TRENDS
The growth in outpatient surgery case volume continues to accelerate due to a combination of factors: consumerism, demographics, and continuous technological improvements. Despite the growth in surgery volume, a number of ambulatory surgical centers still fail. Additionally, many of the independent surgery centers that are profitable are underutilized and not as profitable as they could be. That's why Nueterra Healthcare is seeing an increase in the number of facilities seeking a corporate partner.
Some of the main reasons surgery centers fail include:
- Poor management
- Overbuilding
- Low volume
- Poor reimbursement
- Overstocking the facility
- Inability to manage physician utilization
- Underestimating the power and determination of local competition
Often physicians and hospitals are overconfident and under-informed when they make the decision to develop a facility on their own. It is only after a series of costly mistakes that they realize how much trouble they could have avoided if they had joined with a corporate partner from the start. Additionally, physicians sometimes hesitate to work with a corporate partner for fear they will give up control of the center. It should be noted that partnering with a management company does NOT necessarily result in loss of control. There are several companies who will buy minority equity interests.
With declining reimbursement and more competition for cases and market share, physicians and hospitals can no longer develop a center on their own and expect automatic profitability. However, experts increasingly agree that selecting a corporate partner is as close to a guarantee for success as you can get.
One of the benefits of working with a corporate partner is they offer all of the expertise needed to successfully develop and manage the facility. They can eliminate the headaches and inefficiencies that put a facility at risk.
What to Look For
Most experts in the industry would advise providers to seek out a corporate partner with a wealth of experience and proven track record in these key areas of the business.
- Syndication Expertise. There are many partnership models and options available between physicians, hospitals and management companies. Look for a company that has successfully syndicated multiple projects and knows what it takes to create a successful ownership structure.
- Development Expertise. Developing a center to ensure success is much more difficult than in past years. A corporate partner should know how to identify and develop the best location. A partner should have relationships with experienced architects and contractors and know how to design a center that provides the most efficient operating environment possible.
- Contract Negotiations. Much of a facility's payments are tied to negotiated contracts with third party payers and networks. As a result, for any entity to be successful today in this industry, managed care expertise is a must. Select a management company that has contract negotiating experience and generates results in net revenues that exceed industry standards.
- Supply Cost Management. Cost efficiency has become a key driver in healthy facilities. Selecting a company that provides access to larger group purchasing contracts will result in both lower supply costs and higher profit margins.
- Physician Recruitment. Look for a company that will provide ongoing assistance with physician recruitment and experience with expanding the specialties and services provided. Equally important is the knowledge and experience necessary to negotiate and manage buy-sell transactions with current and new investors.
- Proven Management Expertise. Seek out a corporate partner that has documented success in all areas of the business, including clinical outcomes, financial performance and physician and patient satisfaction. A successful partner will have the expertise to accomplish this on both a start-up basis as well as in a turn-around situation. You also want a company that will work alongside you as a true business partner, providing detailed strategic information necessary for the local governing board to effectively direct its operation and implement its vision.
- Access to Working Capital. A successful partner will have corporate banking relations that will allow it to bring attractive financing options to a project. In the current state of the economy, many lenders require a corporate partner to access the best lending terms.
- Strategic Business Expertise. Do not underestimate the value of selecting a corporate partner with the infrastructure to sustain a competitive advantage throughout the lifecycle of your facility. Search for a company that has a history of sustaining market and revenue growth. Every business has a distinct life cycle, and ASC's and HOPDs are no exception. After five years or so in business, they experience a maturing or reduction in revenue growth. A good corporate partner can prevent this trend by establishing business strategies necessary for ongoing success.
If you are already involved in a surgical center and questioning if a corporate partner is the right decision for you, consider the following:
- Is your center experiencing steady case volume growth?
- Are you actively recruiting new physicians to ensure continued success?
- Do you have the necessary procedures in place to comply with all licensing and accreditation surveys?
- Do you have a mechanism to leverage best pricing for supplies and equipment?
- Do you have a process in place to manage the utilization of the facility by other investors?
- Are your profits on the rise?
- Are you maximizing your OR time?
- Are your center's performance indicators in the top quartile of the industry in these areas?
- Staffing efficiency
- Revenue cycle management
- Cost per case
- Physician and patient satisfaction
If your response to any of the questions above is negative, you might want to consider seeking help from a corporate partner.
In conclusion, most experts agree that working with a corporate partner with experience in developing and managing surgical facilities will both increase your opportunity for success and minimize your risk. Having a strong, well managed organization can drive quality outcomes while controlling expenses in ways that result in increased patient satisfaction, physician satisfaction, cash flow and profitability.
For more information and a complimentary operational evaluation and assessment of your facility, contact Nueterra at (913) 387-0510 or info@nueterrahealthcare.com.
Denise Mayhew, vice president, Nueterra Healthcare