7 steps to get a spine surgery center off the ground

Practice Management

For those who have always dreamed of developing their own spine surgery center, the time to act is now.

Low back pain rates as the No. 1 disability among patients less than 65 years old and roughly 31 million Americans experience back pain at any given time, according to Kenneth Hancock, president and chief development officer of Meridian Surgical Partners, who spoke at Becker's ASC 23rd Annual Meeting: The Business and Operations of ASCs in Chicago.


Analyses show this market is not yet saturated. An Sg2 analysis from 2014 projected 22 percent growth in outpatient spine volume over the next decade, according to Mr. Hancock. In particular, minimally invasive technologies and techniques are a major market driver. "I would surmise if you're not involved from the ambulatory perspective as it relates to minimally invasive surgery, then you'll get left behind," Mr. Hancock said.


Mr. Hancock outlined the following seven steps to develop a spine surgery center.


1. Project scope. The first step in the process is to decide the scope of your project. This will help determine cost, which in turn helps dictate the investment. The scope includes the number of physicians you plan to have in your center, their case volume and specialty mix. Those factors will drive the number of operating rooms, as well as pre- and postoperative rooms you will need and ultimately the square footage of the center, according to Mr. Hancock.


2. Surgical case volume and mix. For this step of the process, Mr. Hancock suggested using a spreadsheet to track volume by CPT code and advised using discounted case volumes to give yourself some latitude. The next step is to determine the market-specific reimbursement per case. Multiply this and volume to determine revenue.


3. Financial analysis and plan. The revenue based on surgical case volume and mix can be combined with historical cost data to form the foundation of a detailed financial analysis, which should include case count, reimbursement, supply costs, full-time equivalent count, other operating capital expenditures, working capital and debt service, Mr. Hancock said. It is crucial for surgery center owners to examine costs, including working capital, which can be raised with equity; and construction and equipment costs, which can be leveraged with debt from a local bank, according to Mr. Hancock. He said owners should expect to need anywhere from $1 million to $2 million to get their operation off the ground. "You will not have revenue coming in the door, so you will burn through funds," he said.


4. Partnership structure. Next, owners need to set up the ASC operating entity and real estate partnership structure. A real estate partnership captures the land purchase, site, utilities and fees allowance and includes physicians from the ASC partnership. The surgery center partnership includes physician owners and potentially a management partner. "We encourage our physician partners to park some money here, pay themselves and create some equity value over the term lease," Mr. Hancock said.


5. Reimbursement. "Getting paid is a critical step in the business plan," Mr. Hancock said. "You can do all the planning in the world but if you can't get paid, it's for naught." This step requires contracting with commercial payers. Medicare has also created fee schedule for outpatient spine procedures and total joint replacement in recent years, which can be a blessing and a curse. "Now that CMS has endorsed this is good news, but the bad news is some of these don't pay enough money to be cash-producing," he said.


6. Equipment. Another cost to consider is implants and equipment. Implants are a huge cost and Mr. Hancock advised having solid cost data when negotiating with payers, or off-loading implant costs to a third party. For equipment costs, he suggested using an experienced equipment planner to assist with those decisions and the financing. "It's well worth the money you spend," he said.


7. Operations. In terms of staffing, Mr. Hancock advised hiring nurses experienced both with spine procedures and with your specific surgeons. This will make a significant difference in terms of pre- and postoperative treatment. Lastly, owners should implement a rapid recovery model, either by partnering with a skilled nursing facility, home care agency or even a commercial hotel coupled with a personalized nursing service.


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