Anatomy of a Do-Over

By Robert Zasa, MSHHA, FACMPE

We’ve all made misplays in the games of life. Sometimes they are misplays of commission or omission. Sometimes they come from players who don’t get along. Sometimes the playbook becomes stale or predictable. Sometimes a new player doesn’t understand the goals. What has always been needed in these situations was a coach to get us back on track, encouraging us to learn and grow by doing the play over. Managing an ASC to grow into a more successful business is like coaching a team in a do-over.

There are a lot of ASCs that are five years and older, many of which are in need of a do-over, or in the very least a refreshment. You start the process with recognition by all members in the governing body that the way you have been organized and delivered services may need to be refreshed or improved. New ideas may need to be interjected and additions made as the ASC field constantly changes. New procedures have been allowed for reimbursement, new laws and regulations have been enacted that impact your services. The nature of your organization has also changed as new physicians and staff have come into the fold. It is helpful to get an objective look at your organization by an experienced ASC practitioner.

By retaining an outside ASC firm to review the current situation, you then have an unbiased, objective “coach” to walk the governing board, as well as key owners and users, through the complex steps of reorganization. You will do a legal review of all of the documents, get evaluation by an experienced source, and undertake an operational review of revenues and expenses and revenue cycle. What follows are the key elements we have found to be critical to review as part of an ASC do-over.

The Organizational
  • The age and number of current physicians.
  • How many new physicians want to buy in?
  • The current price per share or unit of the ASC.
  • The history of the dividends with the amount that has been paid.
  • The frequency of the distributions.
  • Competition in the area.
  • The price per share or unit at that competitive ASC.
  • Does the ASC entity have both the ownership of the business and the land the buildingis in it or just the business of the ASC?
  • Who owns the land and building and equipment?
Legal Considerations
  • When was the last time that the legal documents were reviewed or redone?
  • What is the status of the bylaws?
  • What is the status of the partnership agreement?
  • How are the documents handled when buying out partners or members?
  • How are the documents handled for retiring or relocating physicians not currently active in the center, or otherwise non-productives?
  • What is the buy-in method and formula?
  • What is the buy-out method and formula?
  • Do the documents reflect the current health care regulations and laws both federal and state?
Revenue Issues
  • Pricing strategy.
  • Retroactive payer contract review of current plans.
  • Deciding which plans to keep, and if the center should apply for out-of-network benefits.
  • Collection results and policies.
Operational Costs
  • Cost of medical supplies and drugs.
  • Current inventory and ability to reduce it creating more distributable cash.
  • GPO arrangements including pricing level.
Staffing
  • What is the pay scale?
  • Length of employment by employees?
  • The payroll.
  • What are the costs of the benefit plan?
  • Illness.
  • Contract labor and overtime.
Service Contracts
  • How many service contracts are there?
  • What are the costs of the service contracts?
  • Are the service contracts related to the building incorporated in the rent or are they separate?
Professional Fees and Contracts
  • Medical Directors contract.
  • Legal retainer and fees.
  • Accounting contract and fees. What services are being requested on an annual basis?
  • Management contract and fees. What services are to be deliverable for a year?
  • For all of the contracts, what is the value for what is being paid?
Equipment and Building Financing
  • What are the existing amounts and terms of debt for the equipment financing?
  • What are the existing amounts in terms of debt for the building financing?
  • What is the length of debt for each of these?
  • Can these expenses be improved upon by refinancing?
Accounts Receivable
  • Review the balance sheet and assure that the balance sheet reflects the truly collectable accounts receivable.
  • What happens to accounts greater than 90 days? How many are there and what is the collection experience on these accounts?
  • Can these accounts be collected (that review the age and quality of the accounts) to maximize the realized revenues.
Building Lease
  • Review the current lease rate and terms.
  • What increases are expected over the next several years?
  • Is the lease triple net (does not include maintenance, taxes and utilities) or is it a grosslease or a modified gross lease?
  • Who owns the real estate?
  • Is the lease an arms length arrangement between members that also own the surgerycenter or is there a third party involved?
  • What should the lease look like in that market to be at a fair market value?
Key decisions to be made.

Once a review of all of these data occurs, key decisions need to be made and they are as follows:

  • Who will remain as owners?
  • How will the previous owners of the ASC or now inactive be brought out?
  • What new partners, if any, will be brought in to replenish the pool of participants in theASC?
  • What will the financial projections of the newly reorganized ASC look like?
  • What was the valuation of the old ASC?
  • What improvements in the legal documents should be made?
  • What are the total costs of the do-over and the economic benefit from doing it?
The Payoff

Addressing these key do-over issues correctly can get you back on top of your game and keep your ASC current with changes in the field.

Robert Zasa is President and founder of Ambulatory Systems Development.
Contact: RZasa@asd-asc.com or 626.840.4248.