Building a Spine Surgery Center Concept to Operations

Transcription

1 Performance, Efficiency, Achievement, Knowledge Building a Spine Surgery Center Concept to Operations Becker s ASC 23 rd Annual Meeting Oct The Business and Operations of ASCs Kenny Hancock, President and Chief Development Officer Meridian Surgical Partners

2 Table of Contents Spine Market Market Drivers Essentials for Success Business Plan Operations Plan Operations Key Considerations Recovery Inn 2

3 Spine ASC - The Market Drivers

4 Market Drivers Spine ASCs Minimally Invasive Mindset Physicians Patients internet search Minimally Invasive Industry less invasive technology Technology Surgical - implants, instruments and techniques Anesthesia Ability to eliminate nausea Pain control Post-surgical Recovery Options Skilled facilities Home care Hotel with home care Insurance Company Acceptance Safe to perform in an ASC setting Superior environment & less expensive than the hospital alternative High quality patient outcomes 4

5 5 ASC Spine Forecast

6 Growth Outlook Spine/Ortho Growth Outlook by Surgical Procedure ( ) Spinal Decompression / Laminectomy 27% Vertebral Augmentation 25% Fusion Surgery 23% Orthopedic Out-Patient Surgery 16% 6-5% 10% 15% 20% 25% 30%

7 The Essentials for Success

8 8 The BIG Idea where do you go from here?

9 Develop a Detailed Business Plan Detailed Business Analysis Project Scope Surgical Case Volume & Mix Financial Analysis and Plan Partnership Structure Reimbursement - Managed Care Strategy Equipment Plan Operations Plan 9

10 Financial Analysis

11 Project Scope Determine the Scope of the Project The Scope Determines the Cost The Cost Determines the Investment Number of Physicians Case Volume Specialty Mix Scope Number of Square Footage ORs/Pre-Post Square Footage Working Capital Pre-Opening Expenses Construction Cost Equipment Costs Cost Equity Debt Investment

12 Summary Financial Analysis Surgical Case Analysis Determine Volume Complete case data worksheets Discount case volumes Determine Reimbursement per case Market Specific Determine Revenue Volume times Reimbursement Use historical cost to build financial model 12

13 Spine and Pain Management Worksheet Primary CPT DESC Spine Discectomy Neck spine disk surgery Low back disk surgery Neck spine disk surgery 0 0 Laminectomy Removal of spinal lamina Removal of spinal lamina Removal of spinal lamina 0 0 Laminotomy Laminotomy single cervical Laminotomy, single lumbar 0 0 Corpectomy Remove vert body dcmprn crvl Remove vert body dcmprn lmbr 0 0 Vertebroplasty Percut vertebroplasty thor Percut vertebroplasty lumb 0 0 Kyphoplasty Percut kyphoplasty thor Percut kyphoplasty lumbar 0 0 Cervical Cerv artific diskectomy 0 0 ACDF Neck spine fuse&remov bel c2 - Level Addl neck spine fusion - Level ALIF Lumbar spine fusion - Level Additional spinal fusion - Level ALIF & Posterolateral 22612/22558 Lumbar spine fusion - Level /22558 Spine fusion extra segment - Level PLIF/TLIF Lumbar spine fusion - Level Spine fusion extra segment - Level PLIF/TLIF Lumbar spine fusion combined - Level Spine fusion extra segment - Level Posterolateral Lumbar spine fusion - Level Spine fusion extra segment - Level

14 Spine and Pain Management Worksheet Pain Injections Inject sacroiliac joint Inject spine cerv/thoracic Inject spine lumbar/sacral Inject spine w/cath lmb/scrl Inj foramen epidural c/t Inj foramen epidural l/s Inj paravert f jnt c/t 1 lev Inj paravert f jnt l/s 1 lev 0 0 Discography Inject for spine disk x-ray Inject for spine disk x-ray 0 0 Nerve Blocks N block inj intercost mlt N block stellate ganglion N block lumbar/thoracic 0 0 Facet Destroy cerv/thor facet jnt Destroy lumb/sac facet jnt 0 0 Pain Stim Implant neuroelectrode - Trial Implant neuroelectrodes Remove spine eltrd perq aray Remove spine eltrd plate Revise spine eltrd perq aray Revise spine eltrd plate Insrt/redo spine n generator - Perm Revise/remove neuroreceiver

15 Summary Volume Volume Details Provider Hand Pain Spine Total Gianikis Smith Eppley Jones Ray Dicks Factor Toms Makey Total ,911 2,291-25% -50% -75% Discounted Hand Pain Spine Total Gianikis Smith Eppley Jones Ray Dicks Factor Toms Makey Total

16 Revenue Assumptions Revenue Assumptions Case Volume Year 1 Year 2 Year 3 Year 4 Year 5 Hand Pain Management Spine Total Reimbursement Year 1 Year 2 Year 3 Year 4 Year 5 Hand 1,863 1,900 1,938 1,977 2,017 Pain Management 13,956 14,236 14,520 14,811 15,107 Spine 11,493 11,723 11,958 12,197 12,441 Total 11,631 11,903 12,141 12,384 12,632 Net Revenue Year 1 Year 2 Year 3 Year 4 Year 5 Hand Pain Management 1,479 2,444 2,518 2,594 2,672 Spine 3,448 5,683 5,855 6,032 6,214 Total 4,967 8,187 8,434 8,689 8,952 Net revenue in thousands 16

17 Project Assumptions Project Assumptions Facility Size Debt Financing Uses of Capital Square Feet 12,000 Capital Expenditures 2,800,000 Capital Expenditures 2,800,000 Operating Rooms 3 Construction Costs 2,160,000 Working Capital 1,246,250 Procedure Rooms 1 Other Fees and Expenses - Pre-Opening Expenses 253,750 Total Debt Financing 4,960,000 Design and Construction 2,160,000 Construction Costs Total Uses 6,460,000 Build-Out Costs per SqFt 225 TI Allowance 45 Debt and Lease Terms Sources of Capital Build-Cost to Partnership 180 Debt 5.00% 8 Years Physicians 70% 1,050,000 Construction Costs 2,160,000 Building Rent Rate (per SF) $28.00 Corporate 30% 450,000 Total Equity Financing 1,500,000 Capital Expenditures Investment Terms Debt Financing 4,960,000 Medical Equipment 2,500,000 Price pre Unit $ 15,000 Total Sources 6,460,000 Computers & Software 150,000 Available Units 100 Furniture & Fixtures 150,000 Total Equity Financing 1,500,000 Total Cap Ex 2,800,000 17

18 Summary Financial Analysis Construct a free cash flow analysis is to view the opportunity from a realistic, yet conservative, set of assumptions Free Cash Flow Analysis These assumptions include: Case Count Reimbursement Supply Cost FTE Count Other Operating Capital Expenditures Working capital and debt service Free Cash Flow (In Thousands) Year 1 Year 2 Year 3 Net Revenue 4,967 8,187 8,434 Salaries and Benefits 982 1,016 1,052 Medical Supplies 1,615 2,676 2,770 Rent Expense Management Fee Other Operating EBITDA 1,369 3,265 3,346 Debt Service (543) (754) (754) Capital Expenditures - (28) (42) Changes in Working Capital (740) (479) (36) Free Cash Flow 87 2,004 2,514 Per Case Data Year 1 Year 2 Year 3 Case Volume Revenue 11,631 11,903 12,141 Salaries and Benefits 2,299 1,477 1,514 Medical Supplies 3,782 3,890 3,988 Percent of Revenue Year 1 Year 2 Year 3 Salaries and Benefits 19.8% 12.4% 12.5% Medical Supplies 32.5% 32.7% 32.8% Rent 6.8% 4.2% 4.2% EBITDA 27.6% 39.9% 39.7% Distribution Analysis (In Thousands) Year 1 Year 2 Year 3 Free Cash Flow 87 2,004 2,514 Beginning Cash Balance 1, Minimum Cash Balance (300) (100) (100) Distributions 1,063 2,204 2, Year Investor Returns Analysis (In Thousands) Year 0 Year 1 Year 2 Year 3 Investor Cashflow (1,500) 1,063 2,204 2,514 Annual Return 70.9% 147.0% 167.6% Cumulative Return -29.1% 117.8% 285.4%

19 Next Steps Develop Business Plan Project Scope» Initial project scope determined 3 OR 1PR 12,000 sq. ft. Surgical Case Volume & Mix» Surgical case volume by surgeon must be collected Financial Analysis and Plan» Volume drives scope scope drives cost cost drives investment» Revenue assumptions by market determined by Managed Care Group» Summary financial analysis» Project assumptions -- may change as project is fully defined but create a range Partnership Structure» Set up LLC for Real Estate LLC» Set up LLC for ASC Operating Entity Reimbursement - Managed Care Strategy Finalize strategy Equipment Plan Determine equipment needs with surgeons Operations Plan Determine design and flow of ASC with surgeons. Staffing & HR plan, med-devices/products, financing plan, revenue cycle, marketing, etc. 19

20 Spine ASC & Real Estate Partnership Structure

21 Partnership Structure Real Estate Partnership 15 year lease ASC Partnership Real Estate Partnership Separate partnership is usually formed RE partnership captures land purchase, site, utilities, fees & permits, shell building and tenant construction allowance Includes physicians from the ASC partnership Investment: Land ($6.50 to $14.00 sq. ft.) 1.54 acres ($436-$939k) Site Improvements/AE/soft costs - ($30 sq. ft.) Building Shell ($110 to $125 sq. ft.) TI construction cost allowance ($45 sq. ft.) Investment Thesis: year lease term with personal guarantees (5-7yrs) Investment: (MOB w/asc)» Equity: 30% -- Debt: 70%» Guarantees pro-rata Cash-on-cash returns 15% to 25% over 15 year term

22 Partnership Structure Real Estate Partnership 15 year lease ASC Partnership 22 Surgery Center Partnership ASC partnership Physician owners + management partner Investment includes: 12,000 sq. ft. Interior construction cost» $180 sq. ft. ($2.160M) WITH Allowance of $45» TI allowance - $45 sq. ft. ($540k) (RE provides) Equipment Computers FFE ($2.8mm) Working capital ($1.5mm) Investment Thesis: Total investment: $6.460mm Equity: $1.5mm 1% pro-rata $15K Debt: $4.96mm Guarantees -1% pro-rata - $49.6k 15 year lease term Cash-on-cash returns 90% +

23 23 Development of Spine & Orthopedic ASC

24 24 Planning - Schematics

25 25 Spine & Orthopedic ASC

26 26 Spine & Orthopedic ASC

27 What Must be Considered?

28 Reimbursement Make Sure You Get Paid! Reimbursement Getting paid is a critical step in the business plan Spine procedures historically not approved by Medicare 2015 Medicare approved 9 spine codes» Neck spine fuse & remove belc2» Neck Spine fusion» Lumbar spine fusion» Neck spine disc surgery» Low back disc surgery» laminectomy single lumbar» Removal of spinal lamina» Removal of spinal lamina» Decompress spinal cord 2016 Medicare approved 4 spine codes» 0171T (Lumbar spine proces distrac)» 0172T (0172T (Lumbar spine process add)» (Remove spine lamina 1 thr)» (Decompress spinal cord thc) Must continue to convince the insurance companies these procedures are safe in an ASC Insurance companies are beginning to develop ASC fee schedules for spine and TJR This is a negotiation between the ASC and insurance companies Medicare approved 8 additional spine codes» Autograft for spine surgery» Autograft for spine surgery only (morsel add-on)» Autograft for spine surgery only (struct add-on)» Arthrodesis, anterior interbody» and Posterior non-segmental instrumentation» Anterior instrumentation (two and three vertebral segments)» Application of intervertebral biomechanical devices Becomes a major problem if OON is prohibited and you can t get a contract 28

29 Implant Cost Implant Costs Addressing implant cost is essential Negotiate carve-outs Having solid cost data is important when negotiating with the payors Off-load implant cost to a third-party company 29

30 Equipment Considerations Equipment Costs Hire an experienced equipment planner to assist Expense up to $700-$1mm per operating room Microscope - $80-120k C-arm - $150k Drill set - $30,000 Spine instrument trays cervical and lumbar $50k+ Lumbar table $75-100k 30

31 Operations Staffing Staffing Hire a staff that has spine Hire a staff that has worked with your surgeons Understanding the challenges and needs of the patients pre and post-operatively will make a significant difference in success out of the gate 31

32 Rapid Recovery Model

33 Operations Rapid Recovery Model Skilled Nursing Discharge patient to rapid recovery center Hotel-like amenities Licensed as a skilled or immediate care facility Transportation Pain protocol developed Physical therapy plan developed Home Care Develop a program with Home Care Patient plan after discharge to home or hotel Pain protocol developed Physical therapy plan developed Develop a process that produces high patient satisfaction 33

34 34 Recovery Inn

35 35 Recovery Inn

36 Summary Spine Surgeons are evaluating opportunities to develop/join ASCs Driven by desire to control their surgical environment Increase productivity, simplify their lives No change in what you do --- just where you do it Incremental cash flow increase their income Advancements in technology drive Spine into an outpatient setting MIS product and instrument design Improvements in anesthesia and pain control Evolution of surgeon acceptance and comfort in an outpatient setting Planning is essential for a successful outcome Careful business plan development is critical Seek assistance from professionals with specific experience 36

37 Thank You! Kenny Hancock President & Chief Development Officer Meridian Surgical Partners (M) 37