There are many misconceptions about ASCs and the best ways to run them. This is a list of 41 things that you should know about surgery centers.
1. CMS's new rates are viable. Last year, we wrote that the new Medicare rate for surgery centers would generally be negative. After further study, and a better understanding of the political and economical impact, we tend to disagree with this earlier conclusion. The new rates from CMS are generally positive for higheracuity procedures and negative for lower-acuity procedures. There are several winners and several losers under the new rates. Overall, the less your center is heavily focused on lower-acuity procedures like gastroenterology, pain management or ophthalmology, the more the overall impact of the changes is likely to be positive or of minor ultimate impact.
Further, the changes should provide greater stability for several years to surgery centers. Finally, the changes' hard-wired-in concept of surgery centers being reimbursed 65 percent of hospital outpatient departments provides a tremendous political card to be used constantly for surgery centers in Washington, D.C., and other places. In essence, each time a procedure is done in the surgery center, there is almost no question that the federal Medicare program is saving money.
"At Practice Partners facilities, we are, as anticipated, experiencing increased reimbursement in those cases with higher acuity — specifically orthopedics," says Larry Taylor, president and CEO of Practice Partners in Healthcare. "Our pro forma materials for centers reflect the anticipated phased-in reimbursement for both the increases and decreases depending upon specialty. We believe that there is continued success in the specialty of pain intervention and will continue to experience excellent margins."
Tom Mallon, CEO and founder of Regent Surgical Health, is also seeing strong gains in orthopedics.
"We analyzed the Medicare reimbursements for every one of our centers," Mr. Mallon says. "All received a net gain — from $20,000 annually on the low side for a center with high GI and cataracts, to $200,000 for a heavy ortho center."
2. Under-arrangements transactions. Over the last few years, several transactions were developed that were driven by under arrangement structures. These promised that the physicians and hospital that own the infrastructure company would thrive and, at the same time, the hospital would be able to make an extra delta between the amount it was paid as a hospital outpatient department by commercial payors and Medicare, while paying surgery center infrastructure companies a lower amount. Thus, these transactions seemed to be a win-win for hospitals and surgeons investing in the infrastructure company. However, in the past 18 months, CMS has commented extremely negatively on these arrangements. Thus, they are not nearly the panacea that they used to be.
Jon O'Sullivan, a senior partner with VMG Health, offers these three observations about under arrangements:
- "Generally under-arrangement structures do not pass the 'commercially reasonable' test. In order for a venture to have a fair market value, it must also be commercially reasonable. Commercially reasonable is generally defined as a standard of reasonableness applied to ventures conducted in good faith and that the generally accepted commercial practices were followed, which is a subjective test of what a reasonable person would do in the individual circumstance, taking all factors into account. Under this test, in order for an under-arrangement to be commercially reasonable, it should be a structure that a hospital would enter into with a third party regardless of referral relationships. In actuality, most, if not all, hospitals would never enter into an underarrangement relationship with anyone other than a referring physician, thereby bringing into question whether the structure is a commercially accepted practice of what a reasonable person would do."
- "Under-arrangements structures generally result in a higher cost of care to the payor (resulting from the higher hospital reimbursement) for a service that is no different that that which is provided in an outpatient setting. As such, under-arrangements are often viewed as a manipulation of the system whereby the hospital uses its higher level of reimbursement to affect a relationship that is designed to preserve or enhance referral relationships."
- "Finally, in many cases, the amount of 'reimbursement' paid to the physicians for services provided to the hospital under the under arrangement relationship is suspect. In most cases these reimbursement structures do not carry the same risk or administrative costs as compared to normal payor billing processes, but are often more lucrative to the physicians. As such, establishing fair market value standards for these relationships can be complicated and problematic."
3. A hospital partner does not solve all problems. A hospital partner can make it easier to obtain contracts and can make it easier to recruit physicians. But the extent of the benefit that a hospital can provide to an ASC on managed care contracting is quickly declining. However, there are still several other benefits a hospital partner can provide to surgery centers.
"In some cases, a hospital can contribute to securing better payor contracting," says Rick DeHart, CEO of Pinnacle III. "This depends on the hospital's experience with ASC contracting and the amount of leverage it is willing to apply based on its other agreements. The other benefits could include supply purchase agreements and shared service agreements (i.e., bio-med service, housekeeping, maintenance, etc.). Also a hospital partner can add benefit to efforts such as physician recruitment, physician referrals and community support."
"If a hospital owns a minority share of the project, the hospital may not be all that helpful with contracting initiatives," says Jeff Leland, managing partner with Blue Chip Surgical Center Partners. "Hospitals often have excellent banking relations in the community and will be very helpful when arranging financing. Often the hospital will have surplus equipment which may be purchased at reasonable cost. The hospital, of course, often provides credibility, and with a hospital partner the politics of launching a new ASC will be minimized."
4. Setting a bad contract for a small number of patients is not smart. In essence, we are increasingly seeing situations where surgery centers sign a bad contract for a very small percentage of their patients. This contract might not be heavily negotiated and it may be at a low price. The surgery center reasons that this has little impact to them because these patients represent a small percentage of their patients. However, increasingly, one preferred provider organization or insurance company sells their contract rates and leases out the network to another party. Thus, when somebody thought they were contracting for 1 to 2 percent of the patients, they find over the course of time that they are actually contracting for a great number of their patients. Thus, surgery centers have to be increasingly vigilant about walking away from contracts that are not at rates that are profitable.
"Why would you ever sign a contract that you're going to lose money on?" asks Brent Lambert, MD, FACS, chairman of the board and a founder of Ambulatory Surgical Centers of America. "Once you've signed a contract with a payor, it's very hard to move it. You're establishing a relationship in which they think of you as a sucker.
"You may sign a contract — it may not be a terrible contract but it's not a very favorable contract — with a small payor, and you find out they have other relationships with other payors, and now you're locking yourself into very unfavorable payments with other payors where you could be getting more if you went to them individually," he says.
5. The loss of a few physicians is not fine. Surgery centers are increasingly becoming businesses that may profit when they hit a critical mass and perform more than a threshold number of cases. In the past, a few lost physicians could be easily replaced by other free physicians. However, there seem to be fewer and fewer independent and free surgeons available. Thus, each surgeon is starting to have more impact than each used to have.
"The loss of a surgeon is never acceptable due to the expense of establishing each provider, much less the loss of revenues and margin," says Mr. Taylor. "This is an issue that has always plagued ASCs — as any business with top-line decreases, the point of less independent physicians not currently involved in a center has decreased, but there continues to be availability of physicians in the market place to support both new facilities and increase productivity in existing centers. The point to be emphasized is that customer service, efficiency and profitability are retention issues that the entire facility staff needs to clearly understand and be a part of. Instances where one center's loss is another center's gain depends upon what end of the equation you are on."
Mr. DeHart agrees: "Many ASCs operate in mature markets where the majority of surgeons are committed to their operating facility. Therefore, losing a surgeon and easily replacing him is a difficult task. I believe that ASCs need to continue to work hard on customer relations to maintain their physician bases. There are too many choices in today's environment."
6. Spine procedures and orthopedic procedures can sometimes not mix well in a surgery center. It is often the case where spine procedures cannot receive reasonable contracts from managed care payors. Then, the surgery center is faced with the situation where both the spine and orthopedic procedures have to be out-of-network or both have to be in-network. This can cause great problems because the spine reimbursement may be horribly inadequate, a forced scenario if the center wants to be in-network for its orthopedic reimbursable cases.
7. Many ASCs still fail. Despite their growth throughout the country (nearly 6,000 total ASCs; nearly 5,000-plus Medicare-certified ASCs), a number of ASCs still fail. The failures occur mostly due to bad management, overstaffing, low volume, poor reimbursement or overbuilding. Knowing the risks involved in developing an ASC can help to ensure that your ASC will prosper and not fail. Working with experienced managers in developing a center can also help prevent failures.
8. Surgery centers should not be run like convenience stores. The most profitable surgery centers are open those days and hours that they need to be open. In contrast, it makes little sense to operate a surgery center five or six days per week when case volume only supports operation on two days per week. We have seen several surgery centers fail due to this policy of trying to be open at all times
9. Surgeons must commit. When a surgeon is party to multiple different surgery centers, or when surgeons do a great deal of their cases in their offices, it is a sure sign of problems for a surgery center. Surgery centers built around and planned for a small number of committed physicians are better than surgery centers built around many physicians with little commitment. Where a surgery center is built around a handful of physicians who are heavily committed to the surgery center, it is easier to standardize costs, set schedules and build an efficient surgery center. In contrast, where a surgery center has 40 different physicians each performing 20 to 50 cases annually, it is incredibly hard to manage costs, to manage schedules or otherwise keep a staff in sync with the surgeons.
"We want partners who will go the full measure to bring every possible case," says Mr. Leland of Blue Chip Surgical Center Partners. "Multiple ownership of ASCs conflicts the surgeon, unless there are unique geographic or political differences (i.e., a large river or a state line, such as the Ohio River, Mississippi River or Willamette River) which are adequate reasons for a surgeon to own a portion of two ASCs. Few other explanations make much sense to me."
10. Surgery centers remain a growth industry. There has been a slowdown in growth in surgery centers, most markedly in same store growth for some surgery centers chains. However, there remains growth in the surgery center industry; it is likely to be slower growth in cases and reimbursement than has been seen over the last 10 years.
11. RNs often make superior administrators. Experienced registered nurses often make great ASC administrators. The RN must study and be interested in the business side of ASCs. Generally, RNs are trained to be disciplined and dedicated workers, a work ethic that carries over to the administrator position"An RN or a business-trained person, like a CPA, can each make a great administrator," says Dawn Q. McLane RN, MSA, CASC, CNOR, chief development officer for Nikitis Resource Group. "However, an RN with a business background or training makes a superior administrator. An RN with experience in the surgical clinical area, particularly the OR and especially an ASC setting, possesses an unparalleled knowledge about how the center functions should function from a clinical perspective and how it should be managed from a business perspective. A qualified and proven OR RN with clinical leadership and business training and experience would always be my first choice when recruiting for an ASC administrator."
12. Leasing equipment from physicianinvestors is often a bad idea. While it can look attractive, leasing equipment from entities owned by ASC physicians is often a legally risky business. These arrangements can be viewed as thinly veiled disguises to incentivize physicians to use the centers; arrangements generally viewed by the government as illegal. As such, these arrangements, as a rule, should be supported by a fair market value (FMV) analysis, make business sense regardless of referrals and preferably be set as a fixed annual fee and not "per-click."
But it's important to note that the use of a fixed fee can create a new set of problems, says Todd Mello, ASA, AVA, MBA, principal of HealthCare Appraisers.
"For example, let's assume that the fixed fee assumes a particular level of volume/ activity (e.g. 100 procedures per year) and the FMV per click fee is determined to be $250, for example," Mr. Mello says. "Using these numbers would result in a flat fee of $25,000 per year. However, what happens if actual volume is only 50 (i.e., as opposed to 100)? Then assuming a fixed fee of $25,000, the equivalent "per click" fee is now $500, which is greater than FMV. Accordingly, in the context of non-exclusive equipment/tech use arrangements, we favor a per click fee and have performed dozens and dozens of these types of FMV analysis for lithotripsy, green light and holmium laser arrangements throughout the country.
"If, however, the equipment is exclusive use to the ASC and is not moved in and out as needed, then a flat fee reasonably consistent with what the ASC's annual lease expense would be if it were to lease it directly from a third-party equipment vendor (i.e., as opposed to an MD-owned venture), would be appropriate," he says.
13. High-quality management is key to success. High-quality management is critical to an ASC's success. Many management companies offer superior services. However, many are of little value. All management companies are not equal. For this reason, it is important to work with an experienced management company that has a proven track record of successes. Working with a low-quality, inexperienced company will do more harm than good.
14. Paying fees plus equity to a management company is often the norm. In addition to a management fee, increasingly, the leading management companies are requiring a small portion of equity in the surgery center. Before writing off such an arrangement, evaluate how that management company compares to other management companies.
15. Buying-out non-productive partners is an option. There is no silver bullet for buying out the equity in a center held by a physician who does not produce as expected. There are heavily-weighted legal issues that relate to such issues. Whether or not you can buy out a partner is a critical legal question that must be examined in light of the ASC safe harbor regulations and their "one-third/one-third" rules, amongst other factors. Newly touted strategies like "squeeze out" mergers often carry substantial risk.
"When buying out physicians who are not safe harbor compliant, we generally recommend that all safe harbor tests be applied to all physicians, that the physician be granted the opportunity to cure the default and that, wherever possible, the ASC will offer the person the non-adverse versus the adverse price even if, for contemplated reasons, it has the option to pay the person the adverse price," says Joe Zasa, CEO of Woodrum/ASD.
Further, "Be sure to give the non-compliant physician notice and a reasonable period to cure the situation," Mr. Zasa says. "Speak directly to the physician and obtain feedback about the center. Communication is key; try to determine if his or her low census is due to equipment issues, staffing issues or patient preference. These may impact utilization. We believe that open dialogue with the physician and a reasonable period to cure effectively addresses any miscommunication and deflects any ill will going forward."
16. Turnarounds have become more common than startups. Over the last few years, as more surgery centers have been built and fewer independent physicians are available, there has been greater growth and attention paid to turn around surgery centers than to building new surgery centers.We expect this trend to continue. Turnaround ventures typically see one party buying out a developer or surgeons in a surgery center with the intent of re-syndicating and trying to develop a new and more successful surgery center at the same place.
"Turnarounds are definitely less expensive and less time-consuming than a pure start-up," says Mr. Mello of HealthCare Appraisers. "ASCs typically have heavy investment in fixed costs (equipment and leaseholds), so obtaining sufficient volume is critical in maximizing staff efficiency and covering heavy fixed cost burdens. Once fixed costs are covered, and assuming staff is sufficient to cover the volume (i.e., staff is not purely variable and behaves in a step-wise function in that there is a certain level of minimum staffing required regardless of volume, and at various case levels, new, incremental staff may be required), incremental costs are limited predominantly to supplies (and perhaps billing if outsourced), which causes the margins on incremental cases to be significantly higher."
"New physicians added to an existing ASC is a win-win for all parties in that existing owners, while diluted, share a smaller percentage of a larger pie, and new investors are allowed the opportunity to forego a very risky start-up and expeditiously begin doing cases," he says.
17. Distributing income based on referrals is illegal. A surgery center cannot distribute ASC income, whether the ASC is owned indirectly or directly by physicians, based upon the referrals or the value or volume of referrals by physicians. The federal government (and many state governments) deems these type of distributions illegal. There is no "clean" way to avoid this rule.
"Under the old saying, 'You get what you measure,' it would seem to make sense for a rational business to incentivize business referrals through compensation related to the volume or value of those referrals," says Mr. O'Sullivan. "Real estate agents get paid commissions, insurance agents get paid commissions, lawyers and investment professionals get a percent of the business they bring in, why not surgeons?"
Simply put, he says, the federal government understands the old saying (i.e., it doesn't want to increase referrals, it wants to reduce them); because Medicare is funded by taxpayer dollars, our legislators don't want tax dollars "wasted" as a result of doctors who perform unnecessary procedures; and "you can't trust greedy doctors to make decisions based on medical necessity versus dollars."
But there is a major disconnect here.
"If CMS and other payors don't want physicians to increase referrals, then why is it that all of healthcare is reimbursed based on individual procedures?" Mr. O'Sullivan says. "If a physician wants to make more money, he should see more patients and bill for more procedures. Isn't that why healthcare costs have been going up each year — more volume? (The answer is yes.) This is a quandary, a clear contradiction and evidence of a broken system. Maybe physicians can be compensated on keeping people healthy (before they need surgery for obesity, a hip replacement or a heart bypass). Then physicians can be partners in staying healthy and can be compensated on the ability to keep patients at statistically measurable levels of good health (i.e., not obese, heart healthy, etc.).
"A little far flung ... but maybe a better method of compensating physicians in the long run."
18. Growth strategy is key. An ASC will not succeed long-term without an ongoing comprehensive growth strategy. A growth strategy should include goals for increasing case volume and types of procedures, and potentially increasing the ASC's size and number of physician investors. A stagnant ASC will not be able to effectively compete with other centers and hospitals that are actively vying for business.
"When thinking about and designing growth strategies, ASCs should also incorporate feedback from the payor community into that process. Many times the payors have information related to case volume they would like to see move along in the continuum of care and out of the hospital environment and into the ASC environment," says Elizabeth C. Smallwood, CMPE, vice president of contracting and reimbursement for Blue Chip Surgical Center Partners and a former director of contracting for Humana of Ohio. "Payors also know who the new surgeons are in the region and could direct you to them. Touch base with the medical directors and case managers of the carriers; remember, they direct and control the surgical authorization process so they have many opportunities to suggest to their members that perhaps their cases may be appropriately performed in the ASC setting and provide the member's with their listing of preferred provider centers. In addition, payors may be able to give you feedback on your local market in general related to where you may find new cases."
Mr. Mallon says a lack of activity with your physicians can be detrimental to growth.
"Every physician partnership is a depreciating asset," he says. "If you are not buying out, retiring or moving physicians and bringing in younger docs, your center will stagnate."
19. An ASC can have too many physician investors. You can have too many physician partners. With too many physician investors, there is often a dilution of individual physician responsibility and ownership interests. With less skin in the game, physician investors often lose their commitment to the ASC and look for other alternatives
20. Think twice before opening a second site. Business may be booming and you may be considering opening a second site. Before embarking on this project, stop. The surgery center business is based on economies of scale and, therefore, the more cases that can be performed at any one site with one staff results in higher profits. Opening another site creates double the overhead, which often results in diluting the profits at both sites. For this reason, opening a second site is generally bad, not good, for business.
"It's more a question of whether excess capacity exists and there's the ability to spread center overhead over more cases," says Marc Jang, CEO of Titan Health Corp. "Obviously, if excess capacity exists and you can add additional cases, the average overhead cost per case is reduced and center profitability improves at an accelerated rate."
21. Third-party reimbursement. High reimbursement of procedures by third-party payors at ASCs is becoming more difficult to obtain. Further, reimbursement differs dramatically throughout the country. There are increasingly fewer reimbursement options and a decline in very profitable workers' compensation programs, great out-of-network situations or situations where payors simply have not exerted significant market power
"Third-party payors are relying more on transparency information and publicly available information in order to set their reimbursement rates. Therefore, reimbursement is becoming more market driven which places great variability in reimbursement rates throughout the country," says Ms. Smallwood. "Reimbursement mechanisms are becoming much more sophisticated with many variables impacting your bottom line results."
She continues: "While all of these factors — declining workers' comp reimbursement, out-of-network reimbursement, payors exerting market power — are challenging, they are not impossible to overcome in designing an effective reimbursement strategy for ASCs to ensure their success. ASCs should incorporate strategies for dealing with each of these issues into their planning processes."
22. Ophthalmology procedures are still profitable. Do not make a blanket decision to not seek ophthalmology as a specialty. ASCs can still profit from ophthalmology procedures if the ASC has significant volumes and has effective internal cost control (i.e., it is run very efficiently).
"We believe that, depending upon the surgeons, we can make substantial profit margins," says Dr Lambert of ASCOA. "You have to have a surgeon that has a short operating time for a phaco. What that means is certainly under 15 minutes per case. That's four an hour, and he can keep his total supplies under $220, which is easily done. Our overhead expenses, except for supplies, through our centers, average $18 per minute for every minute the patient is in the OR. Let's says it takes 15 minutes to do the (surgery). That would be $270 in overhead and then $220 in supplies. You're getting $960 reimbursement on average. Those are very good numbers.
"And there are many surgeons who can do these (procedures) in six to ten minutes, and then it can be very substantial profit margins," he continues. "But if someone is going to say they do two (procedures) an hour, then we're going to make hardly any money, regardless of how good of a surgeon he is, because he's up around $540 on his minutes. Many of the surgeons who take a long time, in our experience, are also expensive users of supplies. It's sort of a double whammy and you can get killed by it."
23. Pain management can be a problem. Pain management services are often provided in an office setting. Centers are increasingly concerned that physician investors will perform their pain management procedures in their own offices rather than in the ASC. Medicare's site-of-service differentials, which often pay more for in-office procedures, along with other incentives, may very well encourage physician investors to perform these procedures in their own offices. Because of this, ASCs should plan accordingly and diversify services to accommodate a potential loss of pain management revenue. CMS has also provided large reductions in pain management reimbursement for ASCs.
"Only Medicare and select commercial payors offer site-of-service differential," says Mr. Jang. "There are capital barriers to entry in setting up an in-office procedural suite, so if the doctors at practices of pain medicine have limited Medicare, it most likely will not prove financially feasible for these doctors to set up in-office procedural suite, thus mitigating risk."
24. Endoscopy. GI, if volumes are high enough, remains profitable for ASCs. Gastroenterologists will increasingly have to minor in anesthesiology. It is becoming more common that payors will not pay physicians separately for anesthesia procedures provided in connection with gastroenterology procedures. Thus, there is a greater onus on gastroenterologists that they must be competent at offering all types of anesthesia procedures.
25. Cosmetics/Plastics. Plastics, at least cosmetics- driven plastics, are often problematic for ASCs. In many situations where the physician bills globally, the ASC and physician can be adverse to each other and the ASC must negotiate its own rates with the surgeon.
"It is critical to use a time-based fee schedule in increments of 15 minutes with discounts built so that a case taking one hour is relatively more expensive than a three-hour case," says Mr. Zasa. "Also, if a surgeon starts late and the center incurs overtime, the overtime should be built into the fee unless the start time is not the fault of the surgeon. Finally, consistent cost tracking by physician is mandatory if a center performs plastics.
"The idea is to effectively reward faster, more efficient surgeons and penalize slower surgeons," he says. "Plastics can be a winner in an ASC setting. We know since Woodrum/ASD developed and operates an ASC devoted exclusively to plastic/aesthetic surgery comprised of six independent plastic surgeons. The center just celebrated its five-year anniversary and is doing better than ever despite the current economy. Don't shy away from plastics, but be smart about these cases and they will augment your facility."
26. Bariatrics may have reasonable longterm profit potential. Bariatric procedures are growing rapidly and increasingly being performed in ASCs. Initially, ASCs will earn outsized profits from these procedures. However, as the number of bariatric providers increases and price competition evolves, the prices on these procedures will eventually normalize and become less profitable.
While the addition of bariatric procedures may seem like a good way to boost profits, careful planning is essential, says J. Woodward Hubbard, chief development officer of Bariatric Partners.
"Minimally invasive bariatric surgery, most notably the gastric band procedure, continues to become more attractive to multispecialty surgery centers as the focus toward managing obesity grows nationally," says Mr. Hubbard. "While many surgery center administrators see bariatric procedures as a boon to their overall revenue, adding a bariatric surgery program requires more than just purchasing new equipment and recruiting a surgeon."
Namely, that the gastric band procedure is both elective and expensive.
"Cost considerations beyond the actual surgery include a $3,200 device plus high patient acquisition costs," he says. "Bariatric patients do not typically come via the normal referral channels, resulting in the need to develop a targeted media campaign using a combination of search engine marketing, print and electronic media. Potential patients typically acquire most of their bariatric surgery education via the internet, support groups and informational seminars. The seminars are a key component of the acquisition process and surgery centers should be prepared to develop this process with the surgeon."
Another factor to consider before investing in bariatric surgery is that the care of a bariatric patient extends beyond the surgical experience.
"Another challenge for the surgery center is development of an aftercare program to support the post surgical patient," says Mr. Hubbard. "For the patient to maximize weight loss through use of the gastric band, they must receive regular adjustments and follow strict dietary and nutritional care plans. Otherwise, weight-loss outcomes with the gastric band procedure will not be satisfactory. Weight-loss surgery is a comprehensive program and not just a diagnostic or therapeutic procedure.
"Additionally, while the elective nature of the procedure has created a cash-pay opportunity, the long-term profit potential must be tempered by the fact that the global fees necessary to produce the predicted margins are already under pressure from surgeons willing to trade lower margins for market share.
"Finally, insurers and managed care plans continue to evaluate how to reimburse for gastric banding in a surgery center," Mr. Hubbard says. "Their preference would be to simply pay for a laparoscopic procedure plus a device. However, with aftercare a critical part of successful patient outcomes, they must be amenable to cover costs associated with these necessary support programs. This will present a challenge in negotiating future contract rates with insurers."
27. LASIK. LASIK is best left to practices rather than surgery centers. "There is a strong overlap on the service side of LASIK that naturally connects the ophthalmology office to the LASIK suite," says Edward Colloton, MD, an ophthalmologist at Eye Surgical Associates in Bloomington, Ill. "Many patients think of LASIK as a quick 'laser thing' — in and out in 20 to 30 minutes and I see great — not like 'real surgery.' Patients do not expect the stepped-up level of care that would be seen in a typical multi-specialty ASC when they are undergoing LASIK. They also like to see the same faces that they saw in the office at their pre-op appointments. The service side of this procedure is so important that there is little room for compromise.
"On the economic side, these are really single-use laser devices with high costs and frequent upgrades," Dr. Colloton says. "Nearly all LASIK docs use a global fee that includes the surgery facility costs, but the net all flows through the MD practice. Costs associated with the procedure can be shifted, deferred or 'eaten' much easier in the MD office environment. The LASIK specific center with multiple surgeons is a model that has worked, especially with the high costs of laser technology and in more urban settings, but given the opportunity, most LASIK surgeons would like the laser in or adjacent to their primary office."
28. Do not overbuild. Overbuilding an ASC can result in its demise. A center with substantial fixed building and equipment costs will likely face long-term cost problems. To prevent this from happening, the ASC should be built to meet the expected volume and specialty needs. There are not many things that can predict the long term death of a center more than over expenditure on fixed building costs and fixed equipment costs. These are costs that almost never go away. Where appropriate and fiscally viable, an ASC may consider building to accommodate future growth but this should be done with caution.
"The best way to make sure you do not overbuild is to let data drive the process of determining the scale of the facility," says Kenneth Hancock, president and chief development officer of Meridian Surgical Partners. "Determine the net transfer of cases from the physicians to the new center by analyzing billing reports and conducting in-depth interviews with the physicians to validate the information and gain additional intelligence.
29. A great staff makes for a successful ASC. A great staff is crucial to an efficient and profitable ASC. You need not necessarily employ your staff fulltime. However, you are best off paying your staff extremely well and attempting to obtain the highest quality staff — even if paid high on an hourly basis. It is also critical that you treat the staff extremely well so that you are able to recruit and retain the best possible staff. Finding and retaining an experienced and competent staff can be difficult.
"Great staff is not an accident; it is done with great care and thoughtfulness on the side of the administrator or nurse manager," says Sandy Berreth, RN, BS, MM, CASC, administrator at Brainerd Lakes Surgery Center in Baxter, Minn. "A great staff is made. Ambulatory care is unlike any other setting — the nurse must be a savvy nurse while being a healthcare advocate for the patient as well as being concerned about customer satisfaction. Teach by example, with respect, kindness and a willingness to find out the facts about every situation.
"I believe staff appreciate being part of the solution, they want to be included not in just the 'medical' part, but involved with making a center a viable business entity," she continues. "Staff must be allowed to determine their future and the success of their future. Share the financials — good and bad — as well as safety and quality. And remember: It is not always about money. Respect, kindness, and extra kudos — verbal and situational — do a lot to keep staff happy and, more importantly, engaged in your facility."
30. Partnering with single physicians is risky. An ASC developed with only one or two physician investors is a risky proposition in most cases. It can create both political and financial problems. Often, one or two physicians generally cannot generate enough business to make the operation profitable. However, there are some situations where an ASC can be profitable with only one or two physician investors. For example, an ENT physician specializing in sinus procedures may succeed himself or with a single partner if the ASC is run efficiently and the procedure volume is high.
"We have acquired centers where you had one surgeon with a considerably higher ownership position than the other partners and have found this to be a fatal flaw for the center's possible success," says Chris Bishop, vice president of business development for ASCOA. "It actually demoralizes the other surgeons' motivation to support the center because they feel their production is lining the majority shareholder's pocket. It also limits the ability of the center to recruit additional surgeons because of the prospective surgeon's reluctance to join a venture in which there is one dominant surgeon owner.
"The other risk is if you have one to two dominant investors/producers in the venture, and if one is disabled or meets an untimely death, you have — overnight — moved to an unprofitable venture under substantial strain," Mr. Bishop says. "We prefer to diversify the centers with multiple specialties to lower risk. This is analogous to my retirement portfolio being invested in multiple stocks, across multiple size and categories, as opposed to being 100 percent invested in Enron. The banking industry is being pummeled by the markets at present but because I am diversified, I have very little personal exposure here, and it is important to view your surgery center investor list in a similar fashion.
"In fact, we will not close an acquisition transaction until we have recruited a minimum number of surgeon partners across multiple specialties that greatly reduces risk," he says. "We walk away from projects that do not meet these requirements and this discipline has saved us from ever making a mistake in pursuit of an acquisition.
"Despite these rules, we have seen many surgeons unwilling to dilute their position to equal ownership, despite us showing them that a 10 percent position in a highly profitable venture is much preferable to a 75 percent ownership position of a money losing venture … hubris is a difficult flaw to overcome in some instances," Mr. Bishop says.
The addition of just one physician-owner can make a big difference, says Mr. Taylor.
"At Practice Partners facilities, we have seen centers focused on two physicians with higher than average volume do exceptional both clinically and profitability," he says. "We increase the cash reserves in these centers to add a valuable cushion in the case of physician decrease in volume for a variety of circumstances.
"Also, centers with two physicians tend to follow very similar practices, thus reducing expenses as well," Mr. Taylor says. "Centers with two physicians would also need a succession and growth plan to assure viability in the future, additional partners or growth in a single group are often seen. We have also seen lower number physicians attract other groups to reach traditional critical mass and great upside when reviewing the initial expectations. Those centers that started with only two core physicians often pave the way for more partners, often sooner than later."
31. Choosing the right anesthesia provider is vital. ASCs should treat anesthesia as more than just a requirement to run their business. Anesthesia is a critical component to patient care and profitability, which is why it is vital that ASCs perform due diligence when making their choice of an anesthesia provider. The better providers will have experience working in ASCs and will buy into the mission of the center
"The key is understanding that anesthesia is the backbone of any successful operating room or surgery center," says Marc Koch, MD, MBA president and CEO of Somnia. "My belief is the better the anesthesia group, the better performing the OR. With that in mind, it is critical that an ASC Anesthesia group be multi-faceted by delivering on clinical quality, patient safety and financial results equally to enable the facility to meet its objectives."
When performing due diligence on the selection of a new anesthesia provider or group, Dr. Koch recommends ASCs consider the following questions:
- Does it have relevant ambulatory anesthesia experience? Related operational benchmarking data?
- Does it currently or is it in the process of seeking ambulatory accreditation?
- Does it have a quality assurance program?
- Does it have a transparent financial model?
32. Surviving as a hospital if legislation occurs will change the game. If legislation does not allow physician-ownership, it is critical that the hospital have a great core group of physicians, have plenty of cash and have a sufficient portfolio of business to build the transitions into a more typical and fuller hospital. In these situations, you will likely see these hospitals, for all practical purposes, operated similarily to how competitive non-physician-owned not-for-profit and for-profit hospitals are operated.
"Assuming legislation — as it has been recently offered — were to pass requiring, at a minimum, dilution of physician ownership you will certainly see some hospitals transition, says Todd Flickema, senior vice president of Surgical Management Professionals. "Some will move into the classic version, from a services-offered perspective, of the fullservice hospital. I think largely that will be dictated by the market where each hospital is located. There will be a second group that will continue to operate in their niche. Here, again, markets will or should dictate this, and one of the main reasons is that this is still the place physicians want to work. They don't want to sell to the not-for-profit because they do not want it in someone else's control. They want to control the clinical experience for themselves, their patients and their staff.
"In these instances, the hospitals will need to attain a corporate partner that helps them maintain the mission for which they were first created and adds value," he says. "This will dictate that hospitals start having these conversations and looking at the potential corporate partners that are out there now rather than be reactionary."
33. General surgeons remain vulnerable to challenges from hospitals. General surgeons increasingly remain vulnerable for dispute of referrals from general hospitals. General hospitals still control through a variety of means referrals to general surgeons. Thus, general surgeons at surgery centers are often not able to generate nearly the types of business that they generated when not related to another surgery center.
"A general surgeon who practices in a market that is dominated by a fully-integrated health system certainly feels these pressures," says Mr. Flickema. "They get the message from their referring physicians that 'you're either for us or against us.' The system begins to dictate the delivery of healthcare in these markets. The free market does not get to sort out who are the best providers of care, as the health system determines that almost solely based on whether or not a particular surgeon brings his cases to the health system.
"So a surgeon who is, at best, a marginal provider of care can actually do well in these markets. As long as he is insulated by the health system, he can continue to provide marginal care and there are no checks and balances."
34. Work with experienced lenders. Working with experienced lenders will facilitate the financing of an ASC. It can be tempting to work with a friend or a local bank, but this could be a mistake. Often with ASCs, time is of the essence and problems occur which are normally much better handled by an experienced lender than with a friend. For the best result, look for a lender with specific ASC financing experience.
"Even though it is our preference to work with national lenders with standard documents, many are on the sidelines," says Mr. Mallon. "You really need to bring in local lenders with physician relationships in order to ensure closing the transaction. The guarantees will be more than the national lenders but at least the transaction will close."
35. Continually recruit new good partners. Generally an ASC should regularly recruit new surgeons. New surgeons can add capital and provide a transition from older or retiring surgeons, to keep the ASC viable. While it is important that new recruits be productive physicians and that they meet the safe harbor tests, it is equally important that they be high-quality people and team players. Often in ASCs, one difficult physician (or staff member) can ruin a great center.
36. Neurosurgery and orthopedics remain strong specialties. Orthopedic procedures remain great procedures for ASCs, and neurosurgery spine procedures increasingly so. They remain popular and growing specialties for ASCs. Orthopedics profits from the new CMS surgery center rates. Spine procedures can be increasingly performed in ASCs. These are likely to remain good specialties for ASCs for a long time to come.
"To date, most orthopedic ASC cases have been commercial pay, hence younger patients," says Mr. Leland of Blue Chip Surgical Center Partners. "With the new CMS orthopedic fee schedule, ASCs will likely see older, less healthy orthopedic patients — we must be cautious. As for spine cases, they will continue to transition from inpatient to outpatient, but remain a challenge both clinically and commercially. Spine cases are not for every ASC — we believe a 'go slow attitude,' careful patient selection, thorough staff training and excellent contracting skills are necessary for successfully supporting physicians performing complex spine surgery in an ASC ... clearly not for every ASC."
37. Waiver of co-payments and deductibles presents more risks than ever before. Increasingly states are attacking the waiver of co-payments and deductibles and insurance companies are challenging such actions through a variety of means. These include recruitment efforts, efforts to only pay the patients and efforts to slow pay parties that are out-of-network. We see providers increasingly have to look at different options than using out-of-network strategies and reduction of co-payment strategies as a means to combat bad contract options.
"It's a chancy situation when you do out-of-network patients and offer them deals," says Caryl Serbin, RN, BSN, LHRM, president and founder of Surgery Consultants of America and Serbin Surgery Center Billing "You must tell the insurance companies that you're going out-of-network, preferably at the time that you're doing the insurance verification. Some states and some insurance companies require that you fax their notifications to them. On the claim form it has to be clearly marked that you are following outof- network benefits, and if that's the case, you have to offer the same discount you are offering to the insurance company that you are offering to the patient.
"As far as the attorneys are concerned, if you do one without the other so that you can get the higher outof- network payment and charge the patient the innetwork deductible, this is where you're becoming non-compliant because you should be offering both of them the same deal."
38. Information technology is critical. At one time, parties took pot shots at the use of new information technology in surgery centers. Now, as outstanding management becomes more critical to sustain surgery center success. In such surgery centres the proper and intelligent use of information technology becomes that much more important. We expect centers to make more significant investments in information technology and as importantly, software systems that go with the technology to help them better handle case costing, benchmarking and other statistical analysis for their surgery center.
ASCs have been slow to invest in and adapt these new technologies, observes Arvind Subramanian, CEO of Wolters Kluwer Health Clinical Solutions and ProVation Medical.
"In March of this year, our company conducted a survey of 175 ASC administrators and found that while adoption of electronic health records (EHRs) is viewed as inevitable, only 18 percent of ASCs surveyed currently use an EHR," Mr. Subramanian says. "Barriers to adoption cited included upfront capital investment, the fear of lost revenue during implementation, and worries about integration with other electronic systems.
"But relying on paper in an era of electronic documentation and communication is inefficient and expensive. The key to streamlining processes, increasing patient safety and cutting administrative costs through electronic documentation lies in choosing an EHR with a proven record of integration, from a company with a robust training and implementation plan that can minimize the initial workflow disruption and offer ongoing support."
The good news is that while ASCs face many challenges, technology is available to assist with overcoming them.
"One pressing issue faced by centers today is the reduction in reimbursement money," says Jeff Blankenship, president of Surgical Notes. "This reduction, many times, is a direct result of inaccurate data being transmitted to the payor. These inaccuracies are, many times, a direct result of having multiple data entry points of the same ADT (admission, discharge and transfer) information. This duplication of duties greatly increases the likelihood of errors and increases employee cost.
"Proper utilization of technology lets ASCs eliminate these multiple points of data entry into the system, thereby reducing possible transposition errors and greatly increasing reimbursement amounts by delivering accurate data to the payor," he continues. "In the past, information technology solutions were expensive. That is not always the case now. Do your homework and you will find very affordable and functional technology. Companies haveseen the need for these services to be affordable and there are great solutions available for reasonable amounts. You owe it to your facility to investigate these solutions. The right technology can greatly increase your facilities bottom line results and reduce errors."
39. Good A/R, billing and collections are key to a successful ASC. Well-managed accounts receivable and billing and collections departments are critical to the success of an ASC. Cash collection is critical to an ASC, and any delays or defaults in billing or payment can damage a bottom line. Consider hiring billers and coders or a billing company with specific ASC billing experience.
"We all strive to provide the very best patient care possible, but we are still a business," says Ann Geier, RN, MS, CNOR, CASC, vice president of operations for ASCOA. "The business office needs to function like a well-oiled machine, and good processes empower the employees to do this. Everyone should understand what is expected, the goals that they are trying to meet, and the benchmarks that they will be evaluated against."
"For example, if A/R days are to be at 35 days, how are they to achieve this?" asks Ms. Geier. "The processes would include timely follow up with all accounts, including Medicare. Persistent phone calls to the payors with detailed documentation of the calls. Any rise in A/R days should signal that something may be amiss. Are the collector's behind in their follow-up calls? Is too much time elapsing between calls? The cost of hiring another collector more than pays for itself in the additional collections brought in."
Hiring the right coders is also a crucial cog for successful collections efforts.
"Experienced, ethical, cautious coders are among your best assets in the ASC billing world," says Nancy Burden, RN, MS, CPAN, CAPA, the director of BayCare Ambulatory Surgery in Largo, Fla. "Look for someone who will be aggressive in analyzing physician documentation and who is not afraid to ask for clarification in writing. It is, likewise, essential that the administrator stand behind the coding if controversy occurs. We want neither upcoding nor loss of revenue from missed procedures."
"Cash collections should be a team effort between both the front end and back end business teams," Ms. Burden says. "Securing co-pays and deductibles prior to the surgery is not only good business practice, but an essential part of the center's financial health. The demeanor of the front end team should be such that they are friendly but persuasive and not afraid to offer payments alternatives to patients. Another important aspect is to ensure that the preoperative nursing advice about leaving valuables at home does not conflict with the patient's understanding to bring their required payment."
40. Charity care. Providing a fair share of charitable care is a positive and good thing. "I like to see the boards of my ASCs approve a percentage of their net revenue to provide charity care to patients in the community," says Ms. McLane. "Many physicians feel that this is a very important part of the care they provide to the community and will often want to be very generous in this regard. We qualify all patients who report that they cannot pay their bills. "All our centers have policies for providing charity care that often mirrors the hospital partner's policy if there is one," she continues. "In any event, the policy usually describes a sliding scale for writing off a portion up to all of the patient's financial responsibility for services provided,according to ratio of their net income related to the nationally published poverty level. For instance, we may begin writing off a percent of the patient's financial responsibility if the patient's net income is less than 350 percent of the published poverty.
41. ENT continues to be strong. ENT continues to be a strong specialty for surgery centers. It continues to be reimbursed reasonably well in many markets.
"CMS changes are generally favorable for ENT," says Mr. Jang. "However, there are capital barriers to entry, so a new program generally requires more than one surgeon."