ASC Management Guide:

“The successful ASC embodies the best of medical/surgical practices and the best business execution. These two bodies of capability are best brought by a number of top-quality physicians and a capable and fully resourced corporate partner. The corporate partner presents an experienced perspective on the design development, financial and operational needs of the center. Their consistent role throughout the years is to nurture the success of the center and protect the partnership.”

“The major benefit to a group of surgeons is not having to reinvent the wheel. A surgeon developing a center on his own will likely spend a thousand hours or more of professional time on the project over the course of the first year. For most successful surgeons, this is too high a price to pay. Additionally, someone developing a center for the first time is likely to experience a number of pitfalls in real estate negotiations, design, equipment procurement, training of staff, Medicare certification, accreditation, recruiting surgeons, and payor contracting. These pitfalls can be costly, cause delays, and sometimes impair the center’s long-term performance.”

“If a client is developing an ASC, they are likely committing $4 million to $8 million dollars to the project. With the amount of capital at risk and the relatively low cost of development services (average of 3 percent of total project), there is no reason not to hire a well-qualified and experienced firm. The best development companies have developed more than 100 surgery centers and have learned from their mistakes and refined their systems. Mistakes during the development phase reverberate through the project and into the operations phase. Again, with so many well-qualified firms, there is absolutely no reason to put the project at risk during the critical development stage.”

“Our clients provide us with candid feedback regarding what they view as the most important (and measurable) benefit of having Aspen manage their surgery center. The most consistent response is, ‘Having posed several key questions to industry experts to get insider advice on management and operations-related issues. Here’s what the pros had to say. Aspen as our management partner has enhanced our center’s performance both in terms of reductions in costs per case for variable expenses, and revenue enhancement.’ Established national management companies like Aspen offer national buying power, extensive management experience and employee/management development opportunities.”

“Improving the bottom line, because an experienced manager/developer has already made all the mistakes in their past and won’t repeat bad decisions. Plus, economies of scale provide lower costs on supplies, etc. and a more sophisticated information systems platform.”

“There are more than 200 development steps involved in taking a project from a de novo to an operating facility, requiring expertise in financial modeling, syndication, legal, equipment planning, architectural, managed care contracting and licensing.”

“The greatest benefit is the experience that a management/development firm brings. A good firm will have a wealth of knowledge and resources to pull from to assist the center in maximization of resources (supplies and staff) as well as revenue. This knowledge is essential if the facility wants to provide positive clinical outcomes, operational efficiency and profitability.”

“Just like performing an intricate surgical procedure, successfully managing/developing an ASC is extremely complex. Trust me, you wouldn’t want me trying to fix your ACL tear or cloudy cataract. Just like an experienced surgeon, an experienced management/ development firm has learned from the best and has successfully performed this type of procedure hundreds of times already. Although I have no doubt you could eventually accomplish your own ASC’s management/development, much time, energy and therefore money will be lost in the process. Do exactly what your patients do — go see a specialist!”

“A management or development firm should have a successful track record and keep the physicians or their administrators from having to spend significant time planning and building. The firm should have a track record by specialty that can be adapted appropriately to the local community and physician preference. There should be no cookie-cutter process for the ASC. The management firm should have consultants who have significant clinical and business experience.”

“Ultimately, the quality of an ASC is a direct reflection on the quality of the development process. Similarly, a solid management culture will result in a successful ASC. Staff turnover, business office management, consistency of procedural processes and the core foundation of the center’s working culture are a direct reflection of the management process. Hiring a quality management/development firm contributes to the ability of the center to maximize all aspects of factors that lead to operational success.”

“Controlling cost and increasing profits. Many times we are called in after a project has already started and is floundering. A dedicated group of individuals is needed to keep the project on schedule and on budget — usually non-consultants in these projects are torn between other duties and the ASC suffers.”

“Really there are two primary reasons. The first is that a qualified development/management company focused on the ASC industry has been there and done that. In most circumstances, the ownership group is building their first and probably last ASC; management companies have done dozens of projects and can keep you from making mistakes. Mistakes in the early phases of a project will generate expenses that permanently impact the ability of the business to perform financially, as well as on a day-to-day basis. Secondly, a management/ development company keeps the focus on the business of the ASC, and how to drive the decision-making of the ownership in the best interest of this business. Especially with hospital physician joint ventures where objectives and priorities can come into conflict, a third-party management firm can keep the ownership group rational and focused to maximize the ASC performance of the ASC.”

“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.”

“Building a center for today while envisioning and organizing for the businesses needs 10 years out ... an ASC that is built to last.”

“Organizing the optimal group of surgeon owners is the biggest challenge in starting a new facility. Each surgeon has their own individual interests, point of view, and level of comfort with undertaking an entrepreneurial venture, and this can make it challenging to assemble a highly productive group of surgeons to come together with a common purpose in developing a surgery center. If the partnership is put together properly, it will pay long-term dividends; if not, it can fatally impair the center. Too many centers get started with an inadequate investing physician group and they end up only being partially utilized.”

“The key components of an ASC project are:

• A thorough and comprehensive business plan with realistic projections and supporting documentation backing the projections. Hire an experienced developer who can walk the client through the pitfalls inherent in ASC development. The best developers have a full team of people who focus on licensing and accreditation, business office systems, clinical start-up and managed-care contracting.
• An experienced architect and designer who will not overbuild or under-build the center and who understands ASC operations and can incorporate his or her expertise into the design
• A legal and operational structure that appropriately aligns the incentives of the interested parties including the nursing and clinical staff. As a corollary, selecting legal representation specializing in ASCs has a material impact on the entity on a going-forward basis.
• Proper equipment planning to appropriately identify the capital needs and installation requirements is critical.”

“The most challenging aspect of an ASC start-up is developing realistic expectations based on proven underlying financial/performance assumptions. Surgery centers thrive on sufficient patient volumes, streamlined design criteria, and holding capital costs within a reasonable range on a per square foot basis. Once operational, the challenges are more closely tied to obtaining payor contracts, getting licensed and certified, and controlling the ramp-up period of the enterprise.”

“Sizing and equipping the facility commensurate with case volume.”

“Getting the right mix of surgeons who are committed to utilizing and investing in the project, for without procedures, you have no revenue.”

 “Without a doubt, the coordination of all the tasks is the biggest challenge. From project inception through first case, through ramping up to full operational volume, the number and complexity of tasks can be overwhelming if the whole process is not coordinated by a firm that has experience with this type of project management.”

“Organization. Hundreds of tasks must be accomplished in an orderly fashion to successfully complete the start-up of an ASC. I have seen instances where the ASC is physically ready to be opened but some small issue, like scheduling your Medicare certification visit, was overlooked and the result was months of lost review — not a good thing. And this is just one of many things that can go wrong during the start-up of your ASC. You simply cannot afford to be unorganized during this crucial period of your ASC’s life.”

“The biggest challenge to an ASC start-up project is watching costs for capital equipment and preparing for the initial lack of cash flow. Realistically, an ASC will not make money until the center is six months old. This can create great stress and a cash-flow crunch. It is important to have start-up funds to cover this timeframe.”

“Hiring the right blend of staff that brings the experience necessary to achieve high levels of patient care and satisfaction, while at the same time bringing on board staff willing to create a new working culture that many times is different from their previous employer.

Most quality-management firms have the policy and procedure manuals necessary to put in place a working model. The challenge is hiring, training and continually working with individuals with a desire to create a center-of-excellence culture that elevates the center to a recognized provider in the community.”

“Obtaining payor contracts, as too many surgery centers accept a contract even though it is a poor one. It takes experience and hard work to put together a group of payor contracts that makes sense for a facility.”

“Every project will have its unique challenges. Commonly, the initial planning is not done, or not done well. A five-year model should be developed as a roadmap to the project. Without this planning exercise, sizing, equipping and building the new project can create many unnecessary sunk costs, including time to market.”

“Undoubtedly, the single biggest challenge that an ASC start-up project faces is managing the countless details involved in getting a new center up and running. There are so many laws, rules, regulations and guidelines that must be followed that without an experienced ASC partner, building and operating an ASC can be an extremely confusing and overwhelming process. Find a knowledgeable ASC partner with a proven track record so that you can focus on your patients while someone else manages the details.”

“The ASC must be unusually responsive to the needs of the physicians and their patients day in and day out.”

“Clinical excellence and efficiency go together in making for an outstanding center. Too many development/management companies are owned and run by business people rather than experienced physicians. The typical business person is ill-equipped to give the direct leadership required to ensure that the clinical outcomes are outstanding, OR turnover times are at 7 minutes or less, and the labor and supply costs are optimized. ASCOA’s physician owners are routinely visiting its partner facilities and optimizing all aspects of their operation.”

“Consistent delivery of high-quality patient care. It sounds obvious, but is the fundamental aspect of the business.”

“Crucial to successful ASC operations is managing the throughput in an efficient and quality fashion. Balancing the operating room schedule, staff planning, and physician relations are the key to success.”

“Managing the labor and supply costs because most of the other expenses are fixed, but those two expenses will heavily influence the profit margin.”

“Being properly staffed with quality personnel.”

“The No. 1 priority is to provide quality care in a safe environment for every patient. Today’s healthcare consumers expect and deserve access to quality, personalize and affordable healthcare. The ASC needs to be profitable in order to continue to provide state-of-the-art, quality care. Subsequently, their next priority is to control costs without compromising quality of care.”

“The most crucial aspect of day-to-day operations is cost per case and efficiency. Both go hand-in-hand, but monitoring continuously of the two will make a center profitable or not.”

“Maintain center processes that create high levels of patient satisfaction and healthcare delivery. Having patients and their referring physicians recognize your facility as a center of excellence and a preferred destination for procedures and surgical needs assures your position in the medical care community. Being recognized as a healthcare leader in your community will go a long way in countering competing entities and in securing insurance contractual arrangements.”

“Anesthesia staff and surgeons working together with a common goal. It takes more effort than most realize.”

“The ASC needs to focus on delivering to its clients on a day-to-day basis, delivering excellence in clinical services and the human experience. The primary clients of an ASC are the surgeons practicing there and the patients that receive care at the facility. Scheduling, on-time starts, room turnover, and patient pre-op and follow-up are specific metrics that can help you determine if you are delivering on your mission.”

“There are two crucial aspects of an ASC’s day-to-day operations; the first is a knowledgeable and experienced staff and the second is sound financial management. ASCs must provide quality patient care in order to stay in business. Without a strong staff of experienced medical professionals, it will be difficult for an ASC to produce good procedure outcomes and ensure patient safety and satisfaction. Without sound financial management, it will be difficult to run a financially viable center and ensure that day-to-day operations go uninterrupted.”

“You must employ sophisticated revenue cycle management strategy and techniques.”

“Get your labor costs down below 20 percent of your revenue by compressing your surgical schedule. The labor cost of doing 15 cases in a day are roughly the same as doing 30 cases per day, except that now your labor cost on a per case basis has dropped in half. This type of savings can make all the difference in the profitability of a facility. The industry average labor cost typically falls within a range of 25 percent to 32 percent. The best managed facilities have labor costs between 15 percent and 20 percent.”

“Create a team atmosphere whereby each individual at the ASC is aligned with the goals and objectives of the ASC. While appropriate and legal financial incentives are nice, the most important element is developing an inclusive culture that sets key objectives and consistently rewards achieving those objectives. This includes frequent meetings with staff and physicians to discuss key objectives and obtain their input. If the staff, administration, anesthesia and surgeons have agreed upon tangible goals, the outcomes will be generally excellent, the patients and their families will be happy, the physicians will be happy, and the center will position itself to be a success.”

“Continue to look for same-store growth opportunities. Given the challenges we are now facing, and the prospects for further reductions in reimbursement in the future, revenue enhancement will be critical to your ongoing success.”

“Anticipate lower reimbursement, lower case volume and investors who do not utilize the facility.”

“ASCs should be or become hospital/physician joint ventures, for it is the best economic and political model.”

“Create a business planning process and consistently review, update and monitor the progress of the center toward those established goals.”

“Rent represents only 10 percent to 15 percent of your facilities total overhead, so don’t make the mistake of sacrificing operational efficiency for a negligible reduction in rent by minimizing your ASC’s size. Not enough preop, recovery, storage, etc. can have a significant impact on your ASC’s ability to process patients efficiently. Although you could receive certification, accreditation & licensure on a smaller facility, in many cases it is simply not worth the minimal savings potential.”

“Don’t overbuild or don’t overspend on capital costs. Don’t think the ASC has to be fully staffed when the doors open. Hire a working manager who knows surgery and works well with physicians. Keep the focus on the financials in projecting for opening day.”

“Never assume that your center is operationally efficient. Always look for ways to improve your center’s ability to enhance patient satisfaction and the quality of your medical care. Likewise, always look for ways to improve your revenue cycle. From the initial scheduling of the patient to the zeroing of their balance, there are always points along the continuum that can be improved. Create a culture within your center that encourages and rewards quality-improvement efforts by the entire staff.”

“Do not sell equity to non-medical companies or individuals — selling equity is easy, but getting it back when you are making serious money is very difficult.”

“It is important to find a managing partner with a strong financial understanding and extensive ASC experience. Doing so will help ensure that your center remains financially viable and operates within regulatory guidelines. Without a partner like this, you will find that managing everything from patient accounts to employees and supplies is difficult and time consuming.”

“The demand for ASC services is strong and will increase. The payment system is under pressure and that will continue. So we find ourselves in a deflationary pricing environment while demand remains high. The keys to success are capacity optimization: strong case volume matched against fair reimbursement and lower cost structures. If as an industry we can present ourselves favorably in a comparison of cost and quality, the regulatory environment will take care of itself.”

“Put simply, we will continue to work harder for less, and the survivors will embrace this challenge and position themselves to compete successfully. Reimbursement will continue to challenge ASC margins and competition from hospitals will continue to affect our growth. Success strategies: 1) grow your business within your market, 2) continually look for opportunities to enhance your physician relations, 3) reduce variable expenses/case, 4) streamline scheduling, and 5) maintain an adequate cash balance.”

“My forecast is bright on the ASC industry, but I do feel that the payors and hospitals will continue to put downward pressure on reimbursement rates. Regulatory events will be minimal in affecting the industry, in my opinion. Ultimately, the patients will be our best market force.”

“The future of the ASC industry is greatly dependent upon the continued increase in joint ventures that include both hospitals and physicians.”

“The ASC industry has a bright future because it is the right model for providing the best care for those patients (consumers) who need outpatient surgical services. ASCs can best weather the challenges by managing the internal processes through planning and feedback as outlined in the previous question. The expertise and benchmarking brought by a management/development company is invaluable in this effort.”

“There are at least 6,000 hospitals in the country and conservatively I feel at least two to three ASCs could competitively exist in each of their geographic areas. As there are currently only about 4,000 ASCs in the country, the industry still has a lot of growth potential. ASCs should keep doing exactly what they are currently doing — offering a quality surgical experience at a lower cost and with higher patient satisfaction than the hospital. The surgeons, their patients and their insurance carriers, including Medicare, are all winners. This is a great business plan; keep up the good work.”

 “I think the future is good even with the challenge of reimbursement. Procedures are shifting out of the costly hospital. ASCs are becoming the preferences of patients evidenced by satisfaction surveys. We may have to operate even smarter, leaner, with smaller margins, but I do think there is a significant future for ASCs.”

“For over 100 years, hospitals have played a dominant role in the healthcare delivery model in this country. Few, if any, other industries have kept essentially the same operating structure in place for even a quarter of this time. ASCs are a bridge between a dated hospital model and what lies ahead. The trend will be that decentralized specialty facilities that range from surgical procedures to genetic testing to robotic diagnosis and nanotech treatments will be delivered more efficiently in an ASC type of facility. The successful ASC of the future will be the ASC that can continue to evolve with technology, demographics, and the challenges of reducing patient costs while at the same time maintaining regulatory compliance.”

“We are very bullish on the future. All trends are for increasing surgery across the board. Picking the right strategic partnership will allow you to position yourself nicely for years to come.”

“I personally feel that ASCs are ahead of the curve in terms of the direction U.S. healthcare needs to head. ASCs are focused on reducing costs at a number of levels (i.e., the cost of treating the patient in terms of local anesthesia, shorter stays, faster return to productivity, etc.). The aging Baby Boomers and their ailments, combined with the advancement of technology, will expand the treatments that can be delivered in an ambulatory setting, and as long as the ASC industry is focused on improving the patient experience and reducing costs, we should be competitively positioned to take advantage of the long-term growth projected for our industry.”

“The prospects for our industry are bright. ASCs deliver a higher-quality, lower-cost, and higher level of service than do hospitals. This reality will cause ASCs to triumph over their hospital competition over time. Hospitals are doing many things legislatively at the state level to try to obstruct the development of surgery centers. Those states where the hospitals have had success in protecting themselves from competition have the highest healthcare costs in the nation. In the long run, policy makers will eventually recognize that protecting the entrenched providers from innovation and competition is a mistake. Reimbursement will likely be flat or down on a per-case basis over the next several years. Hospitals, in contrast, continue to get increases in reimbursement for the same cases. Concerns over healthcare costs will ultimately keep in check the widening gap in reimbursement between hospitals and ASCs. Centers can best prepare themselves for these challenges by operating at optimal efficiency and by being politically active. In a climate that is adverse to increasing reimbursement, ASCs will need to become increasingly efficient to survive and thrive. Hospital political clout eclipses that of surgery centers and they are using it to our industry’s detriment. Surgery centers need to get the facts in front of legislators so that they can make good policy.”

“History has shown that despite the challenging environment and skepticism of many, ambulatory surgery centers are successful. Therefore, it can be expected that despite countless challenges, the ASC industry will continue to flourish due to:

• The high quality of patient care ASCs provide
• The ability of the center to meet physician needs
• The increased freedom and control ASCs afford physicians
• The ability for ASCs to provide patient care more cost effectively”

— Kristen Franz, Titan Health

AMBULATORY SURGICAL CENTERS OF AMERICA, LLC (ASCOA)
(866) 982-7262
www.ascoa.com

ASPEN HEALTHCARE
(303) 652.0522
www.aspenhc.com

CONTINUUM HEALTHCARE CONSULTANTS
(877) 794-4945
www.continuumhealthconsult.com

EARNHART & ASSOCIATES
(512) 297-7575
www.earnhart.com

ENDOGENIX
913-402-3790
www.endogenix.net

HEALTH INVENTURES
(720) 304-8997
www.healthinventures.com

HEALTHCARE VENTURE PROFESSIONALS, LLC
(615) 324-1820
www.hvpros.com

MARASCO & ASSOCIATES — HEALTHCARE ARCHITECTURE
(303) 832-2887
www.marasco-associates.com

NUETERRA HEALTHCARE
(913) 685-2111
www.nueterra.com

SYMBION, INC.
(615) 234-5900
www.symbion.com

TITAN HEALTH
(916) 614-3600
www.titanhealth.com

WOODRUM/AMBULATORY SYSTEMS DEVELOPMENT, LLC
(214) 369-2996
www.woodrumasd.com