Eyeing the Financial Landscape: ASC Finance Experts Offer Advice on Economy

important to partner with an experienced ASC development or management company that can demonstrate a successful track record, Fox says.

“Just because a company is successful in St. Louis doesn’t mean they will be successful in Philadelphia,” Fox cautions. “For the existing ASCs, it is critical that you ensure that your ASC is being well managed.”

He recommends asking the following questions:

• Are you billing the procedures correctly and collecting as much as you can with your payors?
• Are you staffing efficiently?
• Can you schedule your cases better to limit your labor costs?
• Are you getting the best prices on your supplies?
• Are collections being paid promptly?
• Can you use group purchasing organizations (GPOs) to lower your supply costs?
• Can you recruit a couple of new partners?
• Can you lower your monthly loan payments by refinancing current debt?
• Are there other services the ASC can offer?
• Can you lease the center to other businesses? There is serious growth taking place in sleep centers and urgent care facilities, Fox notes.
• Should you consider selling a portion of the center to a national ASC company or a local hospital?

No matter what answers you conjure, it is important to have a positive outlook during times of change, Fox says. “In every time of change, there will always be opportunities to improve or expand a center’s operations,” he adds.

Restructuring Loans and Credit

In terms of the best way to structure loans in favor of an ASC, Warren Capital Corporation always advocates stretching the term as long as possible at inception, Shapiro says.

“Oftentimes, ASCs have some lofty expectations for their ability to quickly generate profits and cash flow,” he says. “We always advocate keeping the monthly debt service as low as possible, and if business comes in as projected, then that is more money to distribute to the shareholders.” Refinancing down the line is an option too.

“Unfortunately, non-personal guaranty financing is harder to come by these days for start-up ASCs,” Shapiro says. “Usually joint and several or pro-rata personal guaranties are the norm. For more established ASCs, nonguaranty financing can be more achievable... especially with diffuse ownership. Also, we normally include three to six months of interestonly payments on the front side of the loans we approve, which helps them ramp-up until collections start rolling in. Lastly, we have advised some facilities to put a working capital line of credit in place, which helps support business during some of the tougher periods and gives increased flexibility.”

A good first step, according to Babin, is to ensure the loan or line of credit is pre-payable, since there are sometimes pre-payment penalties that need to be considered.

“As for how they should be restructured, few lenders will look at refinancing the existing debt just to help with cash flow unless there are other elements to a long-term plan,” Babin says. “CIT and other lenders encountered this with customers when the Deficit Reduction Act (DRA) severely impacted the imaging market. In this instance, much like refinancing an ASC, restructuring debt needed to be part of the plan, not the only plan.”

Some elements that should be considered in a long-term plan are operational changes, better contracts and introducing new performing owner-physicians while divesting ownership of non-performing owners, he adds.

Refinancing loans and leases can be an easy way to reduce an ASC’s monthly overhead, according Fox, but interest rates are an important part of that equation.

“The loan term affects the payment in a greater way than a small decrease in the rate does,” Fox says. “Refinancing current debt may give an ASC some breathing room if the current debt payment is making things tight. Establishing a working capital line of credit is an excellent way to provide a buffer when collections differ from month to month while an ASC’s expenses remain steady. This should be a flexible type of loan that allows for draws and repayments when the ASC has a need for cash or has excess cash.”

Paying the Bills

A cardinal rule is to pay all your debtors first then pay yourself, Babin says. This is in part because lenders prefer or require a first-prior and paramount position on all assets.

“Additionally, the owners will subordinate their distributions as will

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