If you see dollar signs when you think about opening an ambulatory surgery center (ASC), magnetic resonance imager (MRI), cardiac catheterization lab, or endoscopy lab, you're not alone. Physicians stand to benefit greatly from such ventures - and so do patients. If you cherry-pick the best nurses, radiologists, and technicians, patients get better care, and physicians get more freedom and efficiency.

"Our in-office surgery center provides us a consistently good revenue stream, but that's not the only thing," says Brent Lanier, MD, managing general partner of 10-physician Central California Ear, Nose & Throat. "I can do 14 to 16 pediatric ENT cases by noon. At the Children's Hospital, I'm lucky if I get nine done by three o'clock."

But for all their benefits, ancillaries are a high stakes game, so go in with your eyes wide open. For example, "a one-room, in-office ASC can run $1 million to $1.5 million, and a two-room up to $2 million," says Jack Bert, MD, vice president and medical director of 19-physician Summit Orthopedics in St. Paul, Minn. "And some statistics show that 33 percent of ASCs fail within the first 18 months."

One multispecialty practice in the northeast opened a physical therapy (PT) unit without thinking things through. Poor quality therapists were hired and no one knew how to run the business. The unit hemorrhaged money, and even the physician-owners didn't refer to it. The moral of the story? Whatever ancillary you're considering, be sure to crunch the numbers before you take the plunge.

Analyze market and payers

"No matter what you plan to open, do a market and payer analysis first," advises Bert. "If there are already 10 MRIs in town, it probably doesn't make sense for you to open another one. And if plans have negotiated exclusive deals with hospitals or imaging centers, you'll be restricted to sending patients to those facilities, not yours."

"You've got to determine which cases or patients are portable," says David Nathanson, managing director of Phoenix Healthcare Consulting in Phoenix, Ariz. "That's the number of patients you currently take to surgery or refer for an MRI that you could send to your new facility."

Nathanson helped a Las Vegas cardiology group determine portability for an in-office cath lab. Based on his analysis, each physician was doing an average of 20 left-heart catheterizations per month, but only 25 percent of those had insurance plans that could be ported over to the new cath lab. Still, this percentage of portable cases allowed a tidy profit.

To determine portability for its ASC, Bert's group generated a CPT frequency report from the computer system to determine how many cases the group saw annually. Next, each case was reviewed to determine the patients' insurance plan. Based on which plans would allow patients to be treated in the ASC, Bert's group analyzed that it could send 38 percent of its patients to the new ASC, due to payer-hospital deals. "In the final analysis, that percentage still made the venture viable," he says. Lanier's group performed a similar analysis.

For MRI, PT, or other services for which you refer out or write a script (and therefore don't have CPT codes or surgery schedules to track activity), use a log to track the number of patients you schedule per month.

"Note each patient's insurance so at the end of the month you can calculate how many of those patients are portable," recommends Jack Spratt, a consultant with Orthopedic Health Services in Old Lyme, Conn. "You can also use the data to run feasibility scenarios."

For example, an orthopedic group in Virginia recorded that it had about 50 referrals per week. It wanted to open a physical therapy center and had 2,000 square feet to work with. "Given the space limitation, there was no way they could handle their own referrals" Spratt says.

Keep your eyes and ears open during the planning process, too. After hearing of a North Dakota group's plan to open an ASC, a hospital administrator took the president of Blue Cross to dinner and negotiated a shaved rate on inpatient fees - in exchange for being the exclusive provider of outpatient surgery services. The door was shut for the physicians who were planning the ASC, and whose payer mix was 75 percent Blues. But learning this before construction started saved them millions.

Project revenue

Once you've identified how many cases can actually be sent to your facility, it's time to determine how much revenue they will yield. "When you own an imaging center or ASC you are reimbursed the facility fee, which is different from the physician's professional fee," explains Mike Pulaski, CEO of Peachtree Orthopedic Clinic in Atlanta. Often, this fee is six times more than the physician's fee, based on the fact that it reimburses for overhead, contract labor, and other expenses incurred by the facility.