Boosting ASC Profitability

Boosting ASC Profitability
Ancillary Services Offer Surgery Centers Financial Gains, but Only if Handled Well

By Michelle Beaver

Adding services to an ambulatory surgery center (ASC) can save an ailing center, or improve a successful one. It can also result in a big fat mess.

One ASC consultant, Sandra Jones, heard of ASC partners who years ago damaged their center by poorly adding an ancillary service.

Jones is a principal with Woodrum Ambulatory Systems Development, and Ambulatory Strategies, and says that some ASC owners and operators are extremely savvy about how they add services, while others do not go about it the right way.

The center she recalls was an established pain management business. Operators of an ophthalmology practice nearby did not have an operating room (OR), and wanted to partner with the pain management center so that they could use the resources there.

“They went gung ho and said, ‘let’s do it,” Jones says.

Excitement, however, did not make up for a lack of planning.

“They didn’t have the processes or patient flow down well,” she says, “and they didn’t think about the difference in the type of patient they served from the pain management patient versus the ophthalmology patient.”

Another problem was that the pain management nurses didn’t have the expertise necessary for eye procedures.

“It just wasn’t going real well,” Jones says. “They backed up, took a another look at it and ended up contracting with a company that supplied ophthalmology equipment and surgical techs so on the day that eye cases were scheduled that company brought in the equipment and a surgical tech who was skilled in eye cases.”

The solution was fantastic, but doing something right the first time is of course a better route.

“Generally the best services are the ones that utilize existing equipment,” he says. “For example, if you have orthopedics in your center, it is very easy to bring in pain management. More and more centers are hiring anesthesiologists. I would not recommend bringing on anesthesiologists until the center is up and running and you know what your true case volume will be day in and day out and whether that volume will support the anesthesiologist’s salary.”

Typically, the staff of one OR can perform anywhere from 15 to 20 pain procedures in one day, Hetrick says.

“I know of no center where pain management fills one OR five days a week,” he adds. “Usually pain management will have an OR two to three days a week and would fit in additional cases in other rooms.”

He recommends gastrointestinal (GI), and ophthalmology services for centers that already have high volume, and advises that at least three surgeons per specialty be on board before a service is added. Hetrick believes that if an addition is carried out properly, it should not add to a workload.

“If you are already covering your fixed costs, most of the additional revenue will drop to the bottom line,” he says.

Imaging services, on the other hand, are not usually part of ASCs, says Thomas Michaud, chairman and CEO of Foundation Surgery Affiliates in Oklahoma City, Okla.

Most of the centers he works with include pain management, GI and ophthalmology.

“All of our anesthesia is provided under contract by third party providers,” Michaud says. “We have elected not to become involved in this area …. Part of the historical success of the ASC industry has been based on our ability to focus on minimally invasive, non-life threatening surgical procedures. Getting too far away from this concept, drifting toward a hospital-services mentality may not serve us well.”

Pain management is a fairly standard complement to many ASCs, according to Jones. It requires a c-arm, but several centers already have this if they offer orthopedics.

“With pain, neurosciences and orthopedics seem to be a very good fit …” Jones says. “The equipment that is needed for those three specialties are complementary. If you have one you can pretty much meet the needs of the next specialty.”

Pain management does, however, require more beds than orthopedics requires because pain management cases turn over faster, she says.

“That means you have to have an area for your patients to get prepped before the case and recover after the case and those recovery and pre-op beds you’ll need more of if you’re doing those specialties,” she adds.

Jones agrees with Michaud’s view that radiology services are not the way to go. They are not reimbursed, and attempts to get surgery centers lessened as independent diagnostic testing facilities have not worked, she says.

“When you’re looking at urology and being able to do some of the breaking cancer-therapy treatments associated with that, it requires radiology,” she says.

As far as GI, Jones has seen that several centers that focus strictly on GI do well, and those that offer it as an ancillary service can also be successful. It depends on the center, and the conditions.

“GI equipment is rather expensive so if you’re thinking of getting into something quickly and inexpensively, GI is probably not it, because it is expensive to buy the number of scopes and equipment needed in order for the procedures to go quickly,” she says. “You have to have enough scopes so that when one’s cleaning you have another one to use… and that can add up to $250,000 or so.”

Reimbursement for ophthalmology is going down, but Jones still recommends it in general.

“You would certainly want to be able to group your cases so you can use your rooms well and your turnover of patients can be quick,” she says. “You can probably get into the equipment for around $100,000. There are some financing options available from some equipment vendors that allow you to not need a lot of upfront cash outlay required to buy the equipment.

“Ophthalmology is sort of like GI in that it’s not real cheap to get into,” she adds. “You have to have physician and staff cooperation to be able to turn the patient flow over quickly and do a lot of cases per hour or day.”

Indeed, equipment is one of the biggest expenses when adding services. Careful consideration is necessary, Michaud says.

“If significant medical equipment is required to add a specialty, it is important that the committed case load is sufficient to amortize the added equipment over a reasonable period of time,” he says. “I believe that the majority of ASCs in the country are not operating at full capacity. The best way to generate more profits is to perform more cases in the specialties currently being performed at the ASC.”

“Many states have dollar investment thresholds that limit the amount of improvement and expansion that a facility can undergo before additional state approvals are required,” he says. “Some states have limits on the number of specialties that an ASC can perform, (which means) adding to this number may require additional approvals. Each state is different …”

There may even be certificate-of-need requirements for the type of service, space or equipment in question, or for the capital budget a project entails, says Joni Steinman, managing principal of AUSMS Healthcare Consultants in San Diego, Calif.

“Many a ‘white elephant’ has been built by lack of regard or understanding of regulatory requirements,” Steinman says. “As an example, adding post-surgical recovery care or overnight stays can pencil out very nicely but may fly in the face of your city’s zoning limitations or your state’s licensure provisions.”

According to Jones, however, licensing does not always have to be a contention point.

“I’ve done surgery centers in a lot of different states and I’m not sure if I know of any that are really particular to the type of cases,” Jones says. She has worked in states such as Florida, Georgia, Missouri, Texas, Virginia, etc. “There may be some that have different requirements based on the level of anesthesia, but I can’t think of any nursing requirements or handling of instruments that are different by specialty.”

“What is important when considering how to improve profitability is to assess carefully both costs and revenues in their current configuration,” she says. “Often profitability can be improved by subjecting current operations to an objective and transparent evaluation of their merits, in particular, against benchmarks that emanate from related facilities.”

The absolute worst mistake when adding a service is to hang back and just “hope everything works out,” Hetrick says.

“You must plan carefully the cost and potential revenue of adding the service,” he adds. “You do not want to have the new service be a drain on your successful center or even worse is if the center is border line and the additional service makes the situation worse.”

It is vital to think about the staff and clinical processes, but also the patient process, Jones notes.

“There have been surgery centers that have a couple of operating rooms but they only have five or six pre- and post-op beds which means it’s very difficult for them to have enough space to handle GI, or eye or pain cases because of the rapid turnover,” she says. “That complement of operating rooms and procedure rooms is an important thing to evaluate.”

The ASC industry has been significantly commoditized and homogenized over the past five to seven years, Michaud shares.

“In most urban areas we probably have enough (or more) capacity to satisfy the outpatient surgical demands of the related population and at the same time we are seeing a decline in our average reimbursement per case,” Michaud adds. “In the past, we have focused on certain specialties that could produce significantly higher profits than other specialties. With changes in reimbursement methodologies by the payers, these price differences are decreasing. One of our most important key performance indicators now is cases per OR per month. We have truly become a volume business.”

“Are you going to add an awful lot of equipment and process changes and not get a lot of results?” Jones asks. “You want to actually get some commitment from the surgeons verbally and see what kind of business they can really bring to you. Before you invest in more equipment, see what you can lease, and what equipment you can get as a short-term loaner while you see if the physician is really going to bring the cases to you.”

Jones says she heard of a surgeon who made a commitment that he was going to bring a large amount of pain cases to a surgery center. The staff got excited and purchased a c-arm and pain table.

What did the surgeon bring?

Two cases.

He never offered an excuse, and never offered results either. Needless to say, the partnership did not work out.

Jones recommends getting “concrete verification” of cases by volume from a physician before signing him or her.

“It would be nice for them to get a computer print-out from the physician’s office that actually showed the volume so they had hard data of what his practice actually looks like,” she says.

She also advises that ASC owners and operators not only look at reimbursement from a government angle, but that they make phone calls and see what type of reimbursements would be available from the major HMOs and PPOs.

“Not only those in their market but the ones (from that physician’s practice),” Jones says. “If he has a lot of business from Aetna, for example, what kind of reimbursement is Aetna going to give a surgery center? If he is supposed to have a big practice payor that’s United, what kind of reimbursement is United going to give the surgery centers? Are they even on contract, and can they get on contract?”

Most surgeons are great team members, but some can be unreasonable in their demands. This type of prima donna can put costs through the roof.

Jones suggests that employers ask themselves, “how much does the physician commit to supply control, and what type of supplies does he request and or/demand?”

“This is a two-way street and it should be a cooperative effort,” she says. “You’re willing to do everything you can to make him efficient and so that he’ll be able to provide good care to his patients but you also need commitment from him that you’re going to keep your costs in line so that your surgery center doesn’t lose money every time they do this case.”

Steinman recommends a seven- to 10-year planning horizon for a strategic plan and three to five years for implementing business plans.

“Though it is always advisable to plan carefully for your ASC’s growth and development with an eye to the future, over-building can be fraught with financial landmines if the ASC’s growth goals are not met and built-out space cannot be transformed into revenue-producing space,” Steinman says. “But with diligent execution of one’s business plan, having shelledin space offers opportunity for program development without having to consider new construction, which can sometimes be viewed as an impediment to speedy start-up.”

Hetrick is careful not to over speculate.

“We build our surgery centers to the volume that we know we have,” he says. “If we either need to or can fit in other services later we will but we don’t base the center on services that we don’t have.”

Michaud also touts a moderate, realistic attitude toward growth.

“For the most part, adding specialties within most centers — given favorable regulatory conditions — would not be a problem,” Michaud says.

“If there is the possibility the surgeon group may want to someday convert to a surgical hospital, many additional factors are involved in the physical design of the facility,” he adds. “It is normally best to decide now what you want the facility to look like five years from now and build that facility with some reasonable growth potential factored in.”

“If an ASC is at the high end of cases-perstaff formula, adding even a few cases may add significant personnel costs as additional staff will be required,” he adds. “If the ASC is at the low end of the cases-per-staff formula, there may be virtually no additional staff costs involved in these new cases.”

A common mistake is to over-estimate revenue ramp up, according to Steinman.

“More so than mere revenue projections, along with under-estimating the impact that adding services or changing one’s tried and true menu of services has on ASC operations and staff,” she says. “It’s crucial to understand the culture of your ASC organization so that you don’t end up adding a prospective profit-booster only to damage the essential nature and functioning of the ASC’s other programs and services.”

Jones suggests a moderate, gradual approach.

“I think in construction you definitely need to look at how you can make it the right size for your current practice and have some flexibility for adding later,” she says. “If you build it too big you’re going to have a lot of overhead expense paying for that building. If you build it too small you might be efficient for one or two specialties but you’ll never be able to grow.”

One area where most ASCs overlook revenue improvements is in their claims management, says Rich Flaherty, a manager at ZirMed, a company that provides revenue cycle management solutions.

Many ASCs submit their claims electronically without the tools to manage their claims in real-time, Flaherty says.

“ZirMed’s Online environment gives the ASCs access to the status of their claims online and the ability to edit and resubmit their claims back to the payers without having to print claims status reports and continually resend the claims through their application,” Flaherty adds. “The affect on their revenue cycle is in the productivity of their billing personnel which allows them to avoid hiring of additional FTEs as the ASC grows and potentially redeploy excess personnel to other areas of the organization.”

Another way to improve revenue is through patient pay statements. Many organizations process their statements internally, which requires significant labor hours and capital.

Industry studies show that the total cost for an organization to mail a statement to a patient ranges between $1.75 and $2.95 per statement,” Flaherty says.

“ZirMed and other organizations offer the ability to outsource the processing of patient statements for a fraction of the cost, usually approximately $.62 per statement,” he says. “In addition to the cost advantage, there is also a timeliness advantage. Because the process of uploading statements for processing is so easy, an organization can begin to send out statements on a daily basis and will experience an increase in payments off of first statements because the patient in getting their statement more timely, further reducing administrative costs associated with collections.”

And in the end, every dollar counts.