Chapter 1: Envisioning the Opportunities 2
Introduction 2
Overview of Ancillary Services 4
Figure 1-1: Ancillary Services by Specialty 6
Why Consider Ancillary Services 8
Current Environment/Players in the Market 15
Figure 1-2: Ancillary Services Management Companies 19
Characteristics of Successful Ventures 25
Planning Stage 25
Development Stage 28
Figure 1-3: Development Plan Worksheet 29
Operating Stage 33
Continued Assessment 33
Successful Planning Processes 34
Conclusion 35
Chapter Two: Facing Legal and Regulatory Issues 3
Introduction 3
Self Regulation of Surgical Settings 4
State Regulations 6
Stark and Other Compliance Questions 10
Stark--Past and Present 10
The In-Office Ancillary Services Exception 14
Services Restrictions 15
Figure 2-1: In-Office Ancillary Services Exception--Five Special Requirements for Providing DME 17
Performance and Supervision Test 17
Figure 2-2: Independent Contractor Physicians Classified as Physicians in the Group Practice--Performance and Supervision Test for In-Office Ancillary Services Exception 19
Site-of-Services Test 20
Figure 2-3: Practical Implications for Site-of-Service Test--Same Building Option--In-Office Ancillary Services Exception 22
Figure 2-4: Practical Implications for Site-of Service Test--Centralized Building Option--In-Office Ancillary Services Exception 23
Billing Test 25
Figure 2-5: Comparison of "Under Arrangements" and "Provider-based Arrangements" in the Billing Test 29
Figure 2-6: Practical Implications for Billing Test--In-Office Ancillary Services Exception (Under Arrangements and Provider-based Arrangements) 30
Full Range of Services Test 30
Figure 2-7: Practical Implications for Full Range of Services Test--In-Office Ancillary Services Exception 33
Group Practice Test 34
Figure 2-8: Substantially All Services Test Worksheet 36
Figure 2-9: 75 Percent of Patient Encounters Test Worksheets 40
Figure 2-10: Ambulatory and Hospital Encounter POS Codes 41
Penalties and Sanctions for Non-Compliance with Stark 42
False Claims Act 44
Penalties and Consequences for Breach of the False Claims Act 45
The Anti-Kickback Statute and Ancillary Services 45
Safe Harbor for Ambulatory Surgical Centers 47
Surgeon-Owned ASCs 48
Single Specialty ASCs 49
Multispecialty ASCs 50
Hospital/physician ASCs 50
Penalties for Violation of Anti-Kickback Statute 53
State Self-Referral Prohibitions 53
Conclusion 53
Chapter 3: Preparing the Feasibility Study 3
Introduction 3
Defining the Feasibility Study 5
What a Feasibility Study is NOT 5
Why do a Feasibility Study 7
Who Should Perform the Feasibility Study 8
When Should a Feasibility Study Be Completed 9
Writing the Feasibility Study 10
Overview of Initiative 10
Figure 3-1: Scope of the Assignment 11
Figure 3-2: Terms and Conditions 13
Figure 3-3: Overview of the Situation/Organization 15
Operational Overview and Market Profile 19
Figure 3-4: Porter's Five Forces of Competition 19
Figure 3-5: General Market Definition 21
Customers/Buyers 22
Table 3-1: Zip Code Analysis 23
Table 3-2: Age Distribution 24
Figure 3-6: Age Distribution Graph 25
Table 3-3: Per Capita Income and Household Income Distribution 27
Supplier Analysis 29
Substitutes 30
Potential Entrants 31
Competitors 31
Figure 3-7: Competitor Analysis 33
Key Players 33
Market Share 33
Financial Analysis 34
Figure 3-8: Start-Up Questionnaire 36
In-Flows vs. Out-Flow 45
Revenue 46
Table 3-4: Surgical Volume Data and Assumptions 46
Table 3-5: Gross Charges and Gross Collections 50
Table 3-6: Net Collections and Accounts Receivable 53
Expenses 55
Table 3-7: Expense Outline 56
Table 3-8: Capital and Non-Capital Purchases 60
Table 3-9: Pro Forma Income Statement and Balance Sheet 62
Table 3-10: Statement of Cash Flows 66
Investment/Financing Initiatives 69
Financial Analysis Summary 69
Conclusion, Summary and Recommendation 71
Figure 3-9: SWOT Analysis 71
Conclusion 74
Chapter 4: Writing the Business Plan 2
INTRODUCTION 2
DEVELOPING THE BUSINESS PLAN 2
Why Write the Business Plan? 3
Deliverables (Questions Answered) 4
Key Questions Answered 6
Tools to Complete the Business Plan 7
Reasons for Doing the Business Plan 9
BUSINESS PLAN FEATURES 11
Purpose 11
Goals 13
Characteristics 14
Content 15
Financial Analysis and Pro Formas 21
Facilities and Equipment 24
Administrative Overview 25
External Influences 26
Economic Factors 27
Market Considerations 28
Patient Mix 29
Reimbursement Considerations 30
IT Considerations 31
ASSEMBLY OF THE BUSINESS PLAN AND IMPLEMENTATION/NEXT STEPS 31
Assembly 32
Wage and Salary Scale 39
Expansion of ASC Facilities 40
Projected Number of Procedures/Encounters 40
Next Steps 41
CONCLUSION 42
Chapter 5: Discovering Financing Alternatives 2
INTRODUCTION 2
FINANCING: A GENERAL OVERVIEW 5
Legal Structure 6
Type of Venture 8
Owners and Investors 10
Size and Future Endeavors 11
Funding Needs and Amount of Funds 11
FINANCING: THE ALTERNATIVES 14
Equity Financing 15
Types of Stock 19
Debt Financing 22
Bank Financing 24
Term Loan 26
Table 5-1: Sample Loan Amortization Table 28
Figure 5-1: Example of Loan Repayment 29
Line of Credit 30
Seasonal Loans and Bridge Loans 32
Other Issues 32
Statements of Cash Flows 32
Personal Guarantees 33
Protective Covenants 35
Conclusions on Bank Financing 36
Other Debt Financing 37
Bond Financing 37
Off-Balance-Sheet Financing 38
Capital Leasing 42
Internal Financing 43
Conclusions on Other Debt Financing 43
Financing Sources 44
Management Companies 44
Hospitals 47
Boutiques 48
Private Funding and Government Grants 50
Financing Sources Conclusion 51
CONCLUSION 51
Chapter 6: Getting Ready for Opening 3
Introduction 3
Professional Practice or Separate Legal Entity? 3
Ownership 3
Advantage of Providing Ancillary Service under Professional Practice 5
Regulatory Considerations 5
Credentialing and Contracting Considerations 6
Scheduling a Start Date 7
Property Rental or Leasing 8
Space Planning and Architectural Design 10
Figure 6-1: Floor Plan 12
Figure 6-2: Floor Plan 13
Figure 6-3: Floor Plan 15
Permitting and Contractor Bid Process 17
Permitting 17
Construction Bid Process 18
Ongoing Construction Management 19
Licensing 19
Federal Taxes 20
State and Local Taxes 21
Licenses 22
Credentialing 22
Medicare 22
Medicaid 25
Non-governmental Third Party Payers 26
CLIA 27
Developing a Fee Schedule 28
Figure 6-4: Fee Schedule 29
Figure 6-5: Sample Fee Analyzer 29
Furniture and Equipment 31
Figure 6-6: Furniture and Equipment 31
Maintenance Agreements 33
Purchased Services 35
Policies and Procedures 39
Compliance Plans 40
Medicare Compliance 40
Personnel 48
How to find and maintain Exceptional Personnel 48
Figure 6-7: Data Sources for Salary Survey 49
Figure 6-8: Benefits 50
Marketing, Promotion, and Advertising 51
Logo 52
Brochure Development 53
Yellow Page Advertisements 53
Business and Appointment Cards, Letterhead, Envelopes, and Forms 54
Marketing Plan 54
Conclusion 55
Chapter 6: Getting Ready for Opening 3
Introduction 3
Professional Practice or Separate Legal Entity? 3
Ownership 3
Advantage of Providing Ancillary Service under Professional Practice 5
Regulatory Considerations 5
Credentialing and Contracting Considerations 6
Scheduling a Start Date 7
Property Rental or Leasing 8
Space Planning and Architectural Design 10
Figure 6-1: Floor Plan 12
Figure 6-2: Floor Plan 13
Figure 6-3: Floor Plan 15
Permitting and Contractor Bid Process 17
Permitting 17
Construction Bid Process 18
Ongoing Construction Management 19
Licensing 19
Federal Taxes 20
State and Local Taxes 21
Licenses 22
Credentialing 22
Medicare 22
Medicaid 25
Non-governmental Third Party Payers 26
CLIA 27
Developing a Fee Schedule 28
Figure 6-4: Fee Schedule 29
Figure 6-5: Sample Fee Analyzer 29
Furniture and Equipment 31
Figure 6-6: Furniture and Equipment 31
Maintenance Agreements 33
Purchased Services 35
Policies and Procedures 39
Compliance Plans 40
Medicare Compliance 40
Personnel 48
How to find and maintain Exceptional Personnel 48
Figure 6-7: Data Sources for Salary Survey 49
Figure 6-8: Benefits 50
Marketing, Promotion, and Advertising 51
Logo 52
Brochure Development 53
Yellow Page Advertisements 53
Business and Appointment Cards, Letterhead, Envelopes, and Forms 54
Marketing Plan 54
Conclusion 55
Chapter 6: Getting Ready for Opening 3
Introduction 3
Professional Practice or Separate Legal Entity? 3
Ownership 3
Advantage of Providing Ancillary Service under Professional Practice 5
Regulatory Considerations 5
Credentialing and Contracting Considerations 6
Scheduling a Start Date 7
Property Rental or Leasing 8
Space Planning and Architectural Design 10
Figure 6-1: Floor Plan 12
Figure 6-2: Floor Plan 13
Figure 6-3: Floor Plan 15
Permitting and Contractor Bid Process 17
Permitting 17
Construction Bid Process 18
Ongoing Construction Management 19
Licensing 19
Federal Taxes 20
State and Local Taxes 21
Licenses 22
Credentialing 22
Medicare 22
Medicaid 25
Non-governmental Third Party Payers 26
CLIA 27
Developing a Fee Schedule 28
Figure 6-4: Fee Schedule 29
Figure 6-5: Sample Fee Analyzer 29
Furniture and Equipment 31
Figure 6-6: Furniture and Equipment 31
Maintenance Agreements 33
Purchased Services 35
Policies and Procedures 39
Compliance Plans 40
Medicare Compliance 40
Personnel 48
How to find and maintain Exceptional Personnel 48
Figure 6-7: Data Sources for Salary Survey 49
Figure 6-8: Benefits 50
Marketing, Promotion, and Advertising 51
Logo 52
Brochure Development 53
Yellow Page Advertisements 53
Business and Appointment Cards, Letterhead, Envelopes, and Forms 54
Marketing Plan 54
Conclusion 55
Chapter 7: Managing Ongoing Operations 2
INTRODUCTION 2
MONITORING OPERATIONAL DATA AND STATISTICS 2
Accounts Receivable 2
Figure 7-1: Billing Flow Chart 3
Figure 7-2: Common Measurement Tools of A/R 6
Accounts Payable and Cash Management Controls 7
Accounts Payable 7
Figure 7-3: Accounts Payable Process 7
Cash Management Controls 10
PERSONNEL MANAGEMENT 12
Figure 7-4: 90 Day Review Form 14
Communication: 14
Figure 7-5: Employ Performance Evaluation Form 16
Annual Increases (Cost of Living and Merit) 19
Cost of Living 19
Merit 19
Employee Accountability 20
MANAGEMENT REPORTS 22
Figure 7-6: Net Income Worksheet 23
Figure 7-7: Flash Report 1 24
Figure 7-8: Flash Report 2 26
Figure 7-9: Productivity Analysis - Comparative by Year 28
Figure 7-10: Visits by Year 30
Figure 7-11: Comparative Visits and New Patients 32
Figure 7-12: Productivity by Provider 1 34
Figure 7-13: Productivity by Provider 2 36
Figure 7-14: Productivity Variance 2003-2004 38
Figure 7-15: New Patients by Provider 40
Figure 7-16: Coding Percentiles 42
Figure 7-17: Coding Comparison Physicians 44
Figure 7-18: Revenue by Type of Service 46
Figure 7-19: Per Encounter (Charges and Payments) 48
Figure 7-20: Charges/Payments/Adjustments Per Encounter 51
Figure 7-21: Plan by Collection Ratio 53
Figure 7-22: Plan by Payment/Encounter 55
Figure 7-23: Percent of Revenue by Payer 57
Figure 7-24: A/R in Days 59
Figure 7-25: Percent A/R over 120 Days 61
Chapter 8: Benchmarking Performance and Measuring ROI 2
Introduction 2
What are Benchmarks? 2
Benchmarking Defined 3
Using benchmarks to measure performance 4
External vs. internal benchmarks 5
Internal sources for benchmarks 6
Figure 8-1: Physician's Income Statement 7
Figure 8-2: Sample Spreadsheet--Performance Tracking 8
Common ratios 8
Gross Collections Ratio 9
Net Collections Ratio 11
Days Outstanding in Accounts Receivable Ratio 11
Expense to Earnings Ratio 12
Average Revenue per Patient Ratio 13
Staffing Ratio 13
Average Cost per Patient Ratio 14
Departmental or Service Ratio 14
Average (adjusted) revenue per day 14
Payer Mix Ratio 16
Other Benchmark Indicators 16
Productivity Benchmarks 16
Expense Indicators 16
Performance Indicators 18
Table 8-1: Key Financial Ratios 19
External sources for benchmarks 22
Measuring ROI 22
The importance of measuring ROI 22
Quantifiable areas 25
Weighing cost against the benefits 26
Interpreting the results 27
Conclusion 27
Chapter 9: Exploring Ownership Diversification Alternatives 2
INTRODUCTION 2
ALTERNATIVES TO THE TRADITIONAL MEDICAL PRACTICE BUSINESS MODEL 2
PARTNERING OPPORTUNITIES 5
INTEGRATION PRINCIPLES 10
POLITICAL RAMIFICATIONS 15
LEGAL CONSTRAINTS AND CONSIDERATIONS 17
Certificate of Need and Other Threshold Issues 18
Figure 9-1: American Association of Ambulatory Surgery Centers State Chapter Addresses 19
Figure 9-2: Accreditation Agencies 20
THINKING OUTSIDE THE BOX 21
BALANCING THE PRACTICE OF MEDICINE AND ROLE OF BUSINESS OWNER 22
THINKING RETAIL 26
EXPLORING A NEW TYPE OF ANCILLARY VENTURE 32
SUMMARY 41