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OBL & ASC Business: Starting Up & Navigating Market Forces
Zachary Schmitz • Feb 1, 2024 • 37 hits
Independent OBLs and ASCs undergo a rigorous startup process. Physicians that want to make it on their own in a new OBL or ASC will deal with business and administrative hurdles that extend beyond their medical training. Developing confident financial projections, overseeing major construction projects, and ensuring compliance with regulatory requirements are among the major challenges of starting up a new interventional practice. It follows that even the most ambitious physicians can get stuck in analysis paralysis when trying to make the leap to independence.
Teri Yates is the CEO of Accountable Physician Advisors, a firm that partners with OBLs and ASCs to help them succeed in starting up and maintaining long-term financial viability. Throughout this article, Teri shares pro tips for doctors in the startup phase of their OBL / ASC, including how to get past the pro forma stage, the value of proactive regulatory reviews, and how to navigate unforeseen market forces.
This article features transcripts for the BackTable Podcast. We’ve provided the highlight reel here, and you can listen to the full podcast below.
The BackTable Brief
• Doctors are occasionally stuck in the pro forma stage of starting up a practice due to analysis paralysis in relation to their numbers. A feasibility study can help calm fears associated with starting up a practice. Another factor contributing to analysis paralysis may be unease related to potential alienation of a hospital that a doctor has been practicing at for some time.
• Construction delays and distractions are common challenges for those attempting to independently build an OBL, often leading to extended timelines. A crucial step in OBL development is conducting a regulatory review, including state-specific accreditation, licensure requirements, and office-based surgery rules.
• Certificate of Need (CON) regulations can pose significant barriers to ASC development in certain states, but do not typically apply to OBLs.
• There is a noticeable trend of growth in vascular surgery and IC practices opening OBLs and ASCs compared to IR, mostly due to hospital privilege challenges for IRs. A future possibility is more multi-specialty groups in endovascular disciplines, driven by changing physician demographics and the need for collaborative, comprehensive care.
Table of Contents
(1) Overcoming Analysis Paralysis in the Startup Phase
(2) Startup Timelines & Regulations
(3) OBL & ASC Market Breakdown: IR, IC, and Vascular Surgery
Overcoming Analysis Paralysis in the Startup Phase
Analysis paralysis in the pro forma stage of a startup practice is relatively common amongst physicians that want to go independent. Aspiring OBL or ASC owners may find themselves jumping back and forth between different planning steps, unsure of how to take the next step or concerned about risk. To help mitigate fears that can arise during the pro forma phase, Teri’s firm conducts a feasibility study to give physicians an experienced opinion on what they can expect to accomplish with their plans. Broader issues may also interfere with moving past the pro forma phase of a startup practice. As an example, a board may delay sign-off of a building project for an extended period of time.
[Dr. Aaron Fritts]
Yes, it's true. I wanted to touch real quick on the doc who is back in that planning stage, they're excited, whether it's them or a co-founder or a group of docs, they want to go out and do it on their own. They want to build an OBL. What I've seen happen, and I've had a couple of people that told me to ask this because they knew I had you coming on, was what do you do in the case of analysis paralysis where the docs, they're in that pro forma stage and they just can't get out of that pro forma. They're going back and forth about the numbers and they can't seem to get that momentum to take the next step. A, do you see that often, and B, what do you do for those docs that are stuck in that kind of stage?
[Teri Yates]
I don't see that often because our process for doing the feasibility study leads to an end point where it's so rigorous that they feel like I can do this or I can't do this at the end, because we've really got it nailed down. It doesn't take a long time to do that. I mean, usually like four weeks, right? For us, what I do sometimes see, especially with interventional radiologists, is everything looks good in the pro forma, but there are broader issues within the practice that interfere with moving forward. It's not only interventional radiology.
I mean, we did a feasibility for a vascular surgery group that they were really a vascular surgery section within a very large multispecialty surgery group that their board wouldn't sign off on building their OBL for four years. That's the longest pause I've ever had in one of these projects. They did eventually gain the support from their colleagues and build a coalition to get the project going. We've had a lot of very motivated IR physicians that convinced leadership to at least examine the situation, but when push came to shove, the DR members of the group were too afraid to alienate the hospital to move forward.
I get that because I was in radiology for a long time, but that's something that usually happens. We don't see people get stuck and just say, "I'm not sure if I can do this."
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Startup Timelines & Regulations
The average startup time for a new practice is approximately six to nine months for an OBL and often longer for an ASC. Most physicians leave hospital employment for the ability to practice medicine independently. However, a potential problem with the independent practice approach is that operating money is lost each week when the business is unsuccessful.
Financial losses may be exacerbated by unexpected regulatory delays. A regulatory review can help physicians know state accreditations, licenses, and state medical board imposed requirements. CON (certificate of need) can pose barriers to ASC development in certain states. Teri gives one example of a case where an architect inexperienced in ASC design failed to do the proper regulatory analysis. Halfway through construction, the practice found they were unable to receive accreditation, requiring them to pivot and function as a very expensive OBL rather than an ASC.
[Dr. Aaron Fritts]
Got it. Yes. I mean, and then there's other things that can kind of throw a wrench in the gears like construction. Right? I've seen that happen where they want to own it, they want to build it on their own, but for whatever reason, construction gets delayed, distractions happen. How often do you see that sort of stall a project?
[Teri Yates]
Well, a lot, especially for do-it-yourselfers. We know that on average, it's about a six to nine month project start to finish to start a new practice and turn up an OBL. ASCs are longer. We've seen that there are some people who try to do this themselves and they work on it for quite a while. Then at some point, they start to get nervous that, "What if I'm forgetting something?," and they'll call us. Those people, you know, usually I think they're doing it because they want to save money, but also they want control, which is appropriate, right?
A lot of the reasons that people are leaving hospital employment or leaving a group is because they want the ability to do it their way. The opportunity cost is problematic because they have to factor in how much money they're losing every week that they're not operating a successful business. You have to go in the right order with the steps, and I think that's key.
We talked about financial feasibility, but you've got to do a regulatory review before you start of what's required in your state. I can't believe how many people have not done that, that have existing OBLs. You have, in some states, accreditation requirements, in some states, healthcare facility licensure requirements. In almost all states, the state medical board may impose certain requirements. If you're giving sedation, there are office-based surgery rules. You have to understand that before you start. You should understand that before you start. Then, you're right, the real estate side of these equations can be very, very challenging, and you have to make thoughtful decisions about, "Am I going to lease? Am I going to own real estate? Does it make sense to own real estate as phase one? Is that too big a lift financially? Should I start shorter term with a lease?" All of those things require analysis and, you know, they're not easy decisions, but that's part of what we do is try to help people move through that and make the right choices and do it so efficiently.
[Dr. Aaron Fritts]
Remind me, what is it, I think Nashville has this, it's like a certificate of need or a proof of the patient population actually needs an OBL in that area.
[Teri Yates]
So that's pertinent to an ASC. I'm not aware of any states where there's a certificate of need in place for an OBL because an OBL is just your practice, right? It's just a part of your practice. Most of the regulatory standards that could affect an OBL, and in some states there are none, but most of them are more oriented around patient safety. In the ASC market, many states do have a certificate of need where you have to prove that there's a community need. You may be defending your application against hospitals that are contesting it. Some states, Ohio doesn't have any certificate of need. You can do what you need to do, but there are guardrails and safety standards. In some states, Tennessee is a very difficult place to build an ASC.
[Dr. Aaron Fritts]
Yes. I've heard of that bit, stalling people. Have you ever seen it where somebody actually builds something out and then they realize after the fact that they need a CON in that city?
[Teri Yates]
I've not seen that, but I will tell you, and this was just tragic. We got hired by someone to do their billing. It wasn't a consulting client, and they had a brand new OBL, and as I got to know them better, I learned that the architect they hired was not experienced in ASC design, and they hadn't done the proper regulatory analysis. They thought they were building an ASC. Their business plan was predicated on doing procedures that could be done in an ASC, and they found out halfway through construction, they would never be able to get accreditation. What they ended up with instead is a very expensive OBL with less patients than their original projection because some of those cases weren't OBL-appropriate. Brutal, right?
[Dr. Aaron Fritts]
Yes, that is brutal. Do you just help them plan for expansion or-- I mean, building a new, a fresh site or they just continue business as usual? I mean, I understand you didn't get hired as an advisor, but what would you advise them if that was the case?
[Teri Yates]
Well, obviously you have capacity in terms of location, but you can make some operational decisions in terms of how much of that capacity to staff, how much equipment to buy. In that case, if you don't have enough volume to meet the original capacity, then you start having to try to shrink down equipment and personnel and use what you can to do what you can, but it's a bad outcome.
OBL & ASC Market Breakdown: IR, IC, and Vascular Surgery
Vascular surgery and IC practices are more commonplace compared to IR. Teri Yates is of the opinion that DR relationships, issues with hospital privileges, and exclusive contracts limit growth for successful independent IRs. Consequently, IR often integrates into existing vascular surgery groups, labeling IR as an emergent avenue of practice. An upcoming problem in vascular surgery could be demographics. 44% of vascular surgeons, 16% of ICs, and 26% of IRs are over 55 years old. A compounding problem to the falling vascular surgeon population is less IRs training into the discipline. To counteract falling demographics, Dr. Fritts’ outlook is that over time IRs will break from DR and enter collaborative groups that practice both DR and vascular surgery.
[Dr. Aaron Fritts]
Yes. I wanted to ask you, actually, I meant to do this at the beginning. What is the breakdown that you see out in the OBL/ASC space of IRs, ICs, and vascular surgeons? Is there one that you see opening up more than the others? Have you noticed a trend recently?
[Teri Yates]
In my practice, we have observed a lot more vascular surgery and interventional cardiology practices than IR. I know there's some highly successful IR OBLs out there, but still, I think the problems with their DR relationships or hospital privileges and the exclusive contracts have limited that. I also would comment that I see a lot more progress on that front in the last year or two. In fact, we're working on an OBL for a physician group. It's radiology group right now. We also are seeing more integration of IR into existing vascular surgery groups. Two of my vascular surgery clients have hired IR physicians this year. I think the growth area may be a little bit more emerging for IR.
[Dr. Aaron Fritts]
Yes. The whole hospital privileges thing is super challenging and the bizarre, the strange relationship with DR. You've experienced a variety of different practice types. What's your outlook on the future and collaboration of the endovascular specialties?
[Teri Yates]
I expect to see more multi-specialty groups. I think it's inevitable because vascular surgery has a big demographic problem. They're going to need both integrated into their own practice and collaborative with other physician practices. They're going to need a lot more hands on deck to do the catheter work that can be done by other specialties. I was reading some data about this from the AMA. This is as of 2021. It might be a little different now, but there were just over 4,000 vascular surgeons and interventional radiologists, about 4,700 interventional cardiologists, but the difference is 44% of the vascular surgeons are over 55 years old, 44%.
Only 16% of the interventional cardiologists are over 55 years old, 26% of the interventional radiologists. Do the math. They're in a tough position demographically, and they're also not bringing out as many new doctors every year. It really points to the need for all of these specialties to be actively involved in providing endovascular treatment, in my opinion-
[Dr. Aaron Fritts]
-and working together. That's some great information, Teri, because I did hear something about how they weren't training as many vascular surgeons in residency, how the training programs had kind of shrunk down in size. Yet, IR was supposed to be starting to crank out more IRs, and so they were thinking that that was going to maybe lead to more endovascular care. Clearly, you still need open vascular surgery options, right? I mean, you need the comprehensive care. It's great to see practices like Jim Melton and Blake Parsons, Chad Laurich, Neal Khurana, Krishna and his new partner, Dr. Khayat, these multidisciplinary vascular surgery IR teams and sometimes involving ICs. I totally agree with you. I think that's the future.
I think that over time, IRs are probably going to start continuing to break off from diagnostic radiology and even come out of practice and join the vascular surgery group or just whatever, a collaborative group that was founded with both. I think that's the future. Unfortunately, we just had this New York Times article come out recently that was kind of just mudslinging towards the OBL/ASC space. There's bad players in every specialty, right? I didn't think that the article really helped the endovascular specialties. I felt like it hurt them. I just hope to see more collaborative efforts going forward. I felt like that it was a step back for us. Care to comment on the article and what your thoughts were?
[Teri Yates]
Yes. I mean, there's more I could say about this article than we have time for. It was very discouraging in a lot of ways, but I will say this. Obviously, one of the big takeaways has been the subsequent fallout that centered around interventional cardiologists and interventional radiologists and their ability to provide the whole continuum of care on their own, because patients sometimes need surgery. Sometimes, the first indication is surgery instead of endovascular therapy, and sometimes your patients that have endovascular therapy ultimately need a surgery at some point. It's been disappointing to see some of what's been written that seems very territorial and exclusionary.
I want to say that I feel encouraged by the fact that I don't think that seems to represent how most physicians I know feel. Just even yesterday, I was at an OEIS regional chapter meeting, there were probably at least 20 docs, including Dr. Mustafa, talking about the article and what the call to action should be in light of that. The prevailing theme throughout was, we should not be demonizing each other. We need to be working together to provide quality care for patients. I find that most of the people I know looking to find ways to work together, instead of battling over turf, encouraging and optimistic. I just wish that that was more visible.
[Dr. Aaron Fritts]
Yes, totally agree. Well, any final thoughts, Teri, anything that we didn't get to that I didn't ask you about that you want to get across to the audience?
[Teri Yates]
I think we've covered a lot today, and I think the main thing that I would want physicians to understand is that it's possible to be successful in private practice. It's possible to be independent. There are a lot of people that think that consolidation is inevitable, that there's no path forward for the future other than hospital employment or employment by a private equity firm, but there are people that are well-suited to own their own businesses. Those are the people that we are really excited about helping do that, but it's not inevitable.
Private practice is not dead. That's what I want people to know.
[Dr. Aaron Fritts]
Yes, I think that's great because there are some programs out there telling everybody that they should just be hospital employees, which I think is bad advice. I'm speaking of some ENT practices that I know that-- they make it seem like private practice is a doomsday scenario, which is not true at all. I think that it offers autonomy, it offers new challenges, it offers so much more than a hospital-based practice. Also, honestly, yes, you have to work hard and work on the business side, but you're not tied to the hospital, which is nice.
Hospital privileges are important, for sure, and you want to make sure that if anything goes wrong, patients have good care, but you're not slugging away in the hospital, which takes a toll over time. I know a lot of happy people that are out in the OBL space, and I like that we're seeing more of them collaborate, multi-specialty. Thank you so much, Teri, for sharing your wisdom, and I appreciate you coming on, and hope to see you again either in Columbus or at another OEIS meeting.
Podcast Contributors
Teri Yates
Teri Yates is the CEO of Accountable Physician Advisors.
Dr. Aaron Fritts
Dr. Aaron Fritts is a Co-Founder of BackTable and a practicing interventional radiologist in Dallas, Texas.
Cite This Podcast
BackTable, LLC (Producer). (2023, September 18). Ep. 366 – Navigating OBL & ASC Business: Pitfalls to Avoid [Audio podcast]. Retrieved from https://www.backtable.com
Disclaimer: The Materials available on BackTable.com are for informational and educational purposes only and are not a substitute for the professional judgment of a healthcare professional in diagnosing and treating patients. The opinions expressed by participants of the BackTable Podcast belong solely to the participants, and do not necessarily reflect the views of BackTable.
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