Business Plan
... strategically located billboards announcing our arrival. 4.0 Market Analysis Summary The initial target market is Horry County. The local geographic areas compromising the immediate service area is as follows: Area Zip Code Weighted Sample Households Aynor 29511 9 3.0% 1,823 2.9% Conway 29526 58 19.3% 12,536 19.6% Conway 29527 34 11.3% 7,222 11.3% Myrtle Beach 29575 41 13.7% 8,683 13.6% Myrtle Beach 29577 37 12.3% 7,935 12.4% Myrtle Beach 29579 52 17.3% 10,991 17.2% Myrtle Beach 29588 21 7.0% 4,362 6.8% Murrells Inlet 29576 48 16.0% 10,281 16.1% Totals 300 100.0% 63,833 100.0% 4.1 Market Segmentation Health Care Expense Coverage 2004 2003 2002 HMO/PPO 27.7% 35.7% 31.0% Medicare 23.4% 22.4% 19.7% BC/BS 21.9% 16.6% 19.2% Other Commercial Insurance 9.3% 9.3% 10.6% Medicaid/Welfare 4.1% 2.8% 3.3% VA Benefits 2.8% 2.2% 2.6% Self-Payment 10.9% 10.8% 13.6% Total 100.0% 100.0% 100.0% Community Location of Physician 2004 2003 2002 Conway 26.6% 27.8% 28.0% Myrtle Beach 26.1% 28.2% 28.8% Murrells Inlet 13.2% 11.6% 8.6% Surfside Beach 10.1% 11.7% 12.9% Socastee 8.3% 6.4% 5.0% Other/Uncertain 15.7% 14.3% 16.7% Total 100.0% 100.0% 100.0% 4.2 Strengths, Weaknesses, Opportunities, and Threats (SWOT Analysis) Strengths The experience, expertise, and reputation of the surgeons will be the strong-arm that will generate the energy of potential investors, and, foremost the clients. Other strengths include good reputation among existing clients, cost advantages from proprietary know-how, and favorable access to distribution networks. Weakness One of our weaknesses will be initial cash flow. We will pay as much or more attention to cash-flow projections than initial Profit and Loss Statements. Our goal will be to obtain adequate working capital financing to cover our worst-case projections. We will then do all we can do to outperform our best case. To provide the best possible patient care, our Center must continually invest in innovative equipment, software, and services. To remain a step ahead in the increasingly competitive healthcare industry, we must also stand ready to pursue acquisitions that offer our organization the best opportunities for long-term growth. These and other ongoing challenges are made even more intense by recent cutbacks in reimbursements, constantly changing government regulations and ever-increasing insurance premiums. To meet these needs, cash flow represents the greatest roadblock. In fact, improving cash flow and shortening revenue cycles will be a top priority. The solutions for meeting these priorities do not necessarily start with the myriad technologies and equipment that their respective organizations provide. Obtaining a concentrated understanding of how our ASC manages daily operations, constantly and consistently identifying areas to improve efficiencies, and establishing an exemplary channel to balance the cost of improving these processes will initially require a cash influx up front. These initial costs will prove to pay for themselves within a relatively short period. These costs are enumerated in Section 2.2 of this Business Plan. Opportunities Physicians continue to see their professional services incomes decline. These same physicians are also keenly aware of their impact on high-margin services that, traditionally, have been provided in hospital settings (both inpatient and outpatient settings). Faced with the prospect of physician competition in areas such as outpatient imaging, ambulatory surgery and specialty diagnostics (like cardiology and neurology), hospitals are being forced to consider joint ventures with members of its medical staff. These ventures are complex and involve significant business, legal and regulatory issues. Most hospitals and other ambulatory surgery centers have not implemented a program to recognize and implement this perplexity. One of our competitive opportunities will be to use incentives such as sign on bonuses, physician recruitment loans, and income guarantees to attract non-owner physicians and other professionals to our Center. Owner-surgeons have the greatest opportunity: cash distributions on a quarterly basis. Another opportunity that exists is unfilled consumer needs. The target area is not a major-metropolitan area and many consumers must travel several hours to have their procedures performed. This is time, energy, and costs the consumer has to endure, only adding additional stress to the apprehension they already may have. This will hold true to the follow-up care required also. Arrival of new technologies with equipment and instruments is another paramount break for our ASC. While other established hospitals and ASCs probably will not have ALL of the latest and greatest, our ASC will break ground with this opportunity. Loosening of federal regulations could prove a great windfall, also. Threats Changes in the external environmental also may present threats to the Center. Some examples of such threats include, but are not limited to: A. shifts in consumer preferences away from the ASC's services B. emergence of substitute services C. new regulations 4.3 Industry Analysis The majority of consumers (61.6%) of the direct service area indicated they or someone in their household has utilized outpatient services within the past two years. This is higher than the 54.5% found in 2003 and the U.S. Norm of 59.0%. Table 4.3 Utilization of Outpatient Services 4.4 Analysis of Competition Conway Medical Center (CMC), SC, Grand Strand Regional Medical Center (GSRMC), South Strand Ambulatory Care Center (SSACC), Carolina Bone and Joint Surgery Center (CB & J), and Loris Community Hospital (LCH) are direct competitors for our ASC. CMC is located in Conway, SC. GSRMC, SSACC, CB&J are located in Myrtle Beach. LCH is located in Loris, SC. Physician competitors have the potential to “own” most of the services provided by hospitals. We hope to divert a substantial market share from CMC, GSRMC, and LCH. Higher levels of acuity for cases are associated with more sophisticated care delivery settings. While early models of physician ownership were for less acute procedures in clinical areas such as dermatology and ophthalmology, over time the acuity of physician market “owned” procedures has increased. These new physician ventures directly threaten the core business of these three hospitals. In a 2002 survey of hospital CEOs, the physician-hospital relationships was identified as one of the top five concerns facing hospitals. Of those CEOs citing physician-hospital relationships as an issue, 72 percent reported that competition with physician-owned facilities and/or equipment represented the greatest concern. (ACHE, 2002). This survey, which was conducted two+ years ago, is corroborated with the target market. SSACC and C.B. & J. were forming at this time. Advertising and promotional materials from these competitors are minimal, with the exception of CMC. The have numerous billboards throughout the target market area as well as numerous “catchy” commercials on local radio and TV. They also place ads in newspapers and magazines on a regular basis. Last year’s campaign focused on their birth center, targeting pregnant women. Their strategy was to be the total provider of the baby from birth, childhood, adolescence all the way to the aging senior. The other three competitors essentially do not advertise nor do they appear to have any strategic marketing plan. CB&J have total assets of $ 1.7 mill and owners equity of $800k as of December 31, 2004. They are 67% owned by 11 surgeons and 33% owned by Medical Properties, Inc,. They are financially stable and going strong. They were able to pay distributions to their owners for the first time in CY 2005. Their target is strictly orthopedic surgery. CMC recently recruited two bariatric surgeons and that helped offset their loss of market share to the new ASC’s. These two are hungry for business and have cornered the market due to lack of competition. Our ASC will also offer the same, if not more, procedures. The following is the market share for our selected ASC for 2004 and 2003: 4.5 Target Market Demographically, the market we will be targeting for the Ambulatory Surgery Center will be Horry, Georgetown counties. Future target markets will include the remaining counties in South Carolina, North Carolina, southeast Georgia, and northern Florida. The ideal consumers that we will target will be relatively young, 30-60 in age with no preference to race, marital status, or gender. We will be targeting clients desiring “elective” surgeries, as these clients know the costs up front and will have their financing in order before the procedure is performed. The physicians on staff will dictate the payer mix, therefore we will recruit physicians with low Medicaid and Medicare ratios and focus on those with high percentages of HMO, PPO, and other managed care clients as well as Self Pay. The market for medical services is growing in part due to the baby-boomers now reaching the age where they are requiring more medical attention. In a study conducted by Core Data, all consumer revenues increased from a minimum of 10% to over 30%. Medical Services had a 20+% growth from Q1 2003 to Q1 2004. The motivating factors for our clients will be the centrally located facility, the statues of seeking treatment by the “cream of the crop” surgeons, and the savings of not only money, but time as well. 5.0 Strategy and Implementation Summary There are several options available today for managing the start-up of our Ambulatory Surgery Center (ASC) — do it yourself, hire a consultant, join with a corporate partner or joint venture with a hospital. Our physician group has decided the best fit for them would be to hire a consultant, as these are the experts in surgery development. According to Kristen Franz as quoted in Titan Health: “Building and developing an ASC is a huge undertaking that is easily underestimated. Oftentimes, people don’t realize all the steps needed to create a successful ASC, from licensure, accreditation, and building codes, to staffing, finances, and equipment ordering. Hiring an experienced and knowledgeable ASC development and operating partner saves valuable time and money by ensuring that everything is done correctly the first time around. By finding an ASC development and management company interested in being a true business partner, you will spread your risk and guarantee that you’re both working toward the same goals.” 5.1 Marketing Strategy Determine consumers’ utilization of outpatient services. Determine consumers’ utilization of family physicians and specialists. Identify consumers’ top-of-mind recall of local Ambulatory Surgery Centers (ASCs). Determine consumers’ ASC of choice and identify the reasons for their preference. Determine consumers’ impression of our ASC and other area ASCs as best providers of various surgeries and medical treatments. Compare our ASC with other ASCs in terms of being most often associated with particular quality attributes. Measure consumers’ impressions of our ASC Identify consumers’ awareness of local ASCs advertisement. Identify consumers’ sources of healthcare expense coverage. Determine the demographic characteristics of the sample 5.11 Pricing Strategy The price of non-elective procedures will be based by a mixture of maximum allowable charge plus 20% as set forth by Medicare, Medicaid, and Commercial Payers. By law, we cannot charge any more for self-pay clients. Elective surgeries will be priced on a tier-charging base. This will include every item form the alcohol swab to an implant. Cost Markup Tier 1 $ 0 – 100 500% Tier 2 $ 101 – 500 400% Tier 3 $ 501 – 1,000 300% Tier 4 $ 1,001 – 1,500 200% Tier 5 $ 1,501 > 100% We will focus on having contracts in place with various agencies to provide low interest credit contracts for deductibles, co-insurance, and self pay. Our ASC terms will be 60 days, offering a 10% discount for self-pay if paid in 30 days. Our ASC will also be involved in obtaining grant monies, not only for providing services to the needy, but for experimental surgeries as well. This will provide a competitive edge, as competitors have not tapped this resource. 5.2 Sales Strategy 5.2.1 Sales Forecast The sales strategy for our ASC is based upon concentrated market services from referring physicians. The following table and chart give a run-down on forecasted sales: January $ 41,675 February $ 166.699 March $ 208,373 April $ 250,048 May $ 291,722 June $ 333,387 July $ 375.072 August $ 416.746 September $ 458,421 October $ 500,096 November $ 541,770 December $ 583,445 Total $ 4,167,463 5.3 Milestones Regulatory Certificate of Need Coordinate filing of necessary paperwork by 04/01/05 .Medicare Certification Coordinate filing of necessary certification paperwork by 04/15/05. State Licensure Coordinate filing of necessary paperwork by 04/01/05. Accreditation HIPAA Compliance Facility Design & Construction Review site selection option(s) (freestanding vs. Medical Office Building) by 04/01/05. Review structural and space needs as determined by volume/type of procedures by 04/15/05. Review and design construction documents and meet with architect to develop efficient patient flow/utilization of space by 04/01/05. Solicit bids from contractors by 04/01/05. Select contractor(s) for project team by 04/30/05. Assess real estate and physical plant by 10/01/05. -JCAHO compliance survey -Code compliance survey -State of conditions survey -Building Forensics (sick building) survey -ADA compliance survey -Infection Control management and monitoring -Moisture/mold evaluations -MEP design, review and management Equipment Planning Schematic Design – Programming and Planning - Weekly User Group Meetings beginning 03/15/05 Project documentation reviews Responsibility matrix Equipment planning task schedule Evaluation of equipment standards and contracts Equipment budgets Schematic design/”typical” equipment list Design Development - Weekly User Group Meetings beginning 03/16/05 Review M.E.P. and architectural drawings Review vendor shop drawings Issue ASE book Develop/review contractor/vendor installed equipment specifications. Construction Documents - Weekly User Group Meetings beginning 03/17/05 Review construction documents Revise ASE book as needed Develop/review contractor & vendor install equipments specifications Procurement & Expediting – ongoing Finalize procurement specifications & quotations Finalize bid package documents Issue and purchase requisition/purchase orders Track & expedite purchase orders Receiving, Warehouse, & Installation - ongoing Reconcile receipt documents Reconcile invoice documents Prepare and review receiving, warehouse, and storage procedures Deal Structure Development Develop partnership structure and governance by 03/15/05 Begin SEC licensure steps by 03/15/05 Legal Develop LLC Operating Agreement by 04/01/05 Develop ASC Partnership Agreement by 04/01/05 Develop Management and Development Agreement by 04/15/05 Establish 3rd Party Financing for investors by 04/15/05 Develop contact information for potential surgeon investors by 04/15/05 Organize syndication “kick-off” presentation by 04/01/05 Distribute PPM and meet individually with prospective investors -ongoing 6.0 Management Summary 6.1 Personnel Plan The Personnel Plan documents the expansion of our ASC to 52 staff members in the first three years. Table 6.1 Personnel 2006 2007 2008 FTES FTES FTES 1 Medical Director/Surgeon $ 200,000 1 $ 212,000 1 $ 224,720 1 10 – 17 Surgeons (Non-Owners) 1,500,000 10 2,250,000 15 2,550,000 17 RN's 650,000 10 975,000 15 1,300,000 20 1-3 LPN's 50,000 1 150,000 3 150,000 3 3 –6 TNA's 40,000 2 60,000 3 120,000 6 1 Surgical Admin. Clerk 20,000 1 20,000 1 20,000 1 1 CEO 100,000 1 103,000 1 106,090 1 1 Financial Administrator 50,000 1 51,500 1 53,045 1 1 Materials Manager 40,000 1 41,200 1 42,436 1 1 Accounting Clerk 15,000 1 15,450 1 15,914 1 Total Salaries & FTE'S 2,665,000 29 3,878,150 42 4,582,205 52 Benefits 533,000 775,630 916,441 Total Salaries & Benefits $ 3,198,000 $ 4,653,780 $ 5,498,645 6.2 Recruiting The CEO and Medical Director will be held responsible and accountable for recruiting seventeen highly trained specialty surgeons. These surgeons will be guaranteed a minimum of $150,000 per year after approved operating expenses. 7.0 Financial Plan Restraining the growth of our ASC’s costs will become even more important over the next few years because of the freeze in Medicare payment updates. After labor costs, the second highest category of operating cost in an ASC is for medical and surgical supplies. According to the recently published Ambulatory Surgery Center Performance Survey (produced by the Medical Group Management Association in collaboration with the AAASC) multi-specialty surgery centers spend 21 percent of the total operating cost (as a percentage of total medical revenue) on medical and surgical supplies. Thus, our owners and managers need to focus managerial attention on materials management purchasing. With so many critical issues to manage, materials management purchasing barely captures the attention of most ASC managers. While it is important to avoid running out of items like gloves and syringes, the process of keeping items in stock should be simple and should never distract from patient care. 7.1 Important Assumptions Our financial plan depends on vital assumptions, most of which are shown in the following table as annual assumptions. It will be our priority to keep days revenue in Accounts Receivable at less than 65 days to maintain a healthy cash flow. 7.2 Key Financial Indicators and Ratios Table 7.2 Projected Statistics & Financial Indicators Year One Year Two Year Three 2005 2006 2007 VOLUME STATISTICS IP OTHER MINUTES 95,171 147,570 203,353 IP CASES 897 1,391 1,916 IP PROCEDURES 987 1,530.47 2,109 OP OTHER MINUTES 86,331 133,863 184,464 OP CASES 1,136 1,762 2,428 OP PROCEDURES 1,031 1,599 2,203 ER CASES 4 5.8 8 ER PROCEDURES 3 5 7 PROTECTIVE OBSERVATION 153 198 258 TOTAL SURGICAL PROCEDURES 2,018 3,129 4,312 OUTPAT. SURGERY CASES 552 717 932 PAID MANHOURS 60,320 87,360 108,160 FTES 29 42 52 FINANCIAL INDICATORS AVERAGE CHARGE PER PROCEDURE $ 2,574.10 $ 2,574.10 $ 2,574.10 REV DEDUCTION PER PROCEDURE $ 509.14 $ 509.14 $ 506.74 AVG NET PATIENT REV PER PROCEDURE $ 2,064.96 $ 2,064.96 $ 2,067.36 AVG SAL & BENE COST PER PROCEDURE $ 1,584.60 $ 1,487.14 $ 1,275.12 TOTAL COST PER PROCEDURE $ 2,094.69 $ 1,887.16 $ 1,753.40 NET OP GAIN PER PROCEDURE $ (25.77) $ 181.81 $ 317.67 7.3 Break-even Analysis Carolina Forest ASC has calculated a break-even maintenance point for revenue once full staffing and facility costs are reached. Included are depreciation, rent and leases, and interest. Also included are necessary payroll and benefits for necessary personnel. Debt service of $1,000,000 is also included in order to obtain a safe, conservative, break-even number. The revenue per procedure is based on obtaining a small share of the tarket market. Conservative expectations are that our ASC can obtain 3% of the market share in the first year and break even. This would require only performing a little over 2,000 procedures. See Year One of the Proposed Income Statement for details. 7.4 Projected Income Statement Table 7.4 Projected Income Statement Year One Year Two Year Three PATIENT SERVICE REVENUE: Inpatient 2,540,729 3,939,597 5,428,795 Outpatient 2,654,271 4,115,653 5,671,402 TOTAL 5,195,000 8,055,250 11,100,198 DEDUCTIONS FROM REVENUE: 0 Contractual adjustments 951,793 1,475,829 2,033,703 Indigent care & Discounts 75,744 117,447 151,488 TOTAL 1,027,537 1,593,276 2,185,191 NET PATIENT REVENUE 4,167,463 6,461,974 8,915,006 OTHER OPERATING REVENUE 7,990 12,556 15,980 TOTAL OPERATING REVENUE 4,175,453 6,474,530 8,930,986 EXPENSES: Salaries and Benefits 3,198,000 4,653,780 5,498,645 Professional fees 100,000 103,000 106,090 Supplies and other 834,104 1,027,106 1,831,031 Bad Debt Expense 83,349 104,187 107,312 Interest 2,000 2,500 2,575 Depreciation 10,000 15,000 15,450 TOTAL 4,227,453 5,905,573 7,561,104 NET GAIN FROM OPERATIONS (52,000) 568,957 1,369,882 Non-Operating Revenues 2,000 2,500 2,000 Unrealized Gain/Loss on Investments 100,000 125,000 300,000 Realized Loss on Investments (50,000) (62,500) (50,000) Foundation Donations 0 Medicaid Disproportionate Share 0 NET GAIN (0) 633,957 1,621,882 # Procedures 2,018 3,129 4,312 Table 7.4.1 Projected Other Income and Expense Year 1 Year 2 Year 3 OTHER OPERATING REVENUES: SALE OF DRUGS & SUPPLIES $ 200 $ 250 $ 313 SALE OF TRANSCRIPTS 100 125 156 PURCHASE DISCOUNTS & REBATES 6,490 9,613 11,553 OTHER 1,200 2,568 3,210 TOTAL $ 7,990 $ 12,556 $ 15,231 OPERATING EXPENSES: SALARIES AND WAGES $ 2,665,000 $ 3,878,150 $ 4,582,205 EMPLOYEE BENEFITS 533,000 775,630 916,441 PROFESSIONAL FEES 100,000 103,000 106,090 OUTSIDE SERVICES 0 CONTRACT LABOR 0 DRUGS & SUPPLIES 636,250 795,313 1,591,821 UTILITIES 50,000 51,500 ...