Finding the Right Financing Partner is the Key toSuccess

As the landscape of healthcare delivery has shifted from inpatient to an outpatient focus, the number of ambulatory surgery centers has increased dramatically in the past 30 years. And as the industry has matured, development models have emerged that integrate the business and medical sides of healthcare. Partnership has become critical to success.

Developers such as Nueterra, ASCOA, USPI and National Surgical Care deliver better healthcare by partnering with local physicians and, in some cases, hospitals and healthcare systems. Some companies, like Surgicare and Regent Surgical Health, not only develop centers but turn around those in need of financial repair.

That partnership extends beyond developer and physician groups. A financing partner, whether it is a bank or a healthcare-focused lender, is also key to success in developing a successful ambulatory surgery center.

This extends from a single practitioner expanding his office to include an operating room to developers establishing a multi-specialty de novo center located in a newly constructed MOB.

MarCap and financing companies such as CitiCapital and CIT not only provide capital but expertise in the outpatient surgery arena. Banks, too, can be very good sources of capital because the relationships are local and they can often provide one-stop shopping.

When talking to a financing source, they will ask many questions and request considerable amounts of information. Yet it is important for you to interview the financing source as well. How well do they know the surgery center business? Do they have the breadth of products and services you may need today and down the road? Are they flexible and helpful?

Do they seem interested in growing with you? Who else do they work with? How do they typically structure transactions? Who will you be working with at the financing company? And even, what happens if the center runs into financial difficulty?

Normally, you will talk to two or three lenders and solicit proposals from each. And while you will be evaluating your options, the financing company or bank will be doing the same. Typically, you should expect to fulfill the following criteria:

• Prepare a solid business plan including realistic revenues and expenses. Doctor mix, and the number of doctor partners, is important too. Eight to 10 is a good number, as it provides an element of diversification, and more only strengthens your case. The business plan should review market size, projection and competition and provide plenty of background on the partners, staff and doctors. You should also have a solid pro forma showing proposed sources and uses of capital and projections to include procedures, local payor mix, related reimbursement and of course profitability. The key driver to the projections and success of the center is the number and mix of surgeons and the expected procedures to be performed in the outpatient center. After you have finished your business plan, test it with lenders for guidance. This input can be invaluable in building a relationship and strengthening your plan.
• Determine your risk profile. Banks often offer the lowest rates yet will normally require 100 percent personal guarantees. Often, healthcare-focused lenders offer more flexibility, either through non-recourse loans (no personal guarantees) or limited guarantees (joint or several). Risk assessment includes both invested capital and capital at risk through guarantees. Knowing your appetite for risk is important as it can often dictate with whom you choose to work.
• Invest in yourself. Lenders will expect you to invest 20 percent to 40 percent of the total cost of a surgery center. A four-suite center will run $2 million to $2.5 million depending on the locale and equipment needed. You will also need about six months of working capital in reserve, some of which could be financed.
• Find the right partners. Whether you are a doctor, a developer or a group of doctors, developing the right partnership is important to success. Everyone should have an incentive to perform and be part of the success of the center. The same goes for the financing partner you choose. Experienced developers learn from center to center and put that experience to work. Yet because of the local nature of a surgery center, each center is a new venture, and the same basic principles need to be applied each time. By remembering the keys to a successful project, you give yourself a better chance to succeed over the long-term.