What you don't know can hurt you, especially if you are venturing into a project as expensive and risky as building a surgery facility. That's why we asked surgical facility development firms across the country to help. In the process of birthing most of the new surgical facilities in the country, the experts in these firms develop special expertise in issues as diverse as the relative profitability of specialties to the biggest pitfalls facing new surgery facilities. We surveyed 79 facilities; 14, or 18 percent, responded. While the sample is tiny, their comments may be useful as you think about building your facility.

Surgeon facility development know-how
Think you're capable of building a surgery facility? Think again. The typical physician has virtually no clue about the ins and outs of making a surgery facility a reality, our developers say. Fifty percent rated physicians' overall knowledge as "poor," while the other half rated it as "fair."

How Well Do Physicians Understand These Aspects of Facility Development?  Financing the facility  Physician recruitment/  partnership  Feasibility assessment  Selection of developer  Architectural requirements  CON/licensure requirements  Equipping the facility  Staffing the facility  Accreditation  Insurance/reimbursement Poor Fair Poor Fair Poor Poor Fair Good Fair Poor Source: Outpatient Surgery Developer Survey, January 2003

According to developers, the most poorly understood area is architecture; nearly four out of five of the developers rated surgeons' overall understanding of this area as "poor." "Surgeons equate the requirements to experience they may have had with their office building," says Jack Amormino, president of AMB Development Group. Developers comment that surgeons do not have a good sense of the unique requirements of surgery facilities or what such buildings cost in terms of time and money. They also think, as Arden Johnson, CEO of Southern Companies says, that "any architect can design one and all builders understand the components that make up" a surgery facility.

The second most misunderstood area is judging feasibility; 57 percent of our consultants rated surgeons "poor" in this area. Says William MacKnight, managing partner of PHR Development and Management: "Surgeons often underestimate the working capital requirements, surgical volume and operating expenses required to ensure a financially successful" facility. According to Lisa Freeman, director of corporate services of Aspen Healthcare, surgeons often expect that a facility "should be or will be profitable after three months." "Physicians often first focus on the site," says John Poisson, COO of Physicians Endoscopy. "Although that's important, the real first question to address is financial viability."

Consultants also give physicians lousy ratings in the department of finance; half say their understanding is "poor." John Odom, manager of business development for the Stellar Group, calls the need for capitalization one of the three biggest misconceptions surgeons have about developing a facility. Alfred W. Ferry, MBA, PhD, president of Medical Surgical Systems Ltd., agrees that the No. 1 misconception is "the need for a sufficient level of start-up capital." About as poor is surgeons' understanding of insurance reimbursement. Luke Lambert, chief financial officer of ASCOA, says "physicians frequently have misinformation about what payers will pay for specific procedures." Gayle R. Evans, RN, MBA, president of Continuum Healthcare Consultants, calls reimbursement the top area of misunderstanding among physicians.

Surgeons earn a "fair" rating for their ability to recruit other physicians, select developers, tackle regulatory requirements, and get the facility equipped and accredited. If developers are to believed, surgeons are "good" only at staffing and "excellent" at nothing.

Physician misconceptions about surgery facilities
Undoubtedly the biggest single surprise most physicians encounter is cost, our survey respondents say. When asked about the biggest misconceptions physicians have, four of 14 respondents named cost first.

Several consultants also mentioned that physicians do not understand the time it will take to build a center. "Physicians have no idea of the thousands of details required to develop a successful surgery facility," says Jon Vick, president of ASCs, Inc. As a result, says Mr. MacKnight, "they can't see why it doesn't get done faster and cheaper."

Physicians clearly also have misconceptions about the amount of space that will be necessary. In Dr. Ferry and Mr. Webb's experience, physicians mistakenly believe "bigger is better." In Mr. Amormino's experience, it's the opposite; physicians do not understand how much "square footage is required to meet all the regulatory requirements."

Doctors don't understand how much effort will be required to manage the center, either. "They often believe the build-out of the facility is the hard part - the real challenge is the ongoing management of the facility once built," says Mr. Poisson. Ms. Evans adds that physicians are often surprised by the "time needed to maintain documentation."

Once they get up and running, physicians' profit expectations are too high, some consultants say. Ms. Freeman says some surgeons labor under the misconception that "they will be able to retire early if they invest in an ASC." Mr. Vick says some surgeons think "profits are guaranteed."

Finally, some consultants say doctors have a tendency to micromanage the projects. The biggest misconception is "that they can do it themselves," says Mr. Johnson.

Top Characteristics to Look for in Developers (Listed In Order Of Importance)  - Good references  - Many years of experience  - Presence of a Compliance Program  - Personable Employees  - Nursing or Medical Background  - Long track record with large numbers of projects  - Errors & Omissions Insurance  - Willingness to trade services for equity Source: Outpatient Surgery Developer Survey, January 2003

How to pick a development team
There's no mistaking the guidance our consultants have in this area. As their first piece of advice about picking a development team, more than half said "check the track record." Mr. Lambert advises surgeons to "review the financial results of the other centers the developer has developed by asking for financial statements." Mr. Poisson advises asking developers to "identify all previous clients and then randomly call them for reference checks - don't be handed a cherry-picked reference list." He adds that prospective clients should "visit one or more of the facilities your top one or two development company choices have built." Mr. MacKnight recommends also contacting architects and builders with whom the developer has worked.

Top Reasons Why Surgery Facilities Fail (Listed In Order Of Importance)  - Poor physician recruitment  - Failure to properly staff the center  - Failure to negotiate insurance contracts  - Undercapitalization  - Overbuilding  - Competition from other providers  - Building at the wrong site  - Underbuilding Source: Outpatient Surgery Developer Survey, January 2003

When quizzing the references, ask if the business plan the developer made up was realistic and the budget was followed. "Make sure the financial plan and investment summary outlining all the business points are done thoroughly to assure the numbers are right," advises Robert J. Zasa of Woodrum Ambulatory Systems. "The business plan and budget (come) before anything else," says the Stellar Group's Mr. Odom. The development team should "keep the budget in the forefront as the project is developed," says Ms. Evans.

Determine as best as possible whether the developer has a good "area market awareness - physicians, payers and employers," says Dr. Ferry. Also try to assess the developer's Rolodex; it should be well-stocked with the names of lawyers, architects, financiers and other professionals who specialize in surgery facilities.

Before picking a team, make sure you have met the people with whom you will actually be working. "The sales team and the development team are often different people," says Mr. Lambert.

Consultants also say your comfort level is important. "Get aligned personally - can you forge a trust-based relationship? Do you share the same philosophy and values? Work only with people you like and trust," advises Steve Straus, vice president and general manager of OR Partners. "Identify the development team's infrastructure and resources - visit their corporate offices," says Mr. Poisson. At the same time, remember that you don't want a bunch of "yes" men. "Use a group not afraid to disagree with the docs," counsels Ms. Freeman.

Do You Have the "Right Stuff" to Build a Surgical Facility? How would you respond to these questions? The more you can answer in the affirmative, the more likely you are to succeed with a surgical facility, developers say. 1. I have a large practice and a high volume of surgery. 2. My practice enjoys a robust referral base and I enjoy an excellent reputation in my community. 3. I do most of my cases on an outpatient basis. 4. I am ready, willing and able to invest a significant amount of my savings in a surgery facility. 5. I prefer working with others to working by myself. I lead by building consensus rather than by insisting on my own way. 6. I comprehend the need to control costs in surgery and have no problem standardizing items such as equipment, instrumentation and supplies. 7. Friends describe me as patient. 8. I have interviewed several of my colleagues who own surgery facilities and have a good idea of the costs and the challenges that I can expect. 9. Generating a lot of additional income for myself is not nearly as important as providing the very best patient care and building a successful facility. 10. I prefer to delegate tasks when I can. I rarely am accused of "micromanagement" or of being a "control freak." 11. I strongly believe in starting my cases on time. I am rarely if ever late to a case. 12. I understand that it will be challenging to move cases out of my current facility but I realize it will be necessary to do so in order to succeed. 13. I expect that building a surgery facility will require a lot of hard work, sacrifice, compromise, hassles and hard feelings with the hospital, but I'm committed to getting it done. Source: Adapted from Outpatient Surgery Developer Survey, January 2003.

Our respondents disagree about whether it's best to choose a company that requires equity in the center. Ms. Freeman specifically recommends against it, while Mr. Vick advises for it, pointing out that "ASCs with corporate partners average facility fees that are 30 percent higher than independent ASCs." If you do choose an equity partner, here is some specific advice:

• Align the developer's interests with yours. "If your project were to get into trouble, what would your developer have at risk?" asks Mr. Lambert. "Structure the agreement so that the developer benefits only if certain milestones are successfully achieved," says Mr. Poisson.
• Check carefully into its sources of capital, our respondents say. "Confirm the team is well financed with existing, committed capital, not just promises of access to capital," says Mr. Straus.
• Look for flexibility. Dr. Ferry says an equity partner should offer a range of options, from zero to 50 percent, with the equity partner in the minority. He likes the idea of an equity partner taking its ownership in the real estate rather than in the operations.

A few additional words of wisdom

• Solicit advice from those more experienced than you, says Mr. Zasa. Building a facility "is a very long and complicated process, and mistakes cost a lot of money."
• Encourage your developer to give you bad news as well as good. Otherwise, says Mr. Amormino, "your development team will begin to shy away from communicating the facts, and you will hear only what you want to hear."
• Treat the health care environment with care. "Be sensitive to the local community and the role the hospital plays in it," says Ms. Freeman.
• Don't overbuild. "Remember for every additional $100,000 spent on the facility, the doctors have to perform 28 cases per year to pay for the principal and interest," says Mr. Johnson. He says many times overbuilding "is the difference between success and failure."
• Whenever possible, says Dr. Ferry, build a surgical hospital instead of an ambulatory surgery center.

"Have fun," he adds. "The future of health care is in your hands."