Ambulatory surgery centers are well-positioned to take on growing outpatient volumes under healthcare reform, but administrators still must employ sound financial strategies in order to stay solvent in an era of declining reimbursements.
At the 11th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 13, Rajiv Chopra, principal and CFO of The C/N Group, discussed how ASCs can remain financially solvent today and what it takes to find that balance.
How to evaluate an ASC's solvency
There are several metrics ASC executives should monitor to ensure they are on a sound fiscal path. For example, Mr. Chopra said ASCs must beware of large debt commitments. Debt to EBITDA should be at 2x or less, and administrators must also closely follow net cash and debt service coverage ratio.
From a liquidity standpoint, ASCs must keep their accounts receivable active, and days sales outstanding, or the time it takes to get paid on a claim, should be between 30 and 35 days on average, he said.
Finally, ASCs should generate a financial statement every month with all of these metrics in order to catch any negative trends. "This is about trying to get an early warning system to identify critical trends," Mr. Chopra said. "What are our revenues? Are payers cutting reimbursement? It's seeing what's falling to the bottom line and what the trend is."
Managing a financially sound ASC
ASC administrators must have a certain skill set and work ethic to manage a solvent facility, Mr. Chopra said. For example, administrators must make fact-based decisions, provide analytical support and think of long-term objectives.
Further, he said ASCs must benchmark themselves nationally and locally to ensure they are performing up to industry standards. ASCs can find benchmarking resources from analytics firms, state ASC associations or networking with other ASC administrators. "[Networking] is your best source," Mr. Chopra said. "You're going to get numbers but also color commentary behind those numbers."
Securing the future
ASCs cannot be all things to all people, so Mr. Chopra says leaders must establish a vision to keep the center on track. Questions to ask include: Where are we going as a center? What's the outlook? What's happening in our market? What are hospitals doing? Which specialties do we want to expand or bring in?
Financially, Mr. Chopra also recommended ASC administrators refinance their debt within the next 12 months. "If you have debt, refinancing will cut your interest expense," he said, noting how the historically low interest rates will not be around for too much longer.
At the 11th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 13, Rajiv Chopra, principal and CFO of The C/N Group, discussed how ASCs can remain financially solvent today and what it takes to find that balance.
How to evaluate an ASC's solvency
There are several metrics ASC executives should monitor to ensure they are on a sound fiscal path. For example, Mr. Chopra said ASCs must beware of large debt commitments. Debt to EBITDA should be at 2x or less, and administrators must also closely follow net cash and debt service coverage ratio.
From a liquidity standpoint, ASCs must keep their accounts receivable active, and days sales outstanding, or the time it takes to get paid on a claim, should be between 30 and 35 days on average, he said.
Finally, ASCs should generate a financial statement every month with all of these metrics in order to catch any negative trends. "This is about trying to get an early warning system to identify critical trends," Mr. Chopra said. "What are our revenues? Are payers cutting reimbursement? It's seeing what's falling to the bottom line and what the trend is."
Managing a financially sound ASC
ASC administrators must have a certain skill set and work ethic to manage a solvent facility, Mr. Chopra said. For example, administrators must make fact-based decisions, provide analytical support and think of long-term objectives.
Further, he said ASCs must benchmark themselves nationally and locally to ensure they are performing up to industry standards. ASCs can find benchmarking resources from analytics firms, state ASC associations or networking with other ASC administrators. "[Networking] is your best source," Mr. Chopra said. "You're going to get numbers but also color commentary behind those numbers."
Securing the future
ASCs cannot be all things to all people, so Mr. Chopra says leaders must establish a vision to keep the center on track. Questions to ask include: Where are we going as a center? What's the outlook? What's happening in our market? What are hospitals doing? Which specialties do we want to expand or bring in?
Financially, Mr. Chopra also recommended ASC administrators refinance their debt within the next 12 months. "If you have debt, refinancing will cut your interest expense," he said, noting how the historically low interest rates will not be around for too much longer.
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