It's budget-planning season for many ambulatory surgery centers, and that includes the ASCs for Meridian Surgical Partners. Brian Brown, regional vice president, operations, for Meridian, oversees the budget planning for the management and development company's surgery centers in his region. He identifies 10 ways he has seen an ASC's budget planning go awry, and then offers some best practices for how to better prepare for these scenarios.
1. Losing a physician you didn't expect to lose. "If we budget a physician in 2012, and then all of a sudden we get in the middle of 2012 and the physician moves, retires, their practice is purchased by a hospital or there's an unforeseen, life-changing event, now you are left scrambling to hit your budgeting targets," Mr. Brown says.
2. New physician you recruit does not perform as expected and projected. For example, an ASC might recruit a bariatric surgeon to implement a laparoscopic gastric banding program at the center. But if the program isn't as initially successful as hoped and planned for, this recruited surgeon may become disinterested and his or her performance could fall off, Mr. Brown says. The struggles of the program and an underperforming surgeon will both impact budget projections and strategic plans.
3. Adding new procedures that drive up supply costs per case. "Let's say you get into 2012 and all of a sudden you have an urologist who wants to do sacral neuromodulation or you decide to add spine/pain stimulators or laparoscopic gastric banding— procedures with a high supply cost associated with them," Mr. Brown says. "Then the statistics in your budget are going to go awry. If you budgeted $300 in supplies per case and then you start doing cases that cost $10,000 per case, what is that going to do to your budget?"
4. Leases and/or contracts expiring. Considering the number of service contracts, maintenance contracts, equipment leases and warranties on equipment that an ASC is responsible for, it is likely that one, if not more, will expire each year. This will facilitate the renewal or addition of a contract. With so many contracts to keep track of, it is not uncommon for an ASC to miss when one expires.
"Let's say you bought a new piece of equipment in Oct. 2011 that comes with one-year warranty," says Mr. Brown. "Then if you get into Oct. 2012 and you've forgotten about that warranty that's going to expire when you do your budget, then you're going to have this added cost."
"You could also get into a situation where you thought you had warranty coverage but it expired, and if you have an unexpected repair, it can cost thousands of dollars and ruin your projection for a month," he says.
5. Seasonality. Most ASC volume ebbs and flows; it is rare for a surgery center to have a consistent number of cases every month. To budget effectively, it is critical for ASCs to consider the many different factors that could drive volume up or down, says Mr. Brown. This can include:
- Physician vacations. "If a physician always takes spring break in March, then you need to plan that in your budget, you need to alter your budget according to volume," he says. "Let's say this applies to a GI surgeon you expect to perform 100 colonoscopies every month. If you project 100 for every month, come March, what's going to happen to your budget if he's only going to have two weeks worth of colonoscopies?"
- Reset of deductibles. Most deductibles reset at the start of a new year. As a result, elective surgery in the first few months of the year typically declines as prospective patients try to wait on elective surgery until their deductibles are met, Mr. Brown says. Patients are also often concerned with paying off holiday bills at the start of the year and try to avoid spending more money during this time.
- Snow birds. If your ASC is located in a state like Florida where a significant portion of the population only lives for part of the year, this will impact case volume. "We have a situation with snow birds who come to Florida from October until March or April," Mr. Brown says. "If you don't plan your budget accordingly in Florida for the snow-bird season, you're going to miss your budget."
- School season. Some specialties are also impacted by seasonality. For example, ENT has a significant number of pediatric patients. "There are a lot of kids who receive care for tubes and tonsils," he says. "When do kids get sick? During school season. So during the summer months, ENT surgery can be down."
6. Wage increases. "If you have a situation in a market where you're going to need to budget higher wage increases than normal, or if you get into the year and you lose personnel and you have to replace them with personnel that are paid more, then your statistics are going to be off from what you expected," Mr. Brown says. "Let's say you have to replace a $25/hour nurse with a $30/hour nurse. Now you'll have a variance in your budget."
7. Survey requires changes. If CMS, OSHA or one of the accrediting bodies conducts a survey at your ASC and identifies areas in need of improvement, it is likely that implementing the changes to address these concerns will cost money, and that will be reflected in your budget, Mr. Brown says. "In the past, a lot of ASCs had their employees launder their scrubs at home," he says. "That's no longer acceptable. You now have to have a third-party laundering service, and that costs the surgery center money."
Very poor survey results might require an outside consultant to come in to the ASC to oversee changes or surveyors might require the temporary closing of the center while problems are fixed, which will significantly affect a budget.
8. Staffing projections. Staffing costs are one of the top two highest costs for an ASC, so budgeting for an appropriate number of staff is critical to maintaining profitability each month. If your volume projections are off, your staffing is likely to be off as well, Mr. Brown says.
"If you predicted your volume to be at 400 cases a month in March and then you only have 300 cases that month and you staffed for 400, you'll have to adjust staffing," he says. "It could also go the other way — you budget staff for 300 cases and have 400 cases, and you'll have to bump up staffing to an appropriate level."
9. Reimbursement changes during the year. Reimbursement fluctuations, while hard to predict, can wreak havoc on a budget. For example, if you have a managed care contract that expires mid-year and it was a contract based on percentage of charges, but the payor decides to change to a grouper schedule following Medicare, your ASC is likely faced with receiving less reimbursement than it projected.
10. Budgeting large purchases. It is important to plan for equipment purchases in your ASC's budget, but sometimes how you intend to make these investments can change based on your cash flow and availability of financing.
"For example, if you thought you were going to purchase something with cash and now you need to finance it, you're now going to incur the associated interest charges," Mr. Brown says. "Or if you were planning to purchase a piece of equipment and wanted to finance it but now the financing options aren't there, you'll need to come up with the cash."
Keeping your ASC prepared
While it is not possible to address all of these scenarios in your budget planning, there are some steps Mr. Brown advises ASCs to help keep your budget from going awry.
• Communicate and meet with your physicians. "Ask them what's going on in their practice," Mr. Brown says. "Ask what they see going on in their specialty going forward. Are there new procedures? Is there a growing or decreasing patient base?"
• Review all of your contracts. This includes service, maintenance, equipment and managed care. "If you review all of your contracts, you'll have a better chance to come up with or be prepared with a solution for something happening," he says.
• Talk to your vendors. "See if you can get from them price increases that are coming that they know about so you can better predict in the future what's going to happen," he says.
• Stay informed. "Keep up on new technology, and new procedures that are coming and that are being allowed in the outpatient setting," he says. "This way you can get carve outs for those procedures and make sure you get reimbursed for them in your managed care contracts so you can maintain your margins for those high-cost supply items," Mr. Brown says.
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