It wasn’t that long ago that if you had an M.D. after your name, it wasn’t that difficult to get funds. Now, it’s best to prove that not only are you an outstanding physician, but that you also have a sound business plan prepared. Putting together a financial proforma as a part of your request for financing is essential. Not only will the proforma prove to a lending institution that your venture will be profitable and that you will be able to pay back all of your loans, it will give you a sense of security that you are not crazy to think about building an ASC in this economy.
What does a good financial proforma contain? The starting point is expected revenue. You need to have a good idea of how much revenue you can expect to collect from your facility fees in the ASC. The proforma’s revenue should never include physician professional fees. You will receive these fees whether performing surgeries in your own ASC or in another location. If these fees are needed in order to make the ASC financially feasible, then you should not be building the ASC, or you need to find more partners. Make sure you are looking only at your facility fees for expected revenue.
Be as accurate as possible in determining your workload. Use one year’s worth of actual patient data to determine the amount of revenue to expect. Be sure to discount for secondary procedures and for patients you might want to leave in a hospital setting because of age or health issues. Look up the facility fees for each CPT code from your patient data at the Medicare Rate; then, you may increase the fee for non-Medicare patients based on a percentage of Medicare, similar to what your practice receives from insurance companies. Too often revenue is calculated with guesswork of what is currently happening in the physicians’ practices—a guess of the number of cases and a guess at the expected reimbursement. You may be surprised at the effect Medicare patients can have on the average facility fee. When it comes to the type of money needed to build an ASC, the word “guess” should not be in your vocabulary.
Using accurate data that can be supported in discussions with a financial institution is essential. You should be able to answer all questions of how you arrived at a particular revenue figure and show supporting evidence. Money is available, but only to those who can prove a venture makes sense.
Once your revenue is determined, it’s time to look at expenses. You will need three loans: construction, equipment and working capital. Here it is best to work with a consultant who can help you obtain these figures accurately. Too much goes into this process for the scope of this article but it’s important to work with a developer who can give you accurate information. If you can show a bank that you have carefully considered what goes into a surgery center, that you really have a knowledge of revenue versus expenses, you should be able to obtain funding. Financial institutions have to make loans—that’s their business. But they have to make good business decisions, and if you can show the people you work with that your project is sound, you will be successful at obtaining funding.
Your construction loan should be an accurate accounting of what it will take to build your center. You will need to decide on size of the center first, because that is what will drive your costs. You may find that you need to adjust your size downward as you go through this process, but with research you can find a size that is reasonable. You will also need to make sure your size meets the requirements in Medicare and State regulations. Your costs could include purchase of land, construction of shell and interior (or if using an existing building, construction of space to meet ASC regulations), architectural fees, and interior design. Working with an experienced consultant can make this process easier. When requesting funds for construction, you will need to give an accounting of how your total request will be used.
An equipment loan will be needed to fully equip the ASC. This loan should include not only the “big ticket” items for the ORs (lights, scopes, crash carts, anesthesia machines, microscopes, video equipment, sterilizer, instruments) but funding for every bit of furniture, shelving, cart, computer, printer, locker, filing cabinet, and so on—every item that will be placed in the ASC. The equipment should be researched carefully so that you will ask for the funds necessary to fully furnish and equipment the center. It is more difficult to go back later and ask for additional funds. If you are working with a consultant, estimates should be available. Equipment planners can also be contacted.
Don’t forget Information Technology when creating your equipment list. You will need funds at a minimum for software that will do scheduling and billing for your ASC as well as the necessary hardware to run this software. You may also wish to consider electronic physician documentation and electronic charting. Creating an electronic medical chart will cost, but it will also save the cost of building space for storing paper charts.
The final loan is the Working Capital loan, funds to pay pre-opening expenses that don’t involve construction or equipment. Examples could vary from stocking the ASC with supplies, to paying for staff, fees for licensure/accreditation applications, and legal fees for agreements. More importantly, the Working Capital should include a line of credit to pay for the center’s first three to four month’s expenses: lease, utilities, staff, benefits, surgical supplies, and so forth. It takes time to get the state to come in for its licensure inspection and more time to achieve Medicare Certification. Even though you may begin performing Medicare cases as soon as you pass your inspection, it may take two months to get your information in the Medicare system so that you can send your first bill.
After you have your state licensure and Medicare certification, then it’s time for insurance contracting. That can take anywhere from weeks to months more. Working Capital is important during this time in order to pay your staff, utilities, lease payments, etc. Securing Working Capital should be in the form of a line of credit—that way you can borrow only what you need.
All of this takes some work upfront, but in the end your project will go much more smoothly. Ortmann Healthcare Consultants can help you with this process. Please feel free to contact us if you have questions or need assistance with the financial planning of your facility.
Submitted by Chris McMenemy, VP Administration
Posted by ortmannhealthcareconsultants 
Posted by ortmannhealthcareconsultants 
Posted by ortmannhealthcareconsultants 