Becker's ASC Review

20 Transactions & Joint Ventures Matt Searles, MBA, a partner of Merritt Healthcare, and Samuel Beran, MD, investor and medical director of Plastic & Ocular Surgery Center of West- chester (N.Y.), explore the challenges, opportunities and best practices for attracting new physician investment in the ASC industry. Challenges Hospital employment. Hospital employment is the biggest concern for many ASCs when it comes to finding potential physician investors, let alone new physicians to bolster case volume. ASC competition. Some markets are not only dominated by hospitals, but also densely populated by existing surgery centers. Markets with this amount of saturation represent one of the most challenging environments for physi- cian recruitment. Physician inertia. "Even if surgeons aren't thrilled with where they are, they are always more comfortable staying put," says Dr. Beran. Convincing physicians to leave their current setting involves commitment. Opportunities hospital partnerships. In many markets, hospitals can represent an op- portunity for ASCs rather than a threat. "Hospitals are seeking access to the low-cost, high-quality environment of care that ASCs offer," says Mr. Searles. A strategic and carefully planned partnership with a hospital can open the door to new investment prospects for surgery centers. COn states. Certificate of need states are associated with more regulation and hurdles for ASC growth, but location in a CON state can be a boon for new physician investment. Because of the strict regulations in CON states, there tend to be a lower number of surgery centers and less competition for available physicians. Physician dissatisfaction. Physician employment is a growing trend, but it remains to be seen how long-lasting of a trend. Physicians dissatisfied with the hospital employment model, or even physicians looking to change from another ASC, represent potential investors. De novo centers or recent turnarounds. In markets that can sustain de novo ASCs or ASCs that have recently undergone a turnaround can offer physicians a competitive investment opportunity. "The buy-in price for these centers will be less expensive than the price at existing, successful centers," says Mr. Searles. Five smart tactics for attracting physician investors 1. Physician-to-physician contact. The first step to opening the invest- ment discussion is conducted through physician interaction. "Physicians are looking for quality and they are willing to hear that from other physicians," says Mr. Searles. As Dr. Beran points out, physicians receive numerous cold calls from management and development companies. They are unlikely to respond to a call without previously speaking to a fellow physician. 2. Consider the ASC's infrastructure. Physicians may want to open up a new service line when investing in a center. This makes sense if there is a patient volume to support the new service line or if additional physicians will bring cases to the center through this new service. "It does not make sense to add a service line for one physician that will just bring 50 to 100 cases per year," says Dr. Beran. Appeal to physicians that will bring value as new investors. 3. Reinvest in your center. Modern and aesthetically pleasing surgery centers have a competitive edge. Investing in up-to-date equipment and a clean, sharp look creates a positive reputation with physicians and patients. Physician investors feel pride of ownership and appreciate the level of com- fort patients feel at the center. "It does not take a tremendous amount of investment to maintain that level of appearance," says Dr. Beran. "It pays off." 4. Offer the best possible service. ASCs that are known for efficiency and a stellar staff offer physicians the ideal place to bring cases and a promis- ing investment opportunity. "It is all about the fundamentals," says Dr. Beran. "Hire a top quality staff and pay them appropriately." 5. understand the value of patience. Young, unattached physicians are ideal candidates for physician investment, but most physicians in this posi- tion need time to build a practice and pay down debt before making such a large financial commitment. "Physician recruitment is not an overnight pro- cess. It takes patience," says Mr. Searles. "It is all about building relationships." A good place to start building these relationships is with the practices of phy- sicians currently bringing cases to the ASC. Invite junior partners to bring their cases to the center as they build their practice. When the time comes to invest, they will have a strong relationship with your center. Successful growth The Plastic & Ocular Surgery Center of Westchester opened two and a half years ago. The center was originally approved only for plastic surgery, but Dr. Beran and his physician partners reapplied through New York's CON pro- gram to add ophthalmology capabilities. This was made possible through the addition of a group of ophthalmologist investors. The four-operating room center is now in the process of discussing partnering with an ENT group and an orthopedics group. The eventual plan is to expand into the spine field. Surgeons are appreciating assets as they grow an ASC's case volume, but eventually they will slow down and near retirement age. New physician in- vestors are needed to take up the reigns and continue the center's growth. Physician investors also represent diversification, whether through different specialties or service lines. "You never want to be at the point, that one person's departure would cripple the center," says. Dr. Beran. New physician investment secures the future of an ASC. n Are There New ASC Physician Investors? Opportunities to Attract New Partners (continued from cover) 5 Statistics on ASC Physician Transactions H ere are five statistics on ambulatory surgery center physi- cian transactions from the HealthCare Appraisers 2013 ASC Valuation Survey. • 82 percent of management company respondents prefer to purchase single-specialty ASCs with six to 15 physician owners. • 65 percent of management company respondents prefer to purchase multispecialty ASCs with 11 to 20 physician owners. • When selling minority interest to new physician investors, slightly over half of the respondents reported it took three to six months to consum- mate the sale. • 53 percent of respondents say that when buying out an under-per- forming or retiring physician, they base redemption price on a prede- termined formula. • 29 percent of respondents obtain an independent fair market value appraisal to determine value when redeeming a retiring or under- performing physician. n

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