A huge wave of 1,800 new ambulatory surgery centers opened between 2003 and 2007. With an average life cycle of 10 to 12 years, that generation of ASCs is winding down, and a new generation of ASCs is beginning. It is time to start developing Ambulatory Surgery Center Pro Formas again.
HCTadvisor has observed four (4) major mistakes developers make when putting together Ambulatory Surgery Center Pro Formas.
1) Case Volume & Ramp-Up: It is shocking to first time ASC developers to find that most surgeons do not know how many surgeries they perform. When possible, it is best to collect billing data from practice managers and hospital partners to find out exactly how many cases each physician investor performs, the types of surgeries they perform, and their payor mix. The CPT code counts that you get from physicians are the same codes billed in ASCs, but physician are paid for the professional component of surgery services, and ASCs are paid for the facility component of surgery services. ASCs may also get to bill for implantable devices and cataract lenses.
Ramp-up is another problem area. No ASC is going to fully ramp up during the first six (6) months. There is a maddening daisy chain of events that will occur before you can start treating and billing all types of insurance. You have to get your building certificate of occupancy then you have to get your state license survey then you have to get your Medicare or deemed status accreditation survey. You are going to have to pay rent and a small staff’s payroll for several months before you can even start billing Medicare. Sometimes payors won’t talk to you until you have a Medicare number.
2) Reimbursement Rate Projection: Reimbursement is the single most complicated and stressful part of Ambulatory Surgery Center Pro Formas to develop. Fortunately, most payors, except United, piggyback on Medicare reimbursement. You can download the current Addendum AA national payment rates from Medicare’s website, adjust 50% of the national payment rate for your geographic wage index, and apply the 50% multiple procedure discount to secondary procedure codes. That is the easy part.
The hard part is predicting the reimbursement rates you are going to get with all of the commercial payors in the community. Except for Florida, where 95% to 100% of Medicare is common, commercial rates in most markets hover between 110% and 140% of Medicare reimbursement. If you are affiliated with a health system or a large ASC chain, you may have some national contracts with higher rates.
Commercial payors also tend to pay separately for implantable devices, while these are considered bundled in Medicare reimbursement.
3) Construction Contingency Planning: A general contractor once told me that they bid all construction projects at cost, because they planned to make all their profit on change orders. If this is how the construction industry is doing business, then you need to have line items in your budget for contingency. You should add at least 10% contingency for your construction costs. Every time the owner or architect makes a change, the general contractors and sub-contractors are going to start rubbing their hands together.
You can minimize ASC change orders by hiring architects and life safety consultants that specialize in ambulatory surgery center development. Boulder Associates (Boulder, CO) and WEL Design (Tuscon, AZ) are two such firms.
4) Working Capital: It is going to take months to get fully licensed and Medicare certified. It is going to take at least a year to ramp-up surgery volumes. You are going to have construction change orders. With your new staff and new software system, you are probably not going to average 45 days in Accounts Receivable during the first year either. You are going to shell out a lot of money up front for facilities, staff, equipment, and inventory that are going to be idle a lot during the first year.
You need to budget extra cash (working capital) at least for six to twelve months of operating expenses. Add up all of your projected rent, staff, utilities, and debt payments. Make sure to raise an extra six to twelve months of cash when you initially fund your surgery center. It is much better to have too much cash that you can just distribute back to the owners, than to have to go back to the owners and ask for more.
Build Your Ambulatory Surgery Center Pro Forma Like a Professional
You should model out your ASC’s financial projection to make sure you can cover all leases, as well as debt payments on construction and equipment loans. HCTadvisor’s ASC pro forma Excel (.xlsx) model is intended for use with de novo ASC development projects and ASC renovation projects.
The ASC pro forma model is pre-populated with example inputs. Users must update the input fields with all of their own specific value inputs for case volumes, reimbursement, material costs, staff FTEs, staff salaries, and facility expenses.
Ambulatory Surgery Center Pro Forma Model Demo
This ambulatory surgery center pro forma model includes the schedules below.
|Capital Plan||Physician Data Input||Volume, Revenue, Material Projections|
|O.R. Utilization Analysis||Projected Expenses||Staff Plan|
|Income Statement||Cash Flow Statement||Balance Sheet|
|Capital Expenditures||Working Capital||Equipment & Building Loans|