Provided By Tim Beldner, Partner, Regional Director at Larson Financial Group
Hospital syndications and ambulatory surgery centers are increasing in popularity since the implementation of healthcare reform. Outpatient surgery programs reflect the shift in healthcare away from a la carte pricing for medical treatments toward the bundled, value-based payments sought by insurers. Patients are also drawn to the convenience – and frequently lower prices – of the centers.
The best work environments establish principles that encourage responsibility, collaboration, continuous improvement and shared benefits. Vesting ownership derives from the belief that a broadly owned facility may enjoy greater utilization than a centrally-owned facility. Implementation of a plan to broaden physician ownership requires compliance with legal and regulatory guidelines, but vesting minority ownership in persons who can contribute to the entity and reap the profits has proven to be an effective business strategy.
Assessing the Opportunity
As a physician, your high net worth affords you the opportunity to consider investment options that are prohibited from being sold to the general public because they are considered to be too risky. Being an accredited investor isn’t always as advantageous as it sounds. However, your status as a credentialed physician (not your income) can often grant you access to investment opportunities such as surgery centers or other types of ancillary service centers.
Ancillary services can generate additional revenue for physicians so that they are less reliant on seeing more patients to boost their income. The ancillary options available to you will depend on your specialty and how often you are referring patients elsewhere. When developing a strategy for which ancillary services to offer, you’ll want to assess what business you are referring out the door the most and make that the priority. Hospitals also consider physician practice ownership as a means of implementing a profit sharing plan among those with a direct effect on the outcome.
When considering ownership of ancillary services, these three questions should be evaluated during the decision making process:
- Does the opportunity have a business model that makes sense, and does the financial data support it?
- What is your exit strategy in the best-case and worst-case scenarios?
- Is the potential return worth the risk?
Weighing the Risks
To clarify the first issue, it is helpful to examine the historical income statements, balance sheets, cash-flow statements and any other historical financial records up front. Calculating the financial ratios for the service in question and comparing it to similar business will allow you to more accurately diagnose whether the physician practice management opportunity makes good business sense.
Your exit strategy is something to evaluate prior to entering any kind of business relationship. The best business opportunities are those that offer little risk in terms of how the exit strategy will impact you personally. For example, if you are selling your medical practice, will the buyer also want to acquire the ancillary business you have established? Taking this and other factors into consideration will allow you to determine how much flexibility you will have when the time comes to divest.
Finally, determine whether the potential reward is worth the risk. Generally, it is not worth the loss of liquidity on any of these services unless you expect 15% or more return on the investment. A surgery center that returns only 8% profit each year would probably not be worth the risk unless you have reason to believe that your group’s involvement would generate enough additional surgeries to increase the profit margin.
While the open market offers long-term opportunities to be rewarded for the risks that are taken, having direct access to additional revenue on the work you are already generating can also be profitable. Just like with any other investment, diversification remains paramount. As such, it is not recommended to tie up too much of your portfolio in any of these alternative investments. Every situation is unique, so it’s always a good idea to have the asset distribution of your investments reviewed by a qualified financial professional with knowledge of your individual circumstances.
Information gathered from sources believed to be reliable but is not guaranteed. Any information or opinion contained herein should not be construed as an offer, recommendation or solicitation to invest. Information provided is not to be deemed tax or legal advice. Consult your legal, tax and investment professionals for personalized advice.
Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.