Issue link: https://beckershealthcare.uberflip.com/i/1043345
26 Executive Briefing how to price services to stay competitive in the market, while increasing center profitability. Understanding reimbursement in the area and having the ability to participate with existing payer contracts in the area is a critical pitfall to avoid. I have been in markets where the surgery center is very attractive but due to the concentration of many surgery centers in the area, the surgery center was not able to participate with large payers because the payer(s) had contracts with too many other ASCs in that area. Different reimbursement techniques such as flat fees, published fees, bundled fees, availability of workers comp contracts and personal injury work all need to be considered. Investors should not assume current contracts at the center can be carried over. A thorough review of payer contracts should always be done during a sale. The pitfall of joint ventures Successful joint ventures are not based solely on market environment, reimbursement and financial factors, but on the personal relationship between the investor and seller of the center. Parties must have chemistry and common goals going forward. Sellers have often admitted to sellers' remorse even though they just received a lot of money for their shares. To the remorseful seller, it seemed like the sale was just a transaction, and not a true partnership. This is a major pitfall which limits future success. I believe the resulting relationship after a sale is dependent on the effort to build the relationship before the transaction. I do not believe this is emphasized enough as part of the investment process. There is an outstanding business book entitled "Selling Your Baby," where the author had to consider their emotional attachment to the business when they realized it was time to sell. A sale is a very difficult decision because the entrepreneur owner's professional reputation, ego, financial resources and emotional attachment to the business is huge. The relationship formed between the seller and investor is critical when the physician seller will stay involved in the center and continue to own interests and use the ASC. This relationship demands a level of trust and a continued positive working environment. It is imperative to create this relationship and nurture it before, during and after the investment. The buyer's pitfall Investors should do a significant amount of due diligence on the center's environment prior to making an offer. The investor needs to estimate new physician availability and whether there is a service differentiation between that surgery center and others in the market that can be used as competitive advantages to grow the business? So how does an investor validate center potential? One method is through asking current partners how they see the center's current strengths and weaknesses. Speaking with anesthesiologists or groups that service the center and other centers in the area is very critical in this analysis. Speaking with other ASC owners and/or ASC companies that are in the market is sometimes helpful especially if there is a relationship between the ASC executives. Physician and ASC owners have a tendency to share information given past relationships. They sometimes help each other with supplies, staffing and other services to help their own financial bottom line. Some partner to offer services to large companies and insurance carriers in their area. These centers form consortiums without breaking any compliance statutes and/ or regulations. There are no secrets in medicine or the ASC world. ASCs are a small community, and it is not hard to understand market conditions when investing in an ASC. The pitfall of not doing background and reputation due diligence Those of us who have been in the ASC field for a long time know to perform thorough background checks on key surgeons in the surgery center before investing. To some this may seem insulting but it is critical to examine the reputation and legal background of the center's key owners and physicians. As that saying goes, "You are judged by the company you keep." I recently passed on an investment after the financials, market environment and reimbursement checked out, because the reputation of the center due to some of the key doctors was not good.. Investing is about the quality of partners as they will affect future numbers and growth of the facility as well as the investor's reputation. Reputation also impacts the ability to recruit other physicians.. The pitfall of a lax transition strategy Investors should have planned a transition with timelines and duties outlined. This does not have to be in excruciating detail, but there needs to be an overall plan to implement changes. In our case, we designated a transition officer in the company to focus on the transition strategy and partner integration. Transitions typically take from three to four months and need focused, individual attention to make sure physician sellers feel they are part of the process. Love the transition, so the seller-investor relationship grows even stronger. Deals do not end when the definitive agreement is signed; that's when they've just begun. The transition plan must be tailored to the specifics of the environment, considering attributes of the surgery center to make it a successful investment for both parties. The transition plan includes bi-weekly updates so the sellers can understand whether the transition is going well or to immediately address any problems. There are many other pitfalls to avoid when investing or acquiring controlling interest in the center. I've highlighted several of the most important ones I've experienced during my years of developing, investing and managing surgery centers. The relationships I've formed in the field have given me valuable input as to what was critical to our joint success in partnering in a surgery center. I have relayed what I have found was most important to the physicians and me. These comments reflect what I have gained from their professional input and guidance to assist in the successful investment and development of their "babies" — now ours together to nurture and grow as partners. n Ambulatory Systems Development is a minority investment partner with physicians and health systems in ambulatory surgery centers. The company invests in ASCs in strategic areas clus- tered to leverage power and share resources in managed care, contracting, purchasing and staffing. Physicians maintain clinical control of their centers, while the company manages busi- ness operations to maximize profitability. Ambulatory Systems Development has 30+ years of expertise in ASC development and management.