Making the decision early on in your physician career to buy into a surgery center can be a daunting one. (It can be really daunting at any stage in your career!) Even with this truth, having due diligence and a thorough understanding of the benefits of this investment, you could set yourself up for a profitable income stream in addition to providing a helpful outlet for your patients.
To get started, you need to first have some background on what a surgery center is. Surgery centers, also known as ambulatory surgery centers (ASCs), are predominantly physician-owned, outpatient facilities. They are licensed, freestanding entities that are generally smaller than a hospital and often times specialize in a particular procedure. Due to the outpatient categorization for the procedures provided at these facilities, patients are in and out in a single day. There is generally not a need for an overnight stay.
These facilities are not impacted by the same factors that a general hospital has to deal with, which makes them a more focused and productive environment when it comes to their specialized procedures.
The main benefit from a physician’s perspective is the possibility of income. Buying into a surgery center means you will get a share of the value. Surgery centers are typically offered to physicians entering practice in 2-3 years, but these buy-in opportunities are not always readily available. Sometimes you will have to wait for an opportunity to open up before being able to buy-into a surgery center.
Not only do surgery centers bring in possible income to physicians, they also offer a huge benefit to your patients. Through timely and affordable surgical care (for qualifying procedures), your patients will be in and out in one day without the need to stay overnight. This higher production rate brings down the costs of the procedures for patients as fewer resources are required to get them in and out of their surgery (recovery time, bed space, etc.).
With buying into a surgery center, the overhead is lower, surgeons make more of the profit, and patients can pay lower costs. Your patients get the time-efficient, high quality, and affordable care they need while you benefit financially from a high-producing business entity. Investing in a surgery center truly can be a win-win for you and your patients alike.
The typical surgery center can cost anywhere from $100k-700k, however, the total cost is determined by the required space and surgical equipment needed for the procedures you plan to offer.
Just because you invest in a $100k-700k surgery center, does that mean you will see payout from day one?
“Something that you need to consider is that even when you purchase into a surgery center, it doesn’t automatically guarantee that you’ll receive a payout. You could finance a 250k buy-in and not see any income for 2 years. One thing that you would need to ask yourself is what impact would that have on your personal income,” SDT Partner, John Dameron commented. If you decide to purchase into a surgery center, it’s important to have an emergency fund set aside just in case you don’t receive the payout expected. It is better to be over-prepared for the worst just in case the financials don’t pay-out like you thought they would.
“Additionally, you have to ask yourself what happens if you can't pay? Getting a loan for a surgery center is a personal loan, not a business loan. It's your own personal finances. Do you look good enough to get a loan for 250k? The bank might make you pay more interest if you are a bigger risk to the institution. That is something else to consider,” John continued. Buying into a surgery center is tied to personal finances, and you need to have a financial plan to handle finances even when the business fluctuates. Surgery center pay-out is generally on a quarterly basis where loans need to be paid off every month. That is just another factor you have to consider about the industry.
Another determining factor of the cost is the size of your facility and the number of surgical suites included. This cost can vary. If you are building a new facility or. buying into an older facility, this can fluctuate your share of the cost. When considering operational costs, it helps to consider community needs. Is the demand great enough to ensure a busy facility? The benefit of being an outpatient-centric facility is that your patients are in and out in one day without needing to stay overnight. This arouses great potential for productivity and overall profitability, but more so if there is a strong demand for the procedures your facility offers. You must consider this aspect when deciding whether buying into a surgery center is the best choice for you.
As with any money decision, there are pros and cons to each decision that you make. When dealing with new surgery centers vs. older, more established centers, here are a few things to consider:
New Surgery Centers
Benefit: New surgery centers are likely outfitted with updated technology and are structurally sound.
Drawback: The pro forma projections are estimation-based not based on historical data. This may open you up to a few financial surprises within the first couple of years. You will have to establish your financial strategy and budgeting over time. With that in mind, you must also consider if you are financially prepared to not see a payout for 2-3 years. It may take a while for your surgery center to become profitable, especially if you are starting from scratch with your strategy.
Older Surgery Centers
Benefit: Older surgery centers have more accurate pay-out projections as the business has already been established. This also means that the center is lower risk.
Drawback: With older facilities comes wear. In these cases, you could run into facility issues and maintenance needs like new flooring and roofing, or surgical equipment that needs replacing or updating. You also have to think about potentially outfitting your facility in updated technology for a new procedure and the costs and risks associated with that.
At this point, you may be wondering why there aren’t surgery centers everywhere. They do after all provide a win-win scenario for patients and physicians alike, so why doesn’t every physician buy-in or build? As you have probably already guessed, there are a few laws surrounding surgery centers that you need to be aware of.
These laws are put into place as a way to regulate who can own a surgery center and who can’t. As a physician, you can’t simply own part of the surgery center, you must work a certain number of cases a year. Basically, in order to benefit from the passive income that comes from a productive and successful surgery center, you need to contribute a certain amount of your time and expertise to the facility. Also note that when you retire, you will have to sell your piece of the surgery center (someone will have to buy you out).
Certificate of Need (CON) Laws
To build a surgery center, there has to be a petition of need. The center has to get approved by an outside source and this takes time to prove. Certificate of Need or CON laws are state regulatory laws that help establish new or expand existing healthcare facilities based on area. The aim of these laws is to address community needs and restrict redundant, excessive, or duplicative health care services in an effort to help control healthcare costs. If you practice in a state with CON laws, you may not be able to build a new surgery center. In this case, if the opportunity is present, buying into an older, more established center may be your best option. To build a new facility, there has to be a petition of need and this will take some time to show. There are ongoing debates that explore the positives and negatives of CON laws, many of which address cost to the patient and quality of care. A few questions that these laws address are,
These laws are in place for a reason and if you are planning to buy-in to a surgery center, you better be ready to provide documentation explaining why its a good idea.
The biggest thing to keep in mind when buying into a surgery center is that you must be financially prepared if you don’t see pay-out for a few years. These opportunities are called investments for a reason. If you are patient and diligent about the needs of your facility, then over time you should see some sound returns. In the meantime, consider discussing your investment strategy and buy-in opportunities with an experienced professional like Spaugh Dameron Tenny. We specialize in physician-specific financial planning and investment strategy. Get a complimentary discovery call with a financial advisor to see if buying into a surgery center right for you.
For over 50 years, Spaugh Dameron Tenny has provided comprehensive financial planning for physicians and dentists across the U.S. In addition to providing personalized advice, we walk our clients through their options to help maximize finances and maintain financial security.
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