Issue link: https://beckershealthcare.uberflip.com/i/1043345
25 Executive Briefing Sponsored by: O ver the last three to five years, ASC acquisition and investment activity has intensified. ASCs have been recognized by the public, insurance carriers and large self-insured corporations as a cost-effective, safe venue in which outpatient surgery procedures can be performed. A Medicare- certified ASC, accredited and licensed has in place safety procedures, infection control and other factors critical to the safe performance of surgical and diagnostic procedures. As a result, ASCs have become more commonly reimbursed by insurance payers and promoted by third party administrators to large corporations. ASCs offer a financially viable delivery system which is attractive to physician and financial investors as an investment opportunity to augment their income. Additionally, hospitals and health insurance companies have invested in ASCs to diversify their revenue streams and offer more cost-effective services making them more attractive to payers and consumers. Medicare and other payers reimburse a larger number of complex procedures in surgery centers. Effective Jan. 1, 2017, interventional cardiology, radiology, nephrology and vascular procedures can now be done in surgery centers, which heretofore were only done in hospitals and select in-office physician procedure rooms. Physician entrepreneurs, ASC management companies and venture capital group recognize ASCs as an exceptional delivery system and understand a well-managed ASC offers a solid financial return on investment. New physicians not aligned with an existing surgery center now recognize them as a good opportunity for investment. Investing and working in an ASC allows physicians to be more productive with their practice time, while augmenting their practice income. In addition with new physicians seeking ownership and retiring physicians attempting to sell some of their shares to take a financial return on their initial investment, there is a high level of interest in surgery centers. The investment field has become much more competitive with many others attempting to invest in ASCs. Current physician owners are being offered various financial arrangements to purchase or sell minority shares in their centers. When physicians aim to sell shares in their centers, there are many financial pitfalls to avoid, even with a good financial advisor. In this piece, I'll highlight specific pitfalls I've experienced through my years developing, managing and investing in surgery centers in the U.S. I've been involved with surgery centers since 1977 when I developed and managed my first surgery center at the Ochsner Clinic in New Orleans, since then I've seen the trials and tribulations of buying and selling ASCs firsthand. With my more than 30 years in the field and my past and current surgery center investing and management activity, I'll share my experiences, observations and the input I received from physicians that have endeavored to sell or gain partners for their centers with another entity. Increased competition ASCs have become a prime target for investment and acquisition. After speaking with many ASC physician owners, they have been besieged by offers from various healthcare players to buy or invest in their centers. This is especially true for physician owners in their 60s with profitable centers. Many are looking to sell a portion of their stake, for a financial return, while still staying involved in the center. Most owners seek to retain a portion of the ASC to perform future procedures. These owners want relief from the debt and the ongoing financial pressure of managing the center in a more complex healthcare environment. Changing from out-of-network to in-network cuts back center's profits which created challenges for physician owners. Many owners have decided to sell part or all of their surgery center as a result. However, there are pitfalls to avoid during the sale process, especially when there is significant interest in their center by several investors and a perceived timeliness to the deal due to the investor competition. In these situations, owners face the challenge of remaining profitable while debating "what comes next?" In some cases, physicians have used the surgery center as a plank in retirement plans and want proper compensation. Physician owners must determine how much of the ASC they want to sell, when the optimum time is to sell and what the ownership structure will be going forward. During the selection and decision process physician owners must take time to assess the best partner. This is not a matter of just looking at financial data and coming up with a proper EBITDA. This is a more complex process and requires more due diligence. The seller needs to ascertain if the buyer shares similar approaches to managing the center and continuing interaction with the physicians which the surgery center serves. One must determine whether the two parties will jointly commit to help grow the business post-sale. Existing partner physicians can assist in identifying unaffiliated physicians in the area that might want to join the center. But before adding them administrators should find out whether current physicians are amenable to adding new specialties to the center, and if they are open to reducing staffing and vendor costs to increase profitability. The pitfall of misunderstanding your environment Another important pitfall is in not understanding the future managed care environment. To sustain and then increase profitability, the investor needs to have a better understanding of: current competition, reimbursement factors and available physicians in the market area. Investors want high returns on their investment. This means revenue growth is essential. Investors and sellers must understand the current state and projected future reimbursement trends in the ASC's market area. The two new partners in the ASC need to decide and agree on Pitfalls to avoid when investing in ASCs By Robert J. Zasa, MSHHA, FAMCPE, of Ambulatory Systems Development, LLC