting anesthesiologists to be owners in ASCs. We feel it is better to be the consumer and contractor of anesthesia services than to be partnered with them."

6. Gastroenterology can still be profitable. In a 2006 study, gastroenterology was the largest surgical specialty, representing 25 percent of all surgical cases performed at ASCs. Medicare has implemented decreased reimbursement for gastroenterology procedures performed in an ASC. This can hurt an ASC because gastroenterology-endoscopy centers typically rely on Medicare for about 20 percent to 40 percent of its cases. Fortunately, because these centers still generate from 60 percent to 80 percent of their gastroenterology business from outside Medicare, the specialty can still be profitable if they have significant volumes, and the non-Medicare business continues to grow.

"This is a specialty characterized by high volumes," says Mr. Lambert. "ASCs are important to enhancing productivity. Profits per case are low and declining but, given sufficient volume, it can be attractive."

Gastroenterologists may increasingly have to minor in anesthesiology, because the trend is for payors to not pay physicians separately for anesthesia procedures provided in connection with gastroenterology procedures. As a result, gastroenterologists must be competent at offering all types of anesthesia procedures.

7. Plastics. In multi-specialty surgery centers, plastics, particularly cosmetic procedures, often are very challenging. Here, the physician often bills globally, and the ASC and the physician are adverse to each other in that the ASC must negotiate its rates with the surgeon as opposed to charging a third-party payor.

"Cosmetic plastic surgery is not of benefit to most surgery centers as the facility fees paid tend to be too low for these lengthy cases," says Mr. Lambert.

8. Bariatrics is booming, but don't count on it as a long-term profit center. Bariatric procedures are growing rapidly and increasingly being performed in ASCs. Initially, ASCs will earn outsized profits from these procedures. However, as the number of bariatric providers increases and price competition evolves, the prices on these procedures will eventually normalize and become less profitable. For this reason, and because substantial concerns remain regarding the safety and risks related to bariatric programs, ASCs should use caution and be conservative when developing bariatric programs.

9. Neurosurgery and orthopedics remain strong specialties. Orthopedic procedures remain great procedures for ASCs.

"How well you do with orthopedics depends to a great deal on how successful you are in negotiating payer contracts," says Mr. Lambert. "Medicare's new fee schedule phase-in is making it possible cover costs and setting a reference point that is helpful when negotiating with other payers."

Spine procedures are also increasingly performed at ASCs; they remain popular and are growing in importance. Orthopedics profits from the new CMS surgery center rates. Spine procedures can be increasingly performed in ASCs and are likely to remain good specialties for ambulatory surgery centers for a substantial period of time to come. In the best situation, the center has a base of cases from both specialties.

10. ENT continues to be strong. Ear, nose and throat procedures continue to be a strong specialty for surgery centers. This specialty continues to be reimbursed reasonably well in many markets. As a result, says Mr. Lambert, "We see ENT as an attractive specialty if the cases in your area are not overly dependent on Medicaid. Special considerations for this specialty include requiring skilled pediatric anesthesia and having a private recovery area for children."

11. Urology. Urology can increasingly again be a real plus for ASCs.

"Many procedures are short and can pay well on a time of utilization basis, such as laser prostatectomy, which has short time and with efficient use, good return per unit of utilization time; of those procedures that are longer, some reimburse well," says Herb Riemenschneider, MD, founder of Knightsbridge Surgical Center. He notes that the longer procedures for urinary tract stone disease (such as extracorporal shock wave lithotripsy and ureteroscopic stone work with laser), urinary prosthetics (penile prosthesis and artificial urinary sphincter), prosthetic slings for treatment of female incontinence, and the most recent addition of cryoablation for treatment of prostate cancer, have " big potential if done correctly."

"Urology can be profitable when it involves lithotripsy and female incontinence surgery," says Tom Mallon, the CEO of Regent Surgical Health. "Both are predominantly commercial populations. Serving Medicare men with prostate cancer can often be break-even at best."

The longer article covers a much broader array of subjects. It will appear in a pullout specialty section of the Becker's ASC Review. If you would like a copy of that article, please e-mail Scott Becker.

DATE:       Wednesday, March 19, 2008     

TIME:        2 p.m. Central
LENGTH:    60 to 90 minutes     

HERE'S WHAT YOU WILL LEARN:

• which spine procedures can be safely and properly performed in an ASCr;


• which knee, hip and shoulder procedures can and can't be performed in an ASC;


• how to assess patient selection criteria for spine and advanced orthopedic procedures;


• how to determine which special safety procedures an ASC should have in place as it handles more complex spine and orthopedic procedures; and


• the requirements for reimbursement for more advanced spine and orthopedic procedures.

SPEAKERS:   Dr. John Caruso
                      Dr. Philip A. Davidson
                      Mr. Jeff Leland

WHO SHOULD ATTEND:
    
    Orthopedic Physicians     Neurosurgeons
    ASC Administrators         ASC Directors of Nursing
    Medical Directors            Anesthesiologists

CME CREDITS:

• 1.5 - Earn CME Credits


• 1.5 - Earn AEU Credits

HEAR FROM:

• Dr. John Caruso regarding spine procedures in an ambulatory surgery center. He has more than 16 years of neurological surgery experience. Since completing residencies at the Eastern Virginia Graduate School of Medicine and the University of New Mexico, Dr. Caruso has been in private practice with Neurosurgical Specialists in Hagerstown, Md. Dr. Caruso received his MD from the Eastern Virginia Medical School in 1990. He is board certified by the American Board of Neurological Surgery and licensed in Maryland, West Virginia, and Pennsylvania. He is a member of the Congress of Neurological Surgeons.


• Dr. Philip A. Davidson regarding advanced orthopedic procedures in an ambulatory surgery center. Dr. Davidson practices orthopedic surgery in Florida, where he is the founder and CEO of Tampa Bay Specialty Surgery Center. He specializes in cartilage restoration and shoulder surgery, with extensive experience in the area of tissue transplantation, including allografts, xenografts and the usage of autologous growth factors.   He is an internationally recognized surgical educator, clinical and basic science investigator, and a widely published scientific author. He is He is on the clinical faculty of the University Of South Florida College Of Medicine and he is a fellow of the AAOS, ABOS, AANA, AOSSM, ISAKOS, the International Patellofemoral Study Group and the International Cartilage Repair Society. Dr. Davidson also is a Partner of Nascent Enterprises, a medical device venture catalyst firm that provides strategic advisory and financing services to numerous medical device clients and portfolio companies. Dr. Davidson graduated from Harvard College, magna cum laude, and Cornell Medical College, with honors in research. He completed his orthopedic training at Baylor College of Medicine, with a fellowship in sports surgery at the Kerlan-Jobe Orthopedic Clinic.


• Jeff Leland, CEO of Blue Chip Surgical Partners, regarding reimbursement for more advanced procedures. Mr. Leland served as executive director, Lutheran General Medical Group, a 260-physician, multi-specialty medical group located in Chicago. Jeff was once a senior-level executive with Advocate Health Care in Chicago, responsible for both Business Development and Advocate's 225,000-member health plan. He also served as President of HealthSpring Medical Group, a primary care medical group that was acquired by Met Life & Travelers, and as CEO of Western Ohio Health Care, an HMO with 200,000-plus members, which was acquired by United HealthCare. He is an alumnus of the Harvard Business School with undergraduate studies at the University of Cincinnati.

CME Credits:    1.5 CME credit; 1.5 AEU credit

This CME activity has been planned and implemented in accordance with the Essential Areas and Policies of the Accreditation Council for Continuing Medical Education (ACCME) thru the Joint Sponsorship of the Institute for Medical Studies (IMS) and ASC Communications Inc. IMS is accredited by the ACCME to provide continuing medical education for physicians. IMS designates this educational activity for a maximum of 1.5 AMA PRA Category 1 Credits™. Physicians should only claim credit commensurate with the extent of their participation in the activity.

Nurses may claim credit for activities approved for AMA PRA Category 1 Credits in most states, for up to 50% of the nursing requirement for recertification.

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We are delighted to highlight the following companies in this week's E-Weekly.

Pinnacle III. Pinnacle III specializes in the operational development, management, select management, and billing for ASCs. Whether you are a physician group, hospital or hospital joint-venture, Pinnacle III delivers proven success in both single and multi- specialty ASCs throughout the country. Pinnacle III is one of the most flexible development and management companies in the industry offering both equity and non-equity models. For more information, visit Pinnacle III online.

In addition, Pinnacle CBO -- central business office -- can provide a cost effective alternative while positively impacting your bottom line. Pinnacle CBO is staffed exclusively with certified coders and billing specialists dedicated to ASC billing and reimbursement. Our billing experts assist your facility by lowering A/R days, reducing overhead and improving cash flow while allocating every square foot of your premium medical space to revenue producing ventures.Expertise awaits. Please call Kim, vice president of business office operations at (303) 280-9101

Surgical Notes. A preeminent nationwide provider of medical transcription, coding and other related value-added information technology services for the ASC market, Surgical Notes provides transcription, coding and practice management solutions to over 420 surgery centers and 6,300 physicians in over 40 states. Surgical Notes will be introducing two new products and services in 2008, the VMR Express, an electronic medical forms generator and document imaging solution and MyDoctorsNotes.com, an online, secure, interactive, personal health record portal for the general public to compile and organize all healthcare-related data. The VMR Express is designed for the ASC market. This proprietary application, interfaces with the existing practice management system (SIS, Advantx, Vision, etc.) to extract the patient label information (patient ID, last name, first name, date of birth, SSN, sex, age, physician name, date of service and case/encounter/account number). These generated documents print patient demographics on the facility's customized forms, allowing patient forms to be generated per operating physician's profile or according to specific procedures. Using the barcode from the forms version on each document, it will index the chart back into the patient record. Have old charts, or other loose documents, without a barcode? No problem, you can use the index fields to associate the paper work to a patient. This application will allow the user to perform advance searches for documents by account code, patient ID, type of document, or name. The VMR Express cost as little as $16 a day. For more, visit Surgical Notes online.

Symbion. Headquartered in Nashville, Tenn., Symbion is a leading provider of high quality surgical services across many specialties. Led by one of the industry's most experienced management teams, the company was founded in 1996 to acquire, develop and operate outpatient surgery facilities in partnership with physicians, hospitals and health systems. Through continued capital investment and flexible partnership arrangements, Symbion's network has grown to include 54 short-stay surgery centers and three surgical hospitals across 23 states. In each of its locations, the company works to create highly efficient, quality focused environments designed around the needs of both patients and physicians. Visit Symbion on the Web for more information.