The teams responsible for day-to-day ASC operations often have a strong clinical background, but they may find it overwhelming to review financial data. By applying a few simple strategies, it's possible to unlock insights from financial statements that can help ASCs grow and thrive.
During a session at Becker's 21st Annual Spine, Orthopedic and Pain Management-Driven ASC + Future of Spine event held in June 2024, Matt Lau, Senior Vice President of Client Accounting and Financial Services at MedHQ, shared actionable ideas for generating more value from ASC financial statements.
Four key takeaways were:
1. Simplify the income statement by categorizing expenses. It's easier to identify trends in ASC costs when expenses are grouped. Mr. Lau recommends creating subtotals for expenses related to direct supplies, labor and overhead. "It's also helpful to divide expenses into fixed and variable costs. Fixed costs stay the same regardless of case volumes, while variable costs fluctuate with the number of cases performed at the ASC," Mr. Lau explained.
2. Evaluate monthly income statement trends. A valuable report is an income statement that includes 12 months of performance. Another is an income statement that compares actual performance to budget. Five categories of information are of particular interest for ASC teams:
- Total case volumes
- Total revenue
- Direct supply costs
- Total labor costs
- Operating income
Significant variances in these categories can indicate changes to the business or highlight red flags.
3. Remember that case volumes are the lifeblood of an ASC. Case volumes drive revenues, supply costs, labor and the bottom line. "Anytime there is a variance on the income statement, look first at the volume or mix of cases," Mr. Lau said. As a standard operating procedure for all ASC clients, MedHQ includes case volumes by specialty at the top of income statements.
4. Use the balance sheet to analyze your cash position. ASCs must closely track their cash balance, and essentially every line item on a balance sheet can impact cash flow. However, the items that most closely impact short-term cash flow are:
- Total accounts receivable
- Total accounts payable
- Distributions to investors
If accounts receivable days are stable (i.e., one month to 40 days), it's easier to cash flow plan for the next month and ASCs may feel more comfortable making distributions. Danger signs include rising accounts receivable days and accounts payable balances. On balance sheets, MedHQ splits out distributions by year. "This gives ASCs insight into the owners' return on investment and clearly shows where cash is going," Mr. Lau said.