A properly implemented initial physician syndication (e.g., selling equity to physicians) is critical to ensuring a successful and profitable facility. While an ambulatory surgery center (ASC) may consider syndication during its initial development and ramp-up stage, a maturing ASC should also constantly seek to syndicate to physicians. This would include syndication both to physicians who are not currently owners, but those that are utilizing the ASC, as well as to physicians who are not yet utilizing but would after the syndication.
The primary business issues in a physician syndication are: will the entity or existing owners sell; if existing owners, will all of them participate in the sale; how much will be sold; how will the purchase price be calculated; and will any changes be made to the ASC’s governing document (e.g., operating agreement).
Why Syndicate?
A general misperception in the ASC industry is that the longer an ASC is in existence, the more profitable it will become. The source of this misperception is based on the belief that as an ASC matures, its operations should become streamlined and efficient, thereby generating a greater profit margin. In reality, an ASC’s revenues and profit margins typically tend to erode due to departing physician owners as well as increased costs associated with new capital improvements.
Many older ASCs are saddled with physicians who first became owners as they approached the peak of their productivity and earning potential. As an ASC matures, these same physicians may now be nearing retirement or otherwise no longer utilizing the ASC as an extension of their practice. This can result in quite a one-two punch combination. First, the ASC is forced to buy back the departing physician’s ownership interests for what can often be a substantial sum of money (or be straddled with “dead weight” physicians if the ASC is unable to do so). Second, the ASC must sustain the revenue cut associated with a loss of the departing physician’s caseload.