building a spine surgery center - becker's asc review · spine and pain management worksheet...
TRANSCRIPT
Performance, Efficiency, Achievement, Knowledge
Building a Spine Surgery CenterConcept to Operations
Becker’s ASC 23rd Annual Meeting – Oct. 2016
The Business and Operations of ASCsKenny Hancock, President and Chief Development Officer
Meridian Surgical Partners
Table of Contents
Spine Market Market Drivers
Essentials for Success Business Plan
Operations Plan
Operations Key Considerations
Recovery Inn
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Spine ASC - The Market Drivers
Market Drivers – Spine ASCs
Minimally Invasive “Mindset” Physicians
Patients – internet search “Minimally Invasive”
Industry – less invasive technology
Technology Surgical - implants, instruments and techniques
Anesthesia Ability to eliminate nausea
Pain control
Post-surgical Recovery Options Skilled facilities
Home care
Hotel with home care
Insurance Company Acceptance Safe to perform in an ASC setting
Superior environment & less expensive than the hospital alternative
High quality patient outcomes4
ASC Spine Forecast
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Growth Outlook Spine/Ortho
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Growth Outlook by Surgical Procedure
(2014 – 2019)
27%
25%
23%
16%
- 5% 10% 15% 20% 25% 30%
Spinal Decompression /
Laminectomy
Orthopedic
Out-Patient Surgery
Vertebral
Augmentation
Fusion Surgery
The Essentials for Success
The BIG Idea…where do you go from here?
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Develop a Detailed Business Plan
Detailed Business Analysis
Project Scope
Surgical Case Volume & Mix
Financial Analysis and Plan
Partnership Structure
Reimbursement - Managed Care Strategy
Equipment Plan
Operations Plan
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Financial Analysis
Project Scope
Construction
Cost
Equity Debt Investment
Working
Capital
Pre-Opening
Expenses
Equipment
CostsCost
Square Footage
Number of
Physicians
Case
Volume
Number of
ORs/Pre-Post
Scope Specialty Mix
Square
Footage
Determine the Scope of the Project
The Scope Determines the Cost
The Cost Determines the Investment
Summary Financial Analysis
Surgical Case Analysis
Determine Volume– Complete case data worksheets
– Discount case volumes
Determine Reimbursement per case– Market Specific
Determine Revenue– Volume times Reimbursement
Use historical cost to build financial model
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Spine and Pain Management Worksheet
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Primary CPT DESC 2014 2015
Spine Discectomy 63020 Neck spine disk surgery 0 0
63030 Low back disk surgery 0 0
63075 Neck spine disk surgery 0 0
Laminectomy 63045 Removal of spinal lamina 0 0
63047 Removal of spinal lamina 0 0
63048 Removal of spinal lamina 0 0
Laminotomy 63040 Laminotomy single cervical 0 0
63042 Laminotomy, single lumbar 0 0
Corpectomy 63081 Remove vert body dcmprn crvl 0 0
63090 Remove vert body dcmprn lmbr 0 0
Vertebroplasty 22520 Percut vertebroplasty thor 0 0
22521 Percut vertebroplasty lumb 0 0
Kyphoplasty 22523 Percut kyphoplasty thor 0 0
22524 Percut kyphoplasty lumbar 0 0
Cervical
Arthroplasty
22856 Cerv artific diskectomy 0 0
ACDF 22551 Neck spine fuse&remov bel c2 - Level 1 0 0
22552 Addl neck spine fusion - Level 2+ 0 0
ALIF 22558 Lumbar spine fusion - Level 1 0 0
22585 Additional spinal fusion - Level 2+ 0 0
22612/22558 Lumbar spine fusion - Level 1 0 0
22612/22558 Spine fusion extra segment - Level 2+ 0 0
PLIF/TLIF 22630 Lumbar spine fusion - Level 1 0 0
22632 Spine fusion extra segment - Level 2+ 0 0
PLIF/TLIF 360 22633 Lumbar spine fusion combined - Level 1 0 0
22634 Spine fusion extra segment - Level 2+ 0 0
Posterolateral 22612 Lumbar spine fusion - Level 1 0 0
22614 Spine fusion extra segment - Level 2+ 0 0
ALIF &
Posterolateral
Spine and Pain Management Worksheet
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Pain Injections 27096 Inject sacroiliac joint 0 0
62310 Inject spine cerv/thoracic 0 0
62311 Inject spine lumbar/sacral 0 0
62319 Inject spine w/cath lmb/scrl 0 0
64479 Inj foramen epidural c/t 0 0
64483 Inj foramen epidural l/s 0 0
64490 Inj paravert f jnt c/t 1 lev 0 0
64493 Inj paravert f jnt l/s 1 lev 0 0
Discography 62290 Inject for spine disk x-ray 0 0
62291 Inject for spine disk x-ray 0 0
Nerve Blocks 64421 N block inj intercost mlt 0 0
64510 N block stellate ganglion 0 0
64520 N block lumbar/thoracic 0 0
Facet 64633 Destroy cerv/thor facet jnt 0 0
64635 Destroy lumb/sac facet jnt 0 0
Pain Stim 63650 Implant neuroelectrode - Trial 0 0
63655 Implant neuroelectrodes 0 0
63661 Remove spine eltrd perq aray 0 0
63662 Remove spine eltrd plate 0 0
63663 Revise spine eltrd perq aray 0 0
63664 Revise spine eltrd plate 0 0
63685 Insrt/redo spine n generator - Perm 0 0
63688 Revise/remove neuroreceiver 0 0
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Summary Volume
Volume Details
Provider Hand Pain Spine Total
Gianikis - - 26 26
Smith 11 19 188 218
Eppley - 14 166 180
Jones 6 64 275 345
Ray 3 26 114 143
Dicks 2 16 164 182
Factor 19 200 418 637
Toms - - 417 417
Makey - - 143 143
Total 41 339 1,911 2,291
-25% -50% -75%
Discounted Hand Pain Spine Total
Gianikis - - 7 7
Smith 8 10 47 65
Eppley - 7 42 49
Jones 5 32 69 106
Ray 2 13 29 44
Dicks 2 8 41 51
Factor 14 100 105 219
Toms - - 104 104
Makey - - 36 36
Total 31 170 480 681
Revenue Assumptions
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Revenue AssumptionsCase Volume Year 1 Year 2 Year 3 Year 4 Year 5
Hand 21 31 32 32 32
Pain Management 106 172 173 175 177
Spine 300 485 490 495 499
Total 427 688 695 702 709
Reimbursement Year 1 Year 2 Year 3 Year 4 Year 5
Hand 1,863 1,900 1,938 1,977 2,017
Pain Management 13,956 14,236 14,520 14,811 15,107
Spine 11,493 11,723 11,958 12,197 12,441
Total 11,631 11,903 12,141 12,384 12,632
Net Revenue Year 1 Year 2 Year 3 Year 4 Year 5
Hand 39 59 61 63 65
Pain Management 1,479 2,444 2,518 2,594 2,672
Spine 3,448 5,683 5,855 6,032 6,214
Total 4,967 8,187 8,434 8,689 8,952
Net revenue in thousands
Project Assumptions
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Project AssumptionsFacility Size Debt Financing Uses of CapitalSquare Feet 12,000 Capital Expenditures 2,800,000 Capital Expenditures 2,800,000
Operating Rooms 3 Construction Costs 2,160,000 Working Capital 1,246,250
Procedure Rooms 1 Other Fees and Expenses - Pre-Opening Expenses 253,750
Total Debt Financing 4,960,000 Design and Construction 2,160,000
Construction Costs Total Uses 6,460,000 Build-Out Costs per SqFt 225
TI Allowance 45 Debt and Lease Terms Sources of CapitalBuild-Cost to Partnership 180 Debt 5.00% 8 Years Physicians 70% 1,050,000
Construction Costs 2,160,000 Building Rent Rate (per SF) $28.00 Corporate 30% 450,000
Total Equity Financing 1,500,000
Capital Expenditures Investment Terms Debt Financing 4,960,000
Medical Equipment 2,500,000 Price pre Unit 15,000$ Total Sources 6,460,000
Computers & Software 150,000 Available Units 100
Furniture & Fixtures 150,000 Total Equity Financing 1,500,000
Total Cap Ex 2,800,000
Summary Financial Analysis
Construct a free cash flow analysis is to view the opportunity
from a realistic, yet conservative, set of assumptions
Free Cash Flow Analysis These assumptions include:
– Case Count
– Reimbursement
– Supply Cost
– FTE Count
– Other Operating
– Capital Expenditures
– Working capital and debt service
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Free Cash Flow (In Thousands) Year 1 Year 2 Year 3
Net Revenue 4,967 8,187 8,434
Salaries and Benefits 982 1,016 1,052
Medical Supplies 1,615 2,676 2,770
Rent Expense 336 346 356
Management Fee 298 491 506
Other Operating 367 393 404
EBITDA 1,369 3,265 3,346
Debt Service (543) (754) (754)
Capital Expenditures - (28) (42)
Changes in Working Capital (740) (479) (36)
Free Cash Flow 87 2,004 2,514
Per Case Data Year 1 Year 2 Year 3
Case Volume 427 688 695
Revenue 11,631 11,903 12,141
Salaries and Benefits 2,299 1,477 1,514
Medical Supplies 3,782 3,890 3,988
Percent of Revenue Year 1 Year 2 Year 3
Salaries and Benefits 19.8% 12.4% 12.5%
Medical Supplies 32.5% 32.7% 32.8%
Rent 6.8% 4.2% 4.2%
EBITDA 27.6% 39.9% 39.7%
Distribution Analysis
(In Thousands) Year 1 Year 2 Year 3
Free Cash Flow 87 2,004 2,514
Beginning Cash Balance 1,276 300 100
Minimum Cash Balance (300) (100) (100)
Distributions 1,063 2,204 2,514
5-Year Investor Returns Analysis(In Thousands) Year 0 Year 1 Year 2 Year 3
Investor Cashflow (1,500) 1,063 2,204 2,514
Annual Return 70.9% 147.0% 167.6%
Cumulative Return -29.1% 117.8% 285.4%
Next Steps
Develop Business Plan
Project Scope √» Initial project scope determined – 3 OR – 1PR 12,000 sq. ft.
Surgical Case Volume & Mix √» Surgical case volume by surgeon must be collected
Financial Analysis and Plan √» Volume drives scope – scope drives cost – cost drives investment
» Revenue assumptions by market – determined by Managed Care Group
» Summary financial analysis
» Project assumptions -- may change as project is fully defined – but create a range
Partnership Structure» Set up LLC for Real Estate LLC
» Set up LLC for ASC Operating Entity
Reimbursement - Managed Care Strategy – Finalize strategy
Equipment Plan – Determine equipment needs with surgeons
Operations Plan – Determine design and flow of ASC with surgeons. Staffing & HR plan, med-devices/products, financing plan,
revenue cycle, marketing, etc.
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Spine ASC & Real Estate Partnership Structure
Partnership Structure
Real Estate Partnership
Separate partnership is usually formed
RE partnership captures land purchase, site, utilities, fees & permits, shell building and tenant construction
allowance
Includes physicians from the ASC partnership
Investment:
– Land ($6.50 to $14.00 sq. ft.) – 1.54 acres ($436-$939k)
– Site Improvements/AE/soft costs - ($30 sq. ft.)
– Building Shell ($110 to $125 sq. ft.)
– TI construction cost allowance ($45 sq. ft.)
Investment Thesis:
– 15 year lease term with personal guarantees (5-7yrs)
– Investment: (MOB w/ASC)
» Equity: 30% -- Debt: 70%
» Guarantees pro-rata
– Cash-on-cash returns – 15% to 25% over 15 year term
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ASC Partnership
Real Estate Partnership
15 year lease
Partnership Structure
Surgery Center Partnership
ASC partnership
Physician owners + management partner
Investment includes:
– 12,000 sq. ft.
– Interior construction cost
» $180 sq. ft. ($2.160M) WITH Allowance of $45
» TI allowance - $45 sq. ft.– ($540k) (RE provides)
– Equipment – Computers – FFE ($2.8mm)
– Working capital ($1.5mm)
Investment Thesis:
– Total investment: $6.460mm
– Equity: $1.5mm – 1% pro-rata $15K
– Debt: $4.96mm
– Guarantees -1% pro-rata - $49.6k
– 15 year lease term
– Cash-on-cash returns 90% +22
ASC Partnership
Real Estate Partnership
15 year lease
Development of Spine & Orthopedic ASC
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Planning - Schematics
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Spine & Orthopedic ASC
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Spine & Orthopedic ASC
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What Must be Considered?
Reimbursement – Make Sure You Get Paid!
Reimbursement
Getting paid is a critical step in the business plan
Spine procedures historically not approved by Medicare
– 2015 – Medicare approved 9 spine codes
» 22551 – Neck spine fuse & remove belC2
» 22554 – Neck Spine fusion
» 22612 – Lumbar spine fusion
» 63020 – Neck spine disc surgery
» 63030 – Low back disc surgery
» 63042 – laminectomy single lumbar
» 63045 – Removal of spinal lamina
» 63047 – Removal of spinal lamina
» 63056 Decompress spinal cord
– 2016 – Medicare approved 4 spine codes
» 0171T (Lumbar spine proces distrac)
» 0172T (0172T (Lumbar spine process add)
» 63046 (Remove spine lamina 1 thr)
» 63055 (Decompress spinal cord thc)
Must continue to convince the insurance companies these procedures are safe in an ASC
Insurance companies are beginning to develop ASC fee schedules for spine and TJR
This is a negotiation between the ASC and insurance companies
Becomes a major problem if OON is prohibited – and you can’t get a contract28
– 2017 - Medicare approved 8 additional spine codes
» 20936 – Autograft for spine surgery
» 20937– Autograft for spine surgery only (morsel add-on)
» 20938 – Autograft for spine surgery only (struct add-on)
» 22552 – Arthrodesis, anterior interbody
» 22840 and 22842 – Posterior non-segmental instrumentation
» 22845 – Anterior instrumentation (two and three vertebral segments)
» 22851– Application of intervertebral biomechanical devices
Implant Cost
Implant Costs Addressing implant cost is essential
Negotiate carve-outs
Having solid cost data is important when negotiating with the payors
Off-load implant cost to a third-party company
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Equipment Considerations
Equipment Costs Hire an experienced equipment planner to assist
Expense – up to $700-$1mm per operating room
– Microscope - $80-120k
– C-arm - $150k
– Drill set - $30,000
– Spine instrument trays – cervical and lumbar $50k+
– Lumbar table $75-100k
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Operations – Staffing
Staffing Hire a staff that has spine
Hire a staff that has worked with your surgeons
Understanding the challenges and needs of the patients pre and post-operatively will make a
significant difference in success out of the gate
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Rapid Recovery Model
Operations – Rapid Recovery Model
Skilled Nursing Discharge patient to rapid recovery center
– Hotel-like amenities
– Licensed as a skilled or immediate care facility
– Transportation
– Pain protocol developed
– Physical therapy plan developed
Home Care Develop a program with Home Care
– Patient plan after discharge to home or hotel
– Pain protocol developed
– Physical therapy plan developed
Develop a process that produces high patient satisfaction
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Recovery Inn
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Recovery Inn
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Summary
Spine Surgeons are evaluating opportunities to develop/join ASCs Driven by desire to control their surgical environment
Increase productivity, simplify their lives
No change in what you do --- just where you do it
Incremental cash flow – increase their income
Advancements in technology drive Spine into an outpatient setting MIS product and instrument design
Improvements in anesthesia and pain control
Evolution of surgeon acceptance and comfort in an outpatient setting
Planning is essential for a successful outcome Careful business plan development is critical
Seek assistance from professionals with specific experience
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Thank You!
Kenny Hancock
President & Chief Development Officer
Meridian Surgical Partners
615-714-3494 (M)
www.meridiansurgicalpartners.com
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