Is It Too Late For An ASC?

By Ronald Blair

Ophthalmic practices today are under increasing pressure to get costs under control and to develop ancillary income streams. With this in mind, the question we most often get asked is whether or not it is “too late” to develop an ASC for an ophthalmic practice. Since most of the “high volume” practices already enjoy the benefits of their own ASC, this question pertains to the mid volume practice that is unsure if an ASC would work for them.

There are many market forces at work today which are placing enormous pressure on these mid volume practices. One of the most significant factors is the pressure these practices are experiencing from hospitals. Many hospitals are eliminating block time and in some cases asking their ophthalmologists to move their cases out of the hospital. These hospitals are finding that the reimbursements for ophthalmic procedures are just not compensatory when compared to procedures performed by other specialties.

It is readily apparent that ophthalmologists require a location to perform their surgical procedures. Some ophthalmologists are moving their cases to freestanding ambulatory surgery centers in their communities. In some cases, they are even able to purchase shares in these ASCs. Most ophthalmologists would prefer to control their own destiny and, to that end, many of these ophthalmologists are looking at how they might own their own ASC.

So, just how many cases do you need to justify owning your own ASC? The answer we have determined is at least 500 cataracts per year to develop a one operating room ambulatory surgery center. But, what if you don’t perform 500 cataract procedures per year? Suppose you perform 250 cataract procedures per year like many of your fellow ophthalmologists. How do you access your own ASC? The answer lies in leveraging your surgical procedures with those of other ophthalmologists in your area. Let’s take a look at just how we might go about doing this.

Most communities are served by more than one ophthalmologist. While there may be competition between physicians in a given community, they, by and large have their own practices with loyal patients. The ophthalmologists in a given community are all affected by the same market conditions such as hospital attitude, payor panels, etc. Since everyone has the same motivation, it is often very easy to begin a dialogue surrounding the development of a single specialty ophthalmic surgery center. Each of the physicians will want to have a place they can depend on to perform their surgery. Each of the physicians would love to have more control over the surgery they perform. Each of the physicians would also enjoy the opportunity to create an ancillary income stream for their practice. Therefore, every one of the potential participating physicians has the same incentive to see an ophthalmic ASC become a reality.

The best way to make this happen is to identify a freestanding location for the ambulatory surgery center to be built. This eliminates any connection with a single practice and makes it possible for the ASC to be Dr. A’s center on the day he performs surgery and Dr. B’s on the day he performs surgery. In effect, the center becomes an extension of each ophthalmologist’s practice thereby offering an exceptional experience for the patient.

It is now time to turn our attention towards the economics of developing a single specialty ophthalmic ASC in a leased space. We will assume this will be a one operating room ASC that has 2,800 square feet. We will look at three ophthalmic surgeons who we will call Drs. A, B and C. Each of them has a similar surgical case profile and for purposes of this discussion, operate one day a week. The number of cases recap demonstrates the differences between each surgeon’s practices. The following basic pro forma demonstrates the economic potential for a center based on the scenario we have discussed.

NUMBER OF CASES PER YEAR
Dr. A Dr. B Dr. C Total
Cataracts 250 185 225 660
YAG Lasers 83 61 74 218
OPERATING REVENUE
Cataracts 600 cases x $973/case = $642,180
YAG Lasers 218 cases x $446/case = $ 97,228
TOTAL OPERATING REVENUE $739,408
OPERATING EXPENSES
VARIABLE COSTS:
          Medical Supplies $135,300
CONTRIBUTION MARGIN $604,108
FIXED OVERHEAD:
          Depreciation $ 48,867
          Employee Benefits 34,160
          Insurance 8,500
          Interest 41,757
          Legal and Accounting 4,500
          Medical Director Fee -
          Office Supplies 8,500
          Other Expenses 24,000
          Rent 56,000
          Repairs and Maintenance 12,500
          Salaries 170,000
          Telephone 3,000
          Utilities 8,000
TOTAL FIXED EXPENSES $422,584 $422,584
TOTAL OPERATING EXPENSES $557,884
NET INCOME BEFORE TAXES $181,524
          Plus Depreciation $ 48,867
          Less Principal Payments $ (33,743)
          Net Depreciation $ 15,124 $ 15,124
CASH AVAILABLE FOR DISTRIBUTION BEFORE TAXES $196,648

As you can see from this pro forma, there is tremendous potential for this ASC model in ophthalmology. The net income of $196,648 would be distributed between the physician owners of the ASC each year. This would go a long way towards recapturing the increased expenses most practices have had to endure over the last few years. It also provides the ophthalmologist with his own location to perform his surgical procedures.

Based on this model, there is still clearly an opportunity for ophthalmologists to own an ASC today.

Ronald Blair is the President of Surgery Center Services of America, LLC, Mesa, AZ
E-mail: blairscsa@aol.com

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