Watch Case Volume, Contracts in an ASC Turnaround

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The current economic climate notwithstanding, ambulatory surgery centers have enough challenges to navigate. Facilities buffeted by a payment system without much parity and increased fiscal constrictions caused by industry ups and downs are paying close attention to their bottom line. For some unfortunate ASC owners, a treacherous economy looms large as a significant destructive factor.

Catherine W. Kowalski, executive vice president and chief operating officer for Meridian Surgical Partners, says Meridian is encouraging its facilities to not lose sight of their clinical and financial objectives. “We are encouraging our facilities to continue to focus on strong strategic initiatives including long-term growth and aggressive expense management,” Kowalski adds.

The essential tenets of a facility turnaround can be stated quite succinctly:

  • Maintain, protect and grow case volume
  • Negotiate for advantageous contracts with all third parties
  • Fix the leaks that cost money
  • Streamline operations
  • Know where your money goes

These principles may be obvious, but not following them can be a reason why many troubled ambulatory surgery centers continue to lose ground financially.

“While there are several reasons that a center might find itself in a turnaround situation, some of the more frequent reasons we encounter include poor management and facility planning, inadequate contracting, under-anticipated volume, and overuse of resources such as labor and supplies,” Kowalski says. “The very first advice we give physician owners is to a craft a solid plan for the turnaround, complete with specific initiatives that create both an immediate and a long-term financial impact. Secondly, we advise them to gain 100 percent buy-in from the physician group on the execution of the plan. In most cases, a group can benefit from a strong and experienced management company with a team who has done this with proven results.”

Sean Rambo, vice president of operations for Titan Health Corp., says there are several reasons why surgery centers underperform. “One of the most common is low or declining case volume,” Rambo says. “This can be caused by numerous factors, including the loss of partners/utilizers, underperforming partners, a decline in the practices of existing partners/utilizers and managed-care contract access, just to name a few.”

Rambo cautions that case volume isn’t the only factor that can lead to an underperforming center. “Surgery centers with sufficient volume can also find themselves struggling as the result of inefficient operations, a poor understanding of the margin generated by the cases being performed and poor cost management.”

Rambo lists the more common ASC operations pitfalls along with some insights on how to avoid them.

1. Effective Use of Operating Rooms and OR Time

“Surgery centers can have plenty of volume but utilize their OR time inefficiently,” Rambo explains. “In one such instance, Titan analyzed a surgery center’s operations and made the following recommendations: Shut down two of the ORs and collapse the schedule to maximize use of the OR time available. As the center’s managing partner, we now review OR utilization by physician each month and open unused block time at the end of each week to other physicians for the next week. This forces the physicians to maximize their block time while allowing the center to fill vacancies prior to the start of each week. It also creates a monthly incentive to realign underutilized block time.”

Rambo says that making these changes has helped the center operate more efficiently with fewer ORs. “Specifically, the number of cases performed has increased and each case is also generating a higher profit. Now that the current OR schedule has been reconfigured for maximum efficiency, Titan can strategically determine if and when additional ORs should be re-opened.”

2. Profitability of Cases Being Performed

Troubled centers frequently perform cases that are unprofitable, most likely due to a poor payor mix and/or bad insurance contracts. “This is commonly found in cases that utilize expensive supplies or implants, and cases where the implants and supplies used are not being reimbursed separately (i.e., orthopedics, spine and general surgery),” Rambo says.

According to Rambo, this can happen when:

  • The payor mix shifts within a physician partner’s practice. “For example, a heavy workers’ compensation practice finds itself suddenly locked out of key WC panels and watches its Medicare payor mix increase,” Rambo says. “This is a problem because surgery centers that are accustomed to high net revenue per case aren’t always adequately prepared to manage costs under “new” reimbursement guidelines.”
  • The payor mix shifts within the ASC. This can be the result of employer shifts in coverage or changes in specialty mix.
  • Contracts for the specialties being performed were poorly negotiated.

In these instances, Rambo says a comprehensive review (by your top payors) of the high volume cases being performed is key to understanding their profitability. “This may require a hard look at the types of cases being performed in your center along with a more effective strategy to renegotiate current managed care contracts,” he says. “It may also require your center to consider an out-of-network strategy or make some difficult decisions to reign in your variable cost structure.”

3. Ineffective Staffing Models

Rambo asks, “Does your center maintain a high number of full-time employees, or are you utilizing per diem staff? We find that in low-volume centers and centers that don’t utilize their ORs every day (or consistently throughout the day), many are over-staffed. Full-time employees are a fixed cost and don’t allow you to staff up or down according to changes in volume the way per-diem staff do. Another difference between the two is that per diem staff can help manage costs against the types of cases being performed.”

4. Poorly Run Business Offices

“An effectively run business office is critical for every ASC,” Rambo emphasizes. “In turnaround situations, we often find insufficient business office systems, gaps at many stages of the revenue cycle process, and business office managers who have not effectively developed proper processes and cross training opportunities for staff. Cross training allows team members to understand the impact their actions have on the rest of the office, and prepares them to step in and perform other job functions when necessary. It also avoids overstaffing and encourages teamwork.”

Rambo adds, “Proper understanding of your managed-care contracts is another critical piece in ensuring that unprofitable cases aren’t being performed at your center. High-dollar implants are a common culprit since they oftentimes aren’t reimbursed. ”

5. Managed-care Contracting Strategy

Rambo suggests that centers evaluate their managed-care contracts. “Have they evaluated their ability to either renegotiate reimbursement or ensure that annual inflators are being taken advantage of?” Rambo asks. “In appropriate instances, have they evaluated an out-of-network strategy? Have they evaluated their chargemaster and the potential flow-through of a charge increase? One of the most immediate impacts on an ASC’s bottom line is an increase in top-line revenue without an increase in volume. This is accomplished by adjusting insurance contracts and re-evaluating a center’s chargemaster (in instances where a good portion of reimbursement is based on the chargemaster). This type of modification creates an enhanced revenue stream that goes directly to the bottom line.”

6. Evaluation of Supply/Medicare Costs

Rambo says troubled facilities should try to tap into opportunities for better management of supply costs through smart inventory ordering and handling, as well as savvy vendor selection and comparison of costs across vendors. “In many underperforming centers, we find that inventory is improperly managed and levels are often too high,” Rambo adds. “A good materials manager is critical to the effective management of supply costs. A materials manager doesn’t necessarily need to be full-time; however, the job should be handled by someone with an understanding of the center’s supply needs, such as a surgical tech. This role should also be closely intertwined with the administrator and his or her responsibilities. The aforementioned guidelines are especially true for specialties with high supply and implant costs, such as orthopedics and spine/neurosurgery, but such a program is also critical for low-cost, high-volume procedures such as ophthalmology, GI, and pain management.”

One of the most important things to bear in mind while a facility is in turnaround mode, is to keep facility stakeholders informed. “In turn-around situations, it is easy to underestimate the importance of physician buy in because, more so than not, there are difficult and unpleasant decisions that need to be made and executed in order to achieve results,” Kowalski says. “Changes such as staff reductions, expense reduc-tions, and scheduling changes can directly impact the physician partners; therefore, it is crucial to ensure the partners are aware and approve of the action plans set forth to resolve the facility’s financial issues.”

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