Same-Day Surgery Manager

7 areas to address when you open a satellite

By Stephen W. Earnhart, MS
President and CEO
Earnhart & Associates
Dallas

Last month, we discussed the reasons and advantages of opening a satellite facility to accommodate your growing surgical list, combat cramped quarters, or attract new users. This month we will discuss how to develop that satellite and the changes in case loads and income that, we hope, will occur. (To get a copy of last month’s article, see editor’s note at the end of this article.) 

First, make sure your reasons for expansion are based upon sound logic and need. Avoid the ego-driven desire to take over the world.

The first step after you have determined (for all the right reasons) to develop a satellite center is to perform a feasibility analysis. If you are a small group, you probably can perform an abbreviated study that addresses the capitalization issues such as the cost of equipment for the new center, the cost of leaseholds, and how will you pay for them. Then you need to determine what your potential return on your new investment will be by dividing the cash cost of the new project by your profits. Chances are you will need your accountant to handle that part of the transaction. If you are expanding into virgin territory and are going to joint venture the new center with outside investors, hospitals, or other physician groups, you should entertain a more comprehensive study that can be used in the syndication process and that meets state Securities and Exchange Commission regulations.

Be prepared for negative recommendation

After you have performed your analysis, some of you had better put the brakes on right now. Virtually 45% of all the feasibility work we do returns a negative recommendation to move forward. If it doesn’t work, don’t force it and think it will get better after you have spent your time and money. Some of the smartest people out there realize that you do not want to chase bad money with good. If it doesn’t work today, it might in another year or two, or if you add new partners to the equation or significantly increase your surgical output. Be sensible. It is better to walk away from a good deal than to do a bad one.

If the recommendation is positive, examine these areas:

Location. Remember: location, location, location. Usually the ideal place for a surgical facility is near the perceived existing medical community — usually within eyeshot of a hospital. There are many successful centers in the middle of a corn field, but if you have the option, go for the former. It is far easier to attract new investors and users in that type of a location.

Size and scope. On average, an ambulatory surgery center can accommodate between 1,000 and 1,500 cases per year per operating room. If you have identified 4,000 cases (not procedures), you should build your center with about three to four operating rooms. Depending upon your specialty mix, you can go lower or higher. Square footage of your satellite center is important because you are paying by the square foot! Be conservative. It seems as if everyone is overbuilding the size of surgery centers. Future expansion is important, but you need to pay for your space now. Do not overbuild. There are many three- and four-OR centers out there that are smaller than 10,000 square feet. Avoid the trap of building a center that is too large. Most consultants and architects will try to increase the size of your center. Be strong.

Partnerships. Do not delude yourself into thinking "if you build it, they will come." Those days are long gone. Do not build a center thinking that other surgeons will beat a path to your door when it opens; they will not. Therefore, financially it must stand on its own merit. If you are trying to bring new investors into the satellite center, then modify your partnership agreements to allow your current investors in the original center to invest in the satellite as well. However, offer as much equity in the satellite center to make it worth the investment for the new investor group.

Passive investors. You may have passive investors in the existing center who would like to sell their shares and buy into the new center. The usual reasons are because it is closer to their home, they have better posting opportunity, or a better block time, or whatever. This is a good time to clean house from an investor standpoint. Be smarter this time!

Shifting cases. Do not plan to shift cases from the original center to the new facility. All business in the satellite needs to be new business. A common argument is that now patients from that part of town do not have to drive all the way over here for surgery. Unless the existing center is very strong, and you can afford to shift cases, don’t sacrifice one for the other.

Staffing. You should be building your satellite because you are "maxed" out in the existing center. If you can afford to shift staff to the satellite, then chances are you really are not maxed out at all. Plan on a separate clinical staff, but seriously consider a common administrator and business office manager. You would be hard-pressed to have a common nurse manager, but you could save some money and try it.

Training. While your center is under construction, train your key staff members in your existing center so you can hit the road running.

Learn from your mistakes. There is not a center out there that cannot be improved. Make sure you incorporate the good and eliminate the bad in the new center.

(Editor’s note: Earnhart and Associates is an ambulatory surgery consulting firm specializing in all aspects of surgery center development and management. Earnhart can be reached at 5905 Tree Shadow Place, Suite 1200, Dallas, TX 75252. E-mail: searnhart@earnhart.com. Web: www.earnhart.com.

For a copy of last month’s article, contact the customer service department at: customerservice@ahcpub.com.)