Friday, October 25, 2024

Part 5:
Ambulatory Surgery Centers Investment

by Dr. Shakeel Ahmed

Part 5 of a 6 Part Series

For parts 1, 2, 3, and 4 of this series please visit PhysiciansOfficeResource.com/articles 

This is the fifth installment in our series of articles on establishing a multi-business portfolio. Having discussed Ambulatory Surgery Centers in the last edition, it’s time to move to a closely related entity, the Imaging Centers. Currently, there are approximately forty thousand medical imaging centers in the USA, performing more than a hundred million imaging procedures yearly. While tightly regulated by the same laws and forces that oversee the rest of healthcare, Imaging industry is unique in the sense that it allows a non-clinical person to have ownership in it. That opens the door to 300 plus million investors in the country.

Imaging, for the most part, is non-invasive. That allows the comfort factor to creep in when a patient chooses a center for their next test. While no one would opt for brain surgery at the cozy little office next to the mall, for an MRI that dogma flips on its head. Suddenly the imposing hospital seems overkill for a simple X-Ray. This convenience factor has created casualties for hospital departments witnessing hospital department “outmigration” to these independent diagnostic testing facilities, or IDTFs.

Covid helped turn the tables for IDTFs as well. I digress, but I will use a similar example to propound on that. Before the pandemic, telemedicine was seen as a vehicle for fraud. However, telemedicine has been legitimatized during the COVID-19 era. The same applies to all other healthcare concepts that seemed far-fetched previously, but now seem to be the norm. Outpatient procedures, convenient imaging and lab facilities far from the walls of the bug-infested hospitals, all are the rage now.

Additionally, site-neutral policies of third-party payors have hit the profit margin of the larger hospitals, many of which can no longer compete and certainly won’t see sense in upgrading their technology. The arrival of high deductible health plans and the regulation of price transparency will lower the costs further, and as out-of-pocket payments engender price-shopping, the elasticity of demand in the radiology and imaging healthcare areas will widen price discrepancies for a brisk competitive consumer landscape. In short, imaging centers are powerhouses. They are hard to compete with and hard to outperform.

In terms of financial performance, IDTFs are astounding in their contributions to the US economy. They generate $25 billion in annual revenue and employ over one hundred thousand people. They also have maneuvered into having lower costs than hospital-based imaging centers. This translates into cost savings for both patients and payors. Having one seems to fit all the criteria for a win-win proposition.

Diagnostic centers are varied, from standalone endoscopy to pathology centers to yet-to-be-defined versions that will come with the evolution of medicine. Imaging centers may be the most expensive due to the sophisticated equipment that must be purchased and maintained via expensive subscription maintenance plans. As expensive as they are to build and run, it may be surprising that these are among the fastest-growing types in the industry. There are, however, aspects to imaging centers you can take advantage of that are more conservative (and financially viable). For example, you can start a center specializing in just MRI or one of a dozen other modalities, e.g., CT, PET scans, etc. 

Cost

The beauty of imaging centers is, you can start small and then grow.  Growing it over time is the best strategy, especially since some imaging technologies have yet to be invented, while the ever-expanding literature keeps coming up with new reasons to use the equipment that is already in place.

Regarding construction costs, you are a captive audience to your zip code. Certain parts of the country have reasonable construction fees and supply costs, but others don’t. The following section on location discusses the desirability of where you will be located, but you have to balance what you can build and how much you can spend on where that is. And remember the mindset of excellence that must be part of your formula. 

Fixed Costs

If you’re playing imaging center Monopoly on Marvin Gardens instead of Baltic Avenue, your site will express a certain panache, but it will cost you more per square foot. These are fixed costs, determined by price per square foot based on industrial or retail zone pricing. If you’re placing your center in a building already constructed, we’re talking renovation. The amortization of your building over, say, thirty years is a fixed cost. So are the ten-year amortized big-ticket equipment items. Add the following:

• Building or renovation costs
• Architectural fees, which will likely be 20 percent of the building’s cost. Add that into your fixed annual cost as amortized over ten years.
• Certifications and inspections, another 2 percent
• Equipment
  • An MRI machine, at a bargain, will be $300,000; high-end ones can reach seven figures. A CT will be in the low- to mid-six-figure range. When the annual service contracts, which can be as much as $100,000 per machine per year, or amortized, it blurs the line between fixed and recurring costs.
  • A mammography unit can cost $250,000, but you must add the yearly service contract of $50,000 per year to your 10-year amortization. X-ray is $100,000 per digital machine, with another $50,000 per year in contractual servicing.
• Cloud data storage, which will cost about $18,000 per year, but as your data accrues, so will your annual costs.
• Furniture is part of your marketing because patients don’t want scraggly chairs. Plus, remember the desks, office furniture, etc. A few hundred thousand dollars will drop to around $20,000 per year’s amortization. 

Annual Recurring Costs

• Salaries:
  • radiologists (annually, each $400,000 + malpractice insurance + benefits)
  • technologists, e.g., ultrasound tech, MRI tech, mammogram tech, CT/X-ray tech (at $70,000 per tech, per year)
  • medical physicist for regulatory compliance ($60,000 to $180,000 depending on whether you share one or have them all to yourself)
  • a couple of secretaries at $50,000 per year
  • a business/marketing person for about $100,000 per year
  • custodial personnel for about $40,000 per year
• Insurance, another 1 percent
• Property taxes are around 2 percent of your building’s assessed value annually.
• Utilities ($40,000 annually):
  • water
  • heat
  • electricity
• 5 percent of gross revenue to experts to maximize revenue while avoiding Medicare fraud. (It happens!)
• Consumables, e.g., toilet paper, stationery, contrast media, disposable medical items (syringes, etc.), another $35,000, perhaps.

So, now we’re talking about up to $1.5 to $2 million a year to buy, build, renovate, and/or run it. Give or take. Amortized over ten or thirty years, depending on what’s amortized.

Everything quoted here is an example, pulled from our own experience in the field. 

Game-plan

Simple:

1. Get your money.
2. Just find a place to renovate or some land to build one.
3. Buy the equipment, then accommodate your site for the equipment (renovation).
4. Adhere to specifications for the diagnostic equipment requirements.
5. Meet building codes and regulations regarding everything from lead-lined rooms and other shielding to parking spots allotted. Don’t cut corners, or you’ll pay later.
6. Get approval from your investors and the local, state, and federal agencies whose blessings you need. Obtain a CON, if required by your state.
7. Set a reasonable timeline.
8. Hire someone who builds imaging centers.
9. Hire the staff.
10. Turn the whole thing on.
11. And simply maintain profitability via patient satisfaction and marketing. 

Caveats To Watch For

Some important points to consider when opening your own imaging center are;

• Patient Convenience: Your location must be visible; those who pass by and note your existence may contribute to your income someday. Visibility is the first (initial and innate) step in marketing. It must be easy to find, it must be easily accessible from major and recognizable roadways, and it must be easy to hop out of the car and walk right in. If failures in any of these merits occur, you may get a patient the first time (maybe), but you won’t the second. (Remember step eleven above.) Don’t forget public transportation considerations.
• Provider Convenience: Many IDTFs are located near hospitals, which offers benefits in subtle ways. First, referrals from adjacent office parks or the hospital can reach your facility easily. While this qualifies for the Patient Convenience bullet point above, the ease of patient compliance means physicians ordering the imaging are more likely to have their orders come to fruition. Chasing down noncompliant patients is a time- and money-waster. Also, if for any reason, the referring doctor needs to attend to the patient at the imaging center (e.g., allergic reaction, invasive procedures, etc.), a simple walk-to at lunch can prevent a provider from destroying their whole scheduled day. Additionally, if you’re near the hospital, many of your competitors will be, too, who cannot tout their convenience to patients over your own.
• Imaging Center Convenience: While this heading implies a certain anthropomorphism, it lends itself well as a cautionary tale. You don’t want to have to literally fight tooth-and-nail to fit into, for example, an office park and become its problem child—i.e., noise, PR over hazardous waste, hogging up parking due to high appointment turnover, and other things the neighbors will torture you over. After all, unlike the pediatrician next door, you can’t just pick up and move. Therefore, a standalone facility avoids such intramural unpleasantness at the get-go. 

Equipment

As a simplistic example, let’s consider buying an MRI, a CT scanner, an ultrasound unit, a mammogram/tomography unit, and X-ray equipment. The type of imaging equipment you plan to have will determine the requirements of each room and the imaging center as a whole.

As a whole and in its entirety, your imaging center must be able to accommodate portable equipment. This means leeway for going down halls and making turns into separate rooms. It would be best to consider special traffic “lanes” so that equipment doesn’t have to navigate through patients in the waiting or procedure rooms. 

Imaging has advanced. Gone are the days of simple x-rays and ultrasounds. You now have behemoths that need to be transported, installed, and activated. The advances in imaging modalities are astounding. Where these advances fit into building imaging centers is flexibility. Walls, conduits, even Wi-Fi has to be considered, and while things are smaller and niftier, they still have to battle lead-lined walls and other obstacles. This means that hardwiring is still a necessity. And so are the attendant electrical, plumbing, and HVAC paraphernalia.

The requirements of your equipment mandate planning for them before building or renovation. Also, you must make room for the future, and there are those who can help predict—as best they can—what that future holds. MRI shielding should be adequate to reduce interference from the outside and reduce noise from the inside. Proper shielding can reduce the number of scans you might have to redo because of improper shielding.

As an example of cost outlay, as mentioned above, an MRI machine can cost between $300,000 to over a million dollars, depending on whether you begin with a refurbished one or an advanced model. The savings on a used machine can be significant, and even the added expense of a maintenance contract will not exceed what you save. Right now, MRI is the crown jewel of imaging, so you want to weigh in carefully on how you proceed with your preferences.

This includes materials intrinsic to MRI technology. What you choose for magnetic shielding is driven by its cost versus performance. You can use cheap metal, but you may not realize any savings if you need more of it to match what more expensive shielding material does.

Magnetism, being so invisible (and powerful), can cause a broken machine, should someone blunder into the vicinity with metal. Expensive machines are also costly to fix, so a metal detector in the room’s foyer might not be overreacting.

Specific shielding is also required for CT scanners and even X-ray procedures, but mainly to protect people from becoming unintended targets of X-radiation. OSHA will be watching. 

The Digital

There is the hardware, and then there is the digital software. The flowsheet of how data and results will be stored, relayed, and collated is just as important in any construction. EMR (electronic medical records) is now reaching out to the patients to allow interactivity, so you’ll have to be up to speed on center-patient interfaces just as much as center-hospital interfaces and center-provider interfaces. Your financial viability and success also depend on a reliable billing and coding system. You need a team knowledgeable in the billing and coding process, including insurance requirements, reimbursement rates, and regulatory rules and regulations. This will help increase revenue and reduce the risk of denied claims. 

Time Money Coefficient

How many exits are there? How does your parking allotment jive with the expected patient turnover per hour? Will your sprinklers damage your MRI or CT? Will your place be ready for the fire inspector? Before it’s over, you’ll be familiar with the Americans with Disabilities Act (ADA). Among the governmental regulatory agencies, the ADA, the stakeholders’ grumbling, the SEC, and your patient (tolerant, not sick person) banker, what will finally emerge is the go-ahead to break ground. Unless you have all the degrees to master these issues, you will be up to your neck in experts. Because only an expert can deal with the problems, and if there are no experts, now it’s actually twice the problem. 

Breaking Ground

Construction is not on autopilot. It requires time well spent at the site of construction—daily. You may have a foreman; you may have a contractor. But they need to be liable for the mistakes, like the wrong nails. True, the time you make to be there will take you away from your practice or what you usually do for a living, but it’s time well spent, paying you a different way. And it’s gold reimbursed if it means you open on the day initially set on the timeline.

Any sizable and new construction will attract a certain amount of rubbernecking, especially if your location is choice among traffic streams and thoroughfares. Marketing can begin the day you break ground with the right newspaper press releases and a picture. After that, an attractive sign that promises what’s to come will jump-start your marketing before you even get your first image. You own the land, so use it before the slab is poured. Signage is an ongoing advertising campaign invited into public consciousness with each craning of a commuter’s neck. It won’t beat out a train wreck, but it should be there noticeably. 

Staffing

Staffing requires preliminary planning because your staff comes to you before patients make any appointments. If you already have a clinical presence in the community, professionals already know about your project. Their employers know that these employees may end up working with you, so the time to design lucrative and competitive salaries and perks should begin at the time of construction. You can get the word out if you have an organized networking machine.

Foremost, an imaging center relies on a team of highly skilled and experienced radiologists and technologists. The vetting process for board certification and the necessary credentials to perform imaging procedures you will offer will define the requirements. Accuracy in interpreting results and timeliness in providing them to referring physicians and patients are also part of the job; being professionals, you shouldn’t expect them to suffer any shortcomings in that respect.

While budgetary concerns may drive your initial forays into purchasing your equipment, it is also important to have state-of-the-art equipment and technology. This not only ensures that patients receive the best possible care, but it also helps to attract new patients and referring physicians via bragging rights. Investing in the latest imaging equipment, such as MRI and CT scanners and digital imaging systems, is essential. This can also help increase the center’s efficiency and reduce wait times for patients. The patients won’t know what strength tesla magnetic field is rearranging the hydrogen atoms in their bodies, but they will notice unreasonable wait times—for either their scan or their reports. As advanced as your equipment will be, it engenders the need for qualified staff to make it as efficient as possible. 

Income

Income is nice, but it must comply with all federal and state laws, e.g., Stark, HIPAA, etc. You will need policy manuals for each of these for your employees.

Another key aspect of running a thriving medical imaging center is building solid relationships with referring physicians. This can be attained by providing superior customer service, timely reporting of diagnostic results, and offering educational opportunities for physicians and their staff. Additionally, it is essential to have a well-trained and knowledgeable staff that can assist referring physicians with any questions or concerns. Their job is to make it simple for someone to send you business. The wrong employee can poison a lucrative referral source for the life of your imaging center. You can only have a good income with outgoing employees. 

Marketing

Marketing and advertising are also crucial to the success of a medical imaging center. You will be using traditional forms of advertising, such as newspaper ads and billboards, as well as digital marketing strategies, such as social media and email campaigns. It’s important to create a strong online presence easily accessible to patients and referring physicians. (See Chapter 10: Medical Marketing.)

You or someone delegated as such must continuously evaluate and improve the operations of the medical imaging center with regular reviews of financial performance, patient satisfaction, and quality of care. (Stars on websites are hard to recover once lost.) Continuous monitoring can allow necessary adjustments and fine-tuning to improve overall performance and increase patient satisfaction.

When it comes down to it, the final linchpin is the patient. But here’s the secret you won’t read about anywhere else: it is especially the female patients you want to please. It has been determined that women make most of the medical decisions for their families. If a woman has a good experience with you, your center will be her choice for when her mother needs a bone density determination, her husband needs a chest X-ray, her daughter needs an ultrasound, or little Billy needs a CT scan after that baseball zings him in the head.

To summarize, starting and running a medical imaging center requires strong business acumen and medical expertise. It is essential to have a team of highly skilled and experienced radiologists and technologists, state-of-the-art equipment and technology, excellent relationships with referring physicians, successful marketing and advertising, robust billing and coding systems in place, and an obedient (to regulators) compliance program. The work up front is time consuming, but the end product is easier to run and manage as a profitable venture compared to other, more stringently controlled healthcare entities.

Spanning two decades, Dr. Shakeel Ahmed, a gastroenterologist turned healthcare mogul, has transformed his vision into the Midwest's leading Ambulatory Surgery Centers network. His dual expertise in medical administration and surgical execution-gained from years of frontline experience-has been pivotal in mastering the complexities of the healthcare sector. Dr. Ahmed's notable contributions extend beyond the ASC sphere; he has played a key role in developing a comprehensive healthcare network, including a range of medical facilities, diagnostic centers, and surgical establishments across several states. His literary contributions includes 6 published books alongside hundreds of articles in prestigious national and international journals. He is a consultant for multiple governments on healthcare development and works as an advisor to various governments across four continents in the establishment of outpatient surgery centers.