The True Value of Case Costing

The True Value of Case Costing
One-on-One with Ann Geier

By Jennifer Schraag

Ann Geier, RN, MS, CNOR, CASC, vice president of operations with Norwell, Mass.-based Ambulatory Surgical Centers of America (ASCOA), sits down with today’s surgicenter magazine’s Jennifer Schraag to discuss why case costing can be so beneficial to an ASC’s bottom line.

JS: Case costing can be an effective tool in keeping costs under control in the ever-challenging and constricting reimbursement setting faced by today’s ASCs. What makes it so important, and what one message is important to convey to center administrators?

AG: You have to do it. At that point, you know what it is costing you to do business. You can make educated decisions based on what it is costing you to do cases and you can monitor and control your supply and staffing costs.

JS: Case costing can have many variables. How does one determine both the direct and the indirect costs relating to case costing and how should each be separated out?

AG: The direct cost is the cost of the supplies you use to do the case. Obviously, they should be proportional to the number of cases you do — so that’s case-specific. The indirect is everything else. That’s all your overhead. Anything that is not a direct supply cost goes into the cost of doing business. You kind of know where you should be based on that. Your supply cost is going to be dependent upon your case mix. For example, orthopedics is going to be more expensive. If you have a single specialty center such as ophthalmology or GI, you should have very low case costs.

Staffing is another example: In our company, we don’t count staffing in the direct cost per case because it varies and we like to capture all the staffing. So what we do is take the supply cost for a particular case and we figure out what the overhead is for the rest of the center, then allocate it by OR (operating room) cost per minute. We just recently readjusted the formula at ASCOA.

JS: Can you share some tips on how to best analyze the results of cost accounting?

AG: First of all, you have to do it. And getting started is the hardest part. When I teach the courses that I do, what I find is that centers don’t have an inventory loaded or they only partially have it loaded and then they say ‘Well, we just don’t have the time.’ Well, they don’t have the time not to do it. It is critical. They have got to do it. That’s what I try to tell people.

So, No. 1, you have to have your inventory loaded. You also have to have your preference cards loaded in your system. This gets into the point where practice management systems do not fit surgery centers. I just did an AAASC (American Association of Ambulatory Surgery Centers) survey yesterday and they were using a practice management system in their surgery center. They can’t do case costing. It is not set up that way. So then you get back down to paper and pencil and you talk about labor-intensive.

Basically, you load all your inventory, you have to know what your unit price is, you have to know exactly what your preference card has on it, and then each case is tied in to the case costing per preference card. If you’re doing 10 cataracts today, there’s bound to be differences in supply costs … maybe they opened an extra blade; maybe they opened an extra gown; that should all be reflected because it has to be marked by the staff. Staff is heavily involved.

Then, that is entered in to the computer so that when you run your case costs for today, every patient has supply costs attached to their case. At the end of the month, or however often you do it, there are a couple of benefits to that: you can do case costing based on all the cases that you have done, compare it to the revenue you made, to see what your profit margin is, and take into account your overhead. You can also take one CPT code, if you have five ophthalmologists, take one CPT code and do their cost per case, the average of their cost per case. Then give it to them. If you have one doctor that is real expensive and one that is not expensive, I guarantee you that is going to drive the cost down — they don’t like to be the most expensive doctor.

JS: What types of resources are available to center staff to assist with the case costing process, and what are the “tried and true” best tools to use?

AG: That’s the hard part. I work for a company and we do it 100 percent in all of our centers, but even if you don’t, you can do it by hand if you just know how.

The basic principle is to know what your direct supply costs per case are and how to calculate your overhead costs so that you can then allocate that based on the number — obviously, the more cases you do, the lower your overhead cost is going to be because it dilutes it. There are seminars out there about it; articles are written all the time; if you’re active in your state society, the people that are doing case costing are usually more than willing to help with it. It’s just important.

JS: What is the No. 1 most overlooked aspect in case costing?

AG: Not loading the inventory. At the initial start up of a center, it takes time. Rarely do they do it. With ASCOA, everybody has to do it. In fact, administrators are not eligible for their bonus if they are not doing complete case costing every month. It’s a big deal; it’s a huge deal at our centers.

JS: Do you have any last thoughts on the topic?

AG: Stressing the importance of accurately loading the information; it is much harder for a center that is up and running. If you’ve been open two years and you want to start doing case costing, to pull someone out to start loading all this stuff is just huge. People don’t want to do that, but they’re killing themselves by ignoring it. You have to do it.

Also, only one person should do the entry of the inventory and the preference cards because only then will it be consistent. If you have several people trying to do it, people will enter things in different ways and now you’re not capturing apples-to-apples.

We’re passionate about it at ASCOA. We believe in it. It truly makes a difference.