If you are a new physician, or simply trying to determine if buying in to a surgery center is the best option for your practice and finances, then it’s time to weigh the pros and cons of this decision. We are going to explore the potential financial benefits as well as the “worst-case scenarios” so to speak. You need to understand if this decision is something that you can realistically take on given your current financial state. Let’s find out if buying into a surgery center is the right choice for you.
While you likely already know what a surgery center is if you are looking into buying one, it always helps to have a little more information, especially where investments are concerned. Surgery centers, also known as ambulatory surgery centers (ASCs), are licensed outpatient facilities that are predominantly physician-owned. They are freestanding entities that are generally smaller than a hospital and oftentimes specialize in a particular procedure. Surgery centers are typically offered to physicians entering practice in 2-3 years. Physicians who buy into these facilities receive a share of the value, and depending on the facility, will be required to invest some of their own surgical expertise there.
As an ‘outpatient’ facility, all procedures performed should see the patients in and out in a day, without needing to stay overnight. This frees up bed space, allows the facility to take on more patients, and keeps the costs low making it a win-win for both patients and physicians alike.
These facilities focus on particular procedures, which allows for a more focused and productive environment, as they are not impacted by the same factors that general hospitals may deal with. Keep in mind that a buy-in surgery center may not always be readily available, so you will have to wait for an opportunity to open up.
Now that you have a basic overview of what a surgery center is there for, let’s take a look at some pros and cons of buying into one.
For as long as you own the facility, there will always be profit potential. This does rely on multiple factors including community need, facility efficiency, inclusivity (accepting more types of insurance), and more.
With profit potential in mind, another benefit to note is that once you pay off your loan/note on the business, you will continue to receive an income from it. While the initial investment may be a hefty financial lift, think of the longevity of the business and the profit you will see over time. Just make sure you are prepared to hold out for a couple of years before the profit from the business really starts coming in. With all investments there are risks, but in this case, if you play your cards right, you may be in for a huge financial benefit.
Have you thought about the potential for profit when you are ready to sell your share in the surgery center? If over the years you’ve taken strides to properly maintain the facility (necessary maintenance, upgrades, and more) and have paid off your investment, you are in a position to potentially make a profit on your sale. Your facility may be worth more when you are ready to sell it than when you initially bought it!
A huge benefit to owning your own surgery center, is the flexibility that it allows you to have. Think about it, you could invest in a surgery center that is close to your home or the hospital/clinic that you spend most of your time at (if the opportunity is available of course). This allows ease of location, and may cut down on your commute when you have to spend a percentage of your time there.
Moreover, buying into your own facility means that you can specify your hours of operation. You can create designated or preferred times to see your patients and/or perform surgeries whereas hospitals are typically unable to offer that benefit.
Now that we’ve looked at a few of the most common benefits to buying into a surgery center, it’s time to take in the potential cons.
The first big con is financing the upfront cost. Though this is to be expected with any investment, it can be a big deal, especially if you are just starting out as a physician and are taking on the brunt of massive student loan debt and other early costs. This is where you need a sound investment strategy in place.
To reap the benefits of investing in a surgery center, you have to really embrace the management side of owning a business. Poor management of your surgery center can really hurt its overall profitability. Someone has to manage and run it as well as set up agreements with medical providers and insurance companies. Is that going to be you? Is there existing staff from a previous owner? Will you have to hire new employees? It’s absolutely worth it to have the right management and administrative staff in place.
A few additional common instances of poor management that can affect your surgery center’s profitability are below,
This is a big one and can particularly be an issue if you are buying a new facility vs. an older, more established one. If the pro forma is not what you anticipated and you are not receiving the payout that you had originally thought you would, this could slow your facility growth (you can’t add another surgery room without money). This is especially true with new facilities where there is no historical pro forma information. Consider making projections based on what you perceive as the worst case scenario in your first couple of years until you are able to generate some established data to draw from.
Also consider the potential for your facility to decrease in value. If it is run poorly, for example, and is improperly maintained (ex. out-of-date technology, basic structural issues). The value of your investment may decrease, causing you to see a smaller return on investment.
Prepare yourself for the possibility that your facility may not be easy to sell. Remember, someone has to be in a position to buy you out or the surgery center has to buy it back from you. The person needs to be able to finance it and must be qualified to buy it.
Another factor to consider is that ownership of the facility may not be as straightforward as you would hope. If physicians all bought in at the same time, they could have equal shares. Some older members could have more shares than another.
Also consider that you may not be buying into everything. (ex. If the surgery center owns the building, you want to be able to buy into that as well). Ideally, you want to have the practice and facility. Typically the surgery center would also own the building, not lease it, but you need to consider that as a potential setback as well.
While upon first glance it would seem like the ‘cons’ of buying in to a surgery center far outweigh the ‘pros’, remember that much of your surgery center’s success depends on how it is run, the preliminary steps you take for inclusivity (insurance), and your own financial planning. This is where working with financial professional experienced in physician’s affairs can help you get the most out of your investment.
The biggest thing to keep in mind when buying into a surgery center is that you must be financially prepared in case you don’t see pay-out for a few years. Understanding the benefits and potential drawbacks of making this investment will give you the grounds to start building your financial strategy. 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. Connect with a financial advisor to find out if a surgery center buy-in is right for you.
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Shane Tenny is the managing partner of Spaugh Dameron Tenny. Along with hosting the Prosperous Doc® podcast, Shane has a true passion for behavioral finance, helping clients and audiences understand how to develop successful strategies based on their unique temperaments. An accomplished and highly engaging speaker, Shane is regularly interviewed for television and podcasts, is actively involved in the Financial Planning Association®, and contributes to industry advisory boards.
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