CASE STUDY: SANTA BARBARA SURGERY CENTER

Profits Rise from Turnaround Revisions

Anesthesiologist Robert Welti recalls how anxious he was in 2003 when the 11,500-square foot Santa Barbara Surgery Center, an outpatient facility he helped establish, was wracked with $4.5 million of debt. "After a year of circling the drain, the physician partners needed to make a stand," Welti says. He and his co-workers turned to Regent Surgical Health for new management, hoping to find someway to make their underperforming surgery center profitable again.

Though the center started in 2001 with high hopes, cumbersome supply costs and poor management soon overcame it. Regent, a leader in surgery center development and turnarounds, set out to address these issues and reform the center from within. They analyzed revenue versus cost reports, reviewed every insurance payer contract, and critiqued the work culture of the facility.

Among the practices they observed were the large number of penile and spinal implants that the center performed. These procedures cost the center $7,600, but it only received a $1,400 reimbursement. Working with Welti and the physician investors, Regent established which procedures would bring in greater revenue and restructured the services provided by the center accordingly. Consequently, billings increased by 30 percent and revenues rose from an average of $1,350 per case to an average of $1,900.

"Regent used its contacts in the banking world to restructure our debt," Welti explains. The center refinanced its debt and Regent managed to convince the bank to forgive $600,000 the center owed it in interest. "It gave us breathing room," he says.

Regent realized that competent new physicians had been scared off from the center because of entrenched individual agendas that had defined its work culture. Three more ENT physicians joined the staff to meet the demand that Regent fostered in their field.

Regent and the physician investors set out to reform the work culture, establishing teams that allowed the physicians to pursue group goals instead of individual interests. The management was revamped to revitalize and maintain the new work environment.

Regent overhauled the process of procuring materials, pursuing supply firms that would offer the best products at the lowest prices.

Like all of Regent’s ventures, the physicians remained the primary investors in the center, retaining 81 percent of it. Regent also invested significant funds into the facility.

The returns from these reforms were soon apparent. In less than three years the Santa Barbara Surgery Center overcame its debt and transformed into a profitable institution. When physicians complained that they had yet to receive their distributions because funds were being directed toward repaying debt, Regent managed to refinance again, providing the center with an additional $50,000 a month for distributions.

Today, the Santa Barbara Surgery Center has a staff of 23 physicians, who perform more than 4,000 cases per year. Its three operating rooms and two procedure rooms are routinely full. In 2006, the center earned a net income of more than $1 million.

Welti proudly describes the ethos of the center, comparing it favorably to hospitals owned by those outside of the medical profession. "At a hospital I never wheeled a patient to his car, but now it’s not uncommon for me to wheel someone else’s patient there. Ownership spurs us to provide a higher level of service."