Today's SurgiCenter - Profitability Concepts

By David Nutt

Many articles have been written over the past three decades on every imaginable aspect of planning, designing, constructing, equipping, staffing and managing ambulatory surgery centers (ASCs). A successful outcome requires the collaboration of many entities that each fill a vital role. A major key to success is selecting an effective leader to direct the planning, design, and construction team toward common goals.

The owner will benefit from the following profitable concepts we have learned that can make a difference.

Having an expert other than the doctor(s) directing the project allows the doctor(s) to stay focused on the reason for needing a surgery center in the first place, patient care. Many practitioners find in the end that the potential savings of running the project alone is not worth the cost in terms of lost time, lost focus, and lost opportunity.

Obviously, there are many time-consuming decisions that the owner must make to create an ASC. However, by delegating management to the experts, owners testify that they can properly address operational issues that increase ASCs’ future profit potential, including:

• Developing scope of services and revenue of appropriate case load selection
• Establishing a benchmark and profit in terms of surgeries (developed with feasibility study)
• Benchmark = Rent + Supplies + Salaries = “X” surgeries Profit = total surgeries less benchmark
• Determining par levels on a daily basis & maintaining inventory on a weekly basis

Doing your due diligence and not entering into stupid contracts:

1. Determine what your market’s reimbursables are

2. Establish your current and projected case load mix and volume

3. Carve out exceptions such as implants, prosthetics, expensive supplies, etc.

4. Shop extensively for managed care companies for the best short term contract

While there are many ASC success stories, there are too many that fail due to inadequate or unrealistic projections for case loads, reimbursements, salaries, facility, equipment and soft costs.

The more in-depth and un-biased the feasibility study, the greater the potential for a successful outcome.

An experienced expert who receives a fee for his or her service and who has no other financial entanglements in the project should perform the feasibility study. In other words, the architect, developer, contractor and equipment supplier have a vested interest in the results of the analysis and should not be considered a good source for unbiased recommendations. However, there are benefits of continuity for the medical architect to understand the study and provide requested architectural input to be used with some of the following items in the process:

• Tabulate data provided by owner
• Estimate project scope using mathematical model(s)
• Analyze data; recommend any scope modifications or suggested options
• Owner review and approval of profitability estimate (first five years of operation)

It is far less costly to make plans initially with words and numbers rather than drawings to establish project scope. After project scope is determined to be economically viable, a detailed architectural program should be written.

Concept 3

Start with a clearly defined program that includes: staffing requirements, patient types, hours of operation, space functions and space relationships, items provided by general contractor or others, offsite services available and transfer provisions (gurney access, etc.) Many developments suffer because property is purchased based on inadequate review of the site’s architectural potential. A civil engineer only considers building areas, parking areas and zoning requirements and lacks an understanding of an ASC’s requirements for site circulation, functional building footprints and landscape aesthetics. Without these considerations, the site selected could compromise short and long range Master Plan development and limit profit.

Concept 4

An architect who is experienced in ASC functional zoning and planning of sites and buildings is a vital resource to conceptually evaluate site options.

Developments traditionally follow the process of an architect designing and preparing construction documents for pre-qualified contractors to bid, negotiate and construct. The goal is to receive the lowest bid from a few invited reputable contractors. The less reputable the contractor, the more likely the bid savings diminish by change orders requested for vague items found in average bid documents. If inflation is higher than expected, there may be additional design costs and delays to reduce scope and re-bid.

The architect does not control construction cost fluctuations in the industry; therefore, the scope of the project should be planned lower than the budget, then alternate bid items can be added when bids are low.

In many states the cap on ASC construction is limited and a guaranteed maximum price contract is needed. If the construction contract is to be negotiated, architects can help the owner determine the most competitive contractor with a pre-qualified short list. Selecting a contractor by negotiation has the advantage of starting value engineering at the beginning of the design phase rather than the end.

Value engineering is analyzing components of construction to determine preferred and often economical ways to construct a building. Contractors and architects have preferred methods of construction that vary. The key is to find a common method that lowers cost, not quality.

Concept 6

If your architect or contractor regularly has to resort to engineering the value out of the building in order to stay in budget, you may have the wrong team.

The ASC project manager’s primary responsibility is to document and maintain the overall schedule. It should account for last scheduled dates, revised dates, reason for delay and method if any to get back on track. Accountability minimizes delays that can be avoided and reduces final impact on unforeseen items that occur. Concept 7 Time is the only resource you can’t get back, and if lost, it impacts cost and/or scope.

ASC functional planning starts by designing from inside out to reduce travel distances for staff and equipment in an effort to keep turnaround time for the ORs to a minimum. Other restricted areas that support the surgical suite need to be laid out for “fingertip access.”

Concept 8

Operational design facilitates efficient flow of people and materials. Semi-restricted areas in and around pre-op and post-op cubicles may be laid out in a single open area to simplify management by staff. Another preference is for post-op and pre-op areas to be separated to increases patient privacy and decrease pre-op patients from hearing moans of post-op patients.

The care received in post-op and pre-op is typically the longest conscious patient care experience that can increase or diminish referrals to the ASC.

Proper design of unrestricted areas at the perimeter of the ASC allows patients, staff, doctors and material to feed into and support the ASC without crossing over more restricted areas of circulation. Efficient site design separates vehicular flow of patient, materials, and staff and clearly directs flow to appropriate entries and exits. Aesthetic attention is most beneficial at the covered patient entry, waiting, reception, and connector to covered patient pick-up. This is where patients receive their first and last impressions of the ASC.

Concept 10

Good architecture and site design advertises a positive image and promotes way-finding through the site and the building to enhance the ASC experience.

Construction quality is determined by what is specified, how the specified items are incorporated per construction documents, and who constructs the project. Our philosophy for exterior and interior design is that the building materials should be as maintenance free as possible and constructed of durable materials.

Concept 11

Consider life cycle costs to reduce costly maintenance and replacement of items.

Quality of architectural work varies with skills of design firms. Design-document quality diminishes with decreasing fees. Trying to save money by reducing planning and design fees does not save in terms of total project costs; in fact, the opposite is true per the facility manager’s following rule of thumb:

Concept 12

For each dollar removed from the planning process, an additional $10 needs to be added back for change orders during construction.

There may be many good reasons to create an ASC; however, without profit, it won’t remain viable. Therefore, it is critical to select a leader most knowledgeable and actively involved throughout the process to help assemble the team of feasibility consultants, real-estate agents, designers, developers and contractors having a working knowledge of the above architectural concepts that enhance profitability.