Chance Sherer, manager with VMG Health, discusses several benchmarks that ASC administrators often forget to include in their data collection efforts.
Q: Could you discuss several benchmarks that surgery center leaders overlook or under-use in their benchmarking efforts?
Chance Sherer: All ASCs are different. They each have unique case mixes, different volumes and negotiated reimbursement schedules. They are sized differently, some with more operating rooms and others with larger medical staffs. While benchmarks provide meaningful comparable data points, the keys to successful benchmarking are identifying benchmarks and understanding variances. While there may be perfectly valid reasons for variances from a given benchmark, these variances may not necessarily signal under/over performance in a given area. By reviewing various statistics reported in various benchmarking studies, an ASC can determine which key factors to track and compare over time. This will help administrators and physicians bring to light any improvements or declines in operations over time.
With that being said, there are several key financial and operations statistics that we examine in our valuation analyses that many administrators often do not track or do not utilize for benchmarking purposes. A few examples include:
- Accounts receivable aging (percentage per period);
- Staff hours per case,
- Expenses as a percentage of net revenue; and,
- Percentage of cases and revenue by physician.
These benchmarks can be compared to the industry using the VMG 2011 Intellimarker Benchmarking Study, found on our website at vmghealth.com.
1. Accounts receivable aging (percentage per period). Accounts receivable aging can usually be tracked using the ASC's billing system. ASC billing systems are typically broken into groupings by days outstanding (0 to 30 days, 31 to 60 days, 61 to 90 days, etc.). While administrators do typically examine total accounts receivable and collections regularly, they may not examine aging of accounts or realize that this statistic can be benchmarked.
The typical benchmark utilized for comparison is the percentage of total accounts receivable in each period. For example, our 2011 Intellimarker reports that at the median, 53.6 percent of total accounts receivable are between 0-30 days outstanding. An administrator can use these metrics to examine the how efficiently the ASC is collecting compared to the industry. The higher the percentage of the subject ASC's accounts receivable in the 0 to 30 and 31 to 60 days periods compared to the 91 days plus periods, the better the ASC is collecting.
2. Staff hours per case. Staffing expense is typically one of the largest components of total operating expense. A key statistic we use in our analyses is staff hours per case. We examine nurse, technician, administrative and total staff hours per case. This can be calculated by taking the total annual hours worked per year and dividing it by the number of annual cases. By comparing this to benchmarks, an administrator can determine the staff's efficiency relative to the industry. In moving to an efficient level of staff that maintains a high quality of care, an ASC can materially improve profitability.
Perhaps one of the reasons that staffing hours per case is not analyzed is that staffing hourly data may not be readily available for salaried employees. Staff hours can be roughly calculated by multiplying each full-time employee by 2,080 hours. If an employee is part-time, a rough estimate of total annual hours worked for that employee would be 0.5 times 2,080. When comparing this data to benchmarks, it is important to take into consideration the subject ASC's specialty mix and even the procedure mix within each specialty. For example, an ASC that performs many long or complex procedures may justifiably have higher staff hours per case than those of the benchmarks.
3. Expenses as a percentage of net revenue. Beyond staffing expense, an administrator should benchmark all expenses. This can be accomplished by grouping the expenses into expense categories commonly presented in benchmarks and dividing the dollar amount for the year by the total annual net revenue for the same period.
This is helpful because total dollar amounts of expenses can vary from period to period between benchmarks and the subject ASC (depending on revenue levels), while expenses as a percentage of revenue may be more consistent. Studying expenses as a percentage of revenue also highlights the relationship between revenues and fixed and variable costs. All things being equal, as revenues increase, an administrator can expect to see variable expenses remain relatively consistent as a percentage of net revenue, while fixed expenses as a percentage of net revenue ideally should decrease over time.
4. Percentage of cases and revenue contributed by top physicians. Finally, a key statistic that administrators should track and benchmark is the percentage of cases and revenue contributed by the top physician utilizers of the ASC. Again, it is my experience that administrators are aware of physician utilization at their ASC but may not know that this data can be benchmarked. It is important to understand physician utilization, as it provides insight into the keys sources of revenue for the ASC and the risk associated with that revenue.
ASCs where a limited number of physicians perform the majority of the center's procedures may be exposed to additional risk should any of the key physicians cease performing cases at the ASC. Having one or a few physicians driving the majority of revenue for an ASC is not uncommon and not necessarily a disadvantage. However, all else being equal, revenue generated from a diverse physician base is less risky that reliance upon a select few.
Learn more about VMG Health.
Related Articles on Surgery Center Turnarounds:
10 Ways to Cut Surgery Center Costs Before 2012 Ends
4 Ways to Maximize the Cost and Space Efficiency in Your ASC
10 Great ASC Industry Leaders to Know
Q: Could you discuss several benchmarks that surgery center leaders overlook or under-use in their benchmarking efforts?
Chance Sherer: All ASCs are different. They each have unique case mixes, different volumes and negotiated reimbursement schedules. They are sized differently, some with more operating rooms and others with larger medical staffs. While benchmarks provide meaningful comparable data points, the keys to successful benchmarking are identifying benchmarks and understanding variances. While there may be perfectly valid reasons for variances from a given benchmark, these variances may not necessarily signal under/over performance in a given area. By reviewing various statistics reported in various benchmarking studies, an ASC can determine which key factors to track and compare over time. This will help administrators and physicians bring to light any improvements or declines in operations over time.
With that being said, there are several key financial and operations statistics that we examine in our valuation analyses that many administrators often do not track or do not utilize for benchmarking purposes. A few examples include:
- Accounts receivable aging (percentage per period);
- Staff hours per case,
- Expenses as a percentage of net revenue; and,
- Percentage of cases and revenue by physician.
These benchmarks can be compared to the industry using the VMG 2011 Intellimarker Benchmarking Study, found on our website at vmghealth.com.
1. Accounts receivable aging (percentage per period). Accounts receivable aging can usually be tracked using the ASC's billing system. ASC billing systems are typically broken into groupings by days outstanding (0 to 30 days, 31 to 60 days, 61 to 90 days, etc.). While administrators do typically examine total accounts receivable and collections regularly, they may not examine aging of accounts or realize that this statistic can be benchmarked.
The typical benchmark utilized for comparison is the percentage of total accounts receivable in each period. For example, our 2011 Intellimarker reports that at the median, 53.6 percent of total accounts receivable are between 0-30 days outstanding. An administrator can use these metrics to examine the how efficiently the ASC is collecting compared to the industry. The higher the percentage of the subject ASC's accounts receivable in the 0 to 30 and 31 to 60 days periods compared to the 91 days plus periods, the better the ASC is collecting.
2. Staff hours per case. Staffing expense is typically one of the largest components of total operating expense. A key statistic we use in our analyses is staff hours per case. We examine nurse, technician, administrative and total staff hours per case. This can be calculated by taking the total annual hours worked per year and dividing it by the number of annual cases. By comparing this to benchmarks, an administrator can determine the staff's efficiency relative to the industry. In moving to an efficient level of staff that maintains a high quality of care, an ASC can materially improve profitability.
Perhaps one of the reasons that staffing hours per case is not analyzed is that staffing hourly data may not be readily available for salaried employees. Staff hours can be roughly calculated by multiplying each full-time employee by 2,080 hours. If an employee is part-time, a rough estimate of total annual hours worked for that employee would be 0.5 times 2,080. When comparing this data to benchmarks, it is important to take into consideration the subject ASC's specialty mix and even the procedure mix within each specialty. For example, an ASC that performs many long or complex procedures may justifiably have higher staff hours per case than those of the benchmarks.
3. Expenses as a percentage of net revenue. Beyond staffing expense, an administrator should benchmark all expenses. This can be accomplished by grouping the expenses into expense categories commonly presented in benchmarks and dividing the dollar amount for the year by the total annual net revenue for the same period.
This is helpful because total dollar amounts of expenses can vary from period to period between benchmarks and the subject ASC (depending on revenue levels), while expenses as a percentage of revenue may be more consistent. Studying expenses as a percentage of revenue also highlights the relationship between revenues and fixed and variable costs. All things being equal, as revenues increase, an administrator can expect to see variable expenses remain relatively consistent as a percentage of net revenue, while fixed expenses as a percentage of net revenue ideally should decrease over time.
4. Percentage of cases and revenue contributed by top physicians. Finally, a key statistic that administrators should track and benchmark is the percentage of cases and revenue contributed by the top physician utilizers of the ASC. Again, it is my experience that administrators are aware of physician utilization at their ASC but may not know that this data can be benchmarked. It is important to understand physician utilization, as it provides insight into the keys sources of revenue for the ASC and the risk associated with that revenue.
ASCs where a limited number of physicians perform the majority of the center's procedures may be exposed to additional risk should any of the key physicians cease performing cases at the ASC. Having one or a few physicians driving the majority of revenue for an ASC is not uncommon and not necessarily a disadvantage. However, all else being equal, revenue generated from a diverse physician base is less risky that reliance upon a select few.
Learn more about VMG Health.
Related Articles on Surgery Center Turnarounds:
10 Ways to Cut Surgery Center Costs Before 2012 Ends
4 Ways to Maximize the Cost and Space Efficiency in Your ASC
10 Great ASC Industry Leaders to Know