In the next three weeks, Ortmann will be covering a topic relevant to a number of projects we are working- The Red Zone. The last 2-3 months when a project is nearing completion are the most crucial and good Red Zone planning will ensure your project is completed on time and on budget.
The Red Zone Defined for ASC’s
The development of an ambulatory surgery center can take between eight to twenty months to complete, depending on the availability of a pre-existing building. The “Red Zone” for the ambulatory surgery center is defined as the sixty (60) day period immediately preceding the date when the ASC is scheduled to receive its Certificate of Occupancy (C.O.) by the local building authority.
Why the ASC “Red Zone” is Important
The sixty days before an ASC gets its C.O. is a period of intense activity, a time when there is a virtual hemorrhage of capital and no transfusion of funds from patient care. During this time, final construction payments, the majority of equipment invoices, and many working capital bills will be presented for payment. The ASC center staff will be hired during this time, and many employees will be added to the payroll. If the individuals planning and developing the ASC prepared a realistic pro-forma before the development of the center began, which included not only financial data, but also accurate project development times, then there should be no problems. However, anything that delays the C.O. presents a significant obstacle to financial success as the entire project could be delayed by months.
There are many ways to fail in the “Red Zone”. If you fail to have the boilers on your sterilizers inspected, don’t timely apply for a pharmacy inspection, don’t timely complete and submit the CMS 855, or fail to properly implement any one of perhaps a hundred other tasks, you could potentially fail a state inspection. In most states, failure to pass an inspection means you go to the back of the line for re-inspection. This type of glitch could delay your project by one to two months. The additional time needed to open the center due to the glitches was probably not anticipated in the pro-forma, which means that you will likely need additional working capital from either the owner, or additional loans. Regardless of the source of the additional monies, the added debt will delay the time when the ASC becomes profitable.
The Crisis CAN BE AVOIDED
Many of the crises encountered near the end of a project can be avoided if the project is properly planned from the beginning: by mapping the state regulatory process, by developing an integrated time-line for all project tasks, and by identifying and completing critical tasks early in the development process. Please check back next week for the second posting in this series where we will cover Mapping the Regulatory Process and discuss Red Zone Management.
Submitted by Fred Ortmann, President, CEO
