Dean Brown, MBA, CASC, CEO of Alabama Orthopaedic Clinic and administrator of The Orthopaedic Center at Springhill in Mobile, Ala., discusses 10 ways his surgery center decreases costs and improves profits on its orthopedic cases.
1. Analyze the profitability of implant cases. Expensive implants can drain profits for an orthopedic-driven ASC, so payor contracts must take implants into consideration for cases to stay profitable. Mr. Brown's surgery center is located in a region where Blue Cross Blue Shield dominates the payor market, and the insurance company pays a global rate for surgeries regardless of the number of implants used. "You can't bill for any of the implants that you use when you're doing a Blue Cross case [in our area], and Blue Cross happens to be 80-85 percent of all commercial insurance we take," he says.
Profiting on orthopedics can be difficult with this kind of payor situation, but Mr. Brown says his ASC has succeeded by analyzing the profitability of every case that requires an expensive implant. The ASC looks at the expected implant cost based on the historic average number of implants used for a particular case. Mr. Brown says his center also uses a Genascis reporting database to benchmark against other centers in the region. "This gives us a very quick way to determine not only what our center is going to get paid and what the profitability is, but also what other centers within our region are getting paid," he says. "That's helpful when there's a new case that we haven't seen yet."
He says analyzing case profitability helps the center decide when a case is appropriate for the ASC. For example, implant costs have prevented the center from performing most spine cases, and sports medicine cases must be analyzed on a case-by-case basis.
2. Benchmark physician use of implants. Mr. Brown says his center also benchmarks internally by presenting data on physician use of implants. "We actually publish that to the physicians, so if the surgeons see that somebody is an outlier, they can put peer pressure on one another," he says. The center discusses implant preference and cost at its medical advisory committee meetings, and if a surgeon is two to three standard deviations above everyone else, the leadership sits down with the physician to talk about the difference in cost.
Mr. Brown says this side-by-side cost comparison has incentivized physician owners to standardize implants and choose less pricey alternatives. "The surgeons always say, 'I love this thing, but I never knew how much it costs,'" he says. "Being owners, they appreciate the information."
3. Limit each implant to two or three vendors. Standardizing implants can be a challenge when physicians have used their preferred brands for years. Mr. Brown said he found that limiting implants to a sole source hurt efficiency in the ASC, as some surgeons were slower with unfamiliar vendor-specific tools or instruments. Instead, he tries to limit implants to two or three vendors each, assigning a primary and secondary vendor "almost across the board." He says physicians are more comfortable when they can choose between two or three different products, and limiting each implant to a small group of vendors saves money.
4. Put all implants on consignment. Implants on "consignment" are owned by the vendor until opened and used, a tactic that can save money for surgery centers by eliminating waste. Mr. Brown chooses two or three primary vendors for each implant and then allows those vendors to consign items on the ASC's shelves. "That dramatically reduced the carrying cost of our inventory, and it also allowed us to control who had items on our shelves, so vendor reps couldn't just bring in whatever they wanted," he says.
5. Allow profitable physicians to perform less profitable cases on occasion. An ASC can't consistently perform unprofitable cases without losing money overall, but that doesn't mean your center should reject every less-profitable case, Mr. Brown says. His surgery center tries to look at the totality of a physician's case load rather than nitpicking each individual case. For example, if a physician brings nine profitable cases to the center and wants to perform one less profitable case, the center can accept the tenth case as long as the loss does not offset the earnings provided by the other cases.
He says this approach helps boost physician loyalty, which in turn contributes to center profits. "There are sports medicine cases that we lose a little bit of money on, but if the physician is bringing [overall profitable cases], we don't force them to take one case somewhere else," he says. He says this approach does not work if your center is too lenient with unprofitable cases: At The Orthopaedic Center at Springhill, a spine surgeon who wants to bring only unprofitable cases will not be suitable for the center.
6. Ask staff members to read the label cost before opening an item. At The Orthopaedic Center at Springhill, every nurse is required to talk about the expense of an item before opening it. This awareness helps physicians curb supply costs by tailoring their preferences based on cost as well as quality. Mr. Brown says the ASC trains all staff members on this policy during the first few days of their employment, so the practice is ingrained. The program explains to employees how the ASC performs case-costing, how item costs should be discussed and where the sticker cost can be found on each item.
7. Don't open expensive items until a case is certain. Staff members at The Orthopaedic Center at Springhill do not open medical supplies and packs until a case is certain, Mr. Brown says. "A lot of centers will go ahead an open everything just to be efficient, and then you end up cancelling a case," he says. "We do not open expensive items until we're sure we're going to use them."
8. Feed physicians when cases run through lunch. To improve efficiency, Mr. Brown's ASC provides lunch for physicians when cases are scheduled through lunch. "We try to feed physicians and anesthesiologists and CRNAs so that we don't need that 30-minute break," he says. "That way, we can keep surgeries rolling through lunch." He says this policy contributes to efficiency as well as physician satisfaction.
9. Take advantage of savings offered by your distributor and GPO. Mr. Brown says his ASC saves money by taking advantage of "cash back" policies for certain items. If your distributor offers a rebate for particular supplies, determine whether the items fit your needs. "If it's an item that's not optimal but tolerable, we do try to stick with those items," he says. "Not only do they cost less, but we end up getting a rebate."
Group purchasing organizations — many of which can be joined at little or no cost to the facility — can also provide significant discounts on drugs and medical supplies, Mr. Brown says. He says the ASC also pays every invoice within 10 days, which provides a significant discount on most items throughout the year.
10. Install a rigid orientation process. Mr. Brown says he helps employees understand the cost-cutting policies at his center by requiring each staff member to participate in a rigid orientation program. The program covers the different committees that exist at the center, expectations regarding cost awareness and case cost reporting, guidelines for communicating item prices to physicians and other policies and procedures. "[Cutting costs] becomes part of the culture because employees get it when they start on day one," Mr. Brown says. "People understand that if it's important enough for us to put in a rigid orientation training program, it's important enough for them to do it at their job."
The orientation program also explains how quarterly bonuses are determined. Part of the bonus is based on center profitability, so employees are incentivized to cut costs because they know the savings will end up in their bonus paychecks. "There's a direct correlation of supply cost and profitability, so the surgeons and administrations and the surgical staff all have aligned agendas to be efficient and profitable," he says.
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1. Analyze the profitability of implant cases. Expensive implants can drain profits for an orthopedic-driven ASC, so payor contracts must take implants into consideration for cases to stay profitable. Mr. Brown's surgery center is located in a region where Blue Cross Blue Shield dominates the payor market, and the insurance company pays a global rate for surgeries regardless of the number of implants used. "You can't bill for any of the implants that you use when you're doing a Blue Cross case [in our area], and Blue Cross happens to be 80-85 percent of all commercial insurance we take," he says.
Profiting on orthopedics can be difficult with this kind of payor situation, but Mr. Brown says his ASC has succeeded by analyzing the profitability of every case that requires an expensive implant. The ASC looks at the expected implant cost based on the historic average number of implants used for a particular case. Mr. Brown says his center also uses a Genascis reporting database to benchmark against other centers in the region. "This gives us a very quick way to determine not only what our center is going to get paid and what the profitability is, but also what other centers within our region are getting paid," he says. "That's helpful when there's a new case that we haven't seen yet."
He says analyzing case profitability helps the center decide when a case is appropriate for the ASC. For example, implant costs have prevented the center from performing most spine cases, and sports medicine cases must be analyzed on a case-by-case basis.
2. Benchmark physician use of implants. Mr. Brown says his center also benchmarks internally by presenting data on physician use of implants. "We actually publish that to the physicians, so if the surgeons see that somebody is an outlier, they can put peer pressure on one another," he says. The center discusses implant preference and cost at its medical advisory committee meetings, and if a surgeon is two to three standard deviations above everyone else, the leadership sits down with the physician to talk about the difference in cost.
Mr. Brown says this side-by-side cost comparison has incentivized physician owners to standardize implants and choose less pricey alternatives. "The surgeons always say, 'I love this thing, but I never knew how much it costs,'" he says. "Being owners, they appreciate the information."
3. Limit each implant to two or three vendors. Standardizing implants can be a challenge when physicians have used their preferred brands for years. Mr. Brown said he found that limiting implants to a sole source hurt efficiency in the ASC, as some surgeons were slower with unfamiliar vendor-specific tools or instruments. Instead, he tries to limit implants to two or three vendors each, assigning a primary and secondary vendor "almost across the board." He says physicians are more comfortable when they can choose between two or three different products, and limiting each implant to a small group of vendors saves money.
4. Put all implants on consignment. Implants on "consignment" are owned by the vendor until opened and used, a tactic that can save money for surgery centers by eliminating waste. Mr. Brown chooses two or three primary vendors for each implant and then allows those vendors to consign items on the ASC's shelves. "That dramatically reduced the carrying cost of our inventory, and it also allowed us to control who had items on our shelves, so vendor reps couldn't just bring in whatever they wanted," he says.
5. Allow profitable physicians to perform less profitable cases on occasion. An ASC can't consistently perform unprofitable cases without losing money overall, but that doesn't mean your center should reject every less-profitable case, Mr. Brown says. His surgery center tries to look at the totality of a physician's case load rather than nitpicking each individual case. For example, if a physician brings nine profitable cases to the center and wants to perform one less profitable case, the center can accept the tenth case as long as the loss does not offset the earnings provided by the other cases.
He says this approach helps boost physician loyalty, which in turn contributes to center profits. "There are sports medicine cases that we lose a little bit of money on, but if the physician is bringing [overall profitable cases], we don't force them to take one case somewhere else," he says. He says this approach does not work if your center is too lenient with unprofitable cases: At The Orthopaedic Center at Springhill, a spine surgeon who wants to bring only unprofitable cases will not be suitable for the center.
6. Ask staff members to read the label cost before opening an item. At The Orthopaedic Center at Springhill, every nurse is required to talk about the expense of an item before opening it. This awareness helps physicians curb supply costs by tailoring their preferences based on cost as well as quality. Mr. Brown says the ASC trains all staff members on this policy during the first few days of their employment, so the practice is ingrained. The program explains to employees how the ASC performs case-costing, how item costs should be discussed and where the sticker cost can be found on each item.
7. Don't open expensive items until a case is certain. Staff members at The Orthopaedic Center at Springhill do not open medical supplies and packs until a case is certain, Mr. Brown says. "A lot of centers will go ahead an open everything just to be efficient, and then you end up cancelling a case," he says. "We do not open expensive items until we're sure we're going to use them."
8. Feed physicians when cases run through lunch. To improve efficiency, Mr. Brown's ASC provides lunch for physicians when cases are scheduled through lunch. "We try to feed physicians and anesthesiologists and CRNAs so that we don't need that 30-minute break," he says. "That way, we can keep surgeries rolling through lunch." He says this policy contributes to efficiency as well as physician satisfaction.
9. Take advantage of savings offered by your distributor and GPO. Mr. Brown says his ASC saves money by taking advantage of "cash back" policies for certain items. If your distributor offers a rebate for particular supplies, determine whether the items fit your needs. "If it's an item that's not optimal but tolerable, we do try to stick with those items," he says. "Not only do they cost less, but we end up getting a rebate."
Group purchasing organizations — many of which can be joined at little or no cost to the facility — can also provide significant discounts on drugs and medical supplies, Mr. Brown says. He says the ASC also pays every invoice within 10 days, which provides a significant discount on most items throughout the year.
10. Install a rigid orientation process. Mr. Brown says he helps employees understand the cost-cutting policies at his center by requiring each staff member to participate in a rigid orientation program. The program covers the different committees that exist at the center, expectations regarding cost awareness and case cost reporting, guidelines for communicating item prices to physicians and other policies and procedures. "[Cutting costs] becomes part of the culture because employees get it when they start on day one," Mr. Brown says. "People understand that if it's important enough for us to put in a rigid orientation training program, it's important enough for them to do it at their job."
The orientation program also explains how quarterly bonuses are determined. Part of the bonus is based on center profitability, so employees are incentivized to cut costs because they know the savings will end up in their bonus paychecks. "There's a direct correlation of supply cost and profitability, so the surgeons and administrations and the surgical staff all have aligned agendas to be efficient and profitable," he says.
Related Articles on Operating a Successful ASC:
6 Ways an ASC Can Lose Physicians -- and What to Do About It
What Services Do Surgery Center Management Companies Provide?
5 Surgery Center Specialties Predicted to Grow in 2011