Graham Cherrington, executive vice president-operations for NovaMed, says the days of "home run" ideas that will double ASC revenue have passed, but there are plenty of ways surgery centers can increase their revenue 10-25 percent and have a significant impact on the bottom line.
Mr. Cherrington offers the following four ASC profit improvement ideas, or "singles," that can add up to a home run boost to revenue. "These are just plain old, solid business ideas you can do that just make sense," he says.
1. Add ophthalmology to multi-specialty ASCs. Ophthalmology in ASCs is primarily driven by cataract cases, which typically require topical anesthesia (usually Versed). "With Versed, there are no fasting requirements, so you can put cases on in the afternoon, which are generally not prime times in ASCs, and make better use of your facility," Mr. Cherrington says.
Ophthalmology offers a highly profitable per hour of OR time. Mr. Cherrington says a typical ASC could bring around $1,000 per case, with supplies costing around $300 per case, yielding a gross margin of $700 per case. Performing three cataract cases per hour is not unreasonable, which would yield a gross margin of $2,100 per hour.
The cost of adding ophthalmology is also manageable. Ophthalmologists will generally prefer a certain lens platform, such Alcon, Abbott Medical Optics, etc., and ASCs can often work out an arrangement where they essentially pay by the case. "You can build it into your lens price if you want to do it on a variable cost basis and if you think you have enough volume, you can purchase the equipment and make that a fixed item and then pay less for the lenses," Mr. Cherrington says. "All the lens platform companies have ways to help you finance and get started. They understand you may not be starting with a thousand cases."
2. Add pain management to eye centers on Friday. Ophthalmology centers usually only perform procedures Monday through Thursday because cataract cases require a postoperative visit and most physicians do not want to see a patient for a postoperative visit on Saturday. This means Fridays are generally open, and they are a perfect day for pain treatment. Patients are often looking for pain relief before the weekend and these cases do not typically require a postoperative visit. "The bread and butter pain injections can be a way to utilize your facility on a Friday when you're really not going to be doing any ophthalmology cases," Mr. Cherrington says. "It diversifies your center and adds some nice revenue."
Pain procedures are very quick, so an ASC can perform many of them in a single day. Mr. Cherrington says the revenue for pain injections may be around $250 per case, with the costs of goods sold at around $25 per case, yielding a gross margin of $225 per case. "While the revenue is not that high, if the costs are 10 percent or less of your revenue, your gross margin is still awfully good," he says. "Pain injections don't take a tremendous amount of time. You're looking at 10-15 minutes per case, so what you're doing is adding very solid revenue."
There is some capital investment required, so an ASC will need to identify if it will have enough volume to justify the cost of a C-Arm. "But you can find good leasing options," Mr. Cherrington says. "The upside of a down economy is there's never a better time if you're a buyer of anything."
ASCs should also check their state laws to identify possible CON restrictions for adding pain management.
3. Squeeze costs on every item you purchase. Mr. Cherrington suggests the following four steps to effectively reduce costs for the items and implants your ASC purchases.
- Join a group purchasing organization (GPO)
- Standardize purchases of bulk items
- Use an implant provider for purchase of expensive implants
- Re-negotiate price and terms of every product and service
4. Match your ASCs labor to case volumes. Most ASCs see their case volume increase or decrease each month depending upon a number of factors, which include physician vacations, weather and holidays. If your ASC sees 6,000 cases annually, it is not likely that every month has 500 cases. In some months you will see 450 cases, in other months 550.
"Seasonality in healthcare is on the rise with the increase in high-deductible health plans," Mr. Cherrington says, which is why it is important that your ASC can flex its staff to match your projected volumes. "This way you can really align better the one cost item you control most in your ASC, and that's labor., he says. "We ask our managers, our ASC directors, to take their budgeted labor percentage, early in the month or before the month starts, and get a projected number of cases. Net revenue per case is a good proxy for how much revenue you'll generate and then figure out how many dollars you have to play with on the staffing side."
If you project your volume to be down 10 percent, Mr. Cherrington says you need to flex your staff 10 percent. "That's challenging because cutting hours is never easy but sometimes you can adjust work schedules and keep everybody where they need to be," he says. "If you're just spending the same dollars every month and your cases are down, every one of those dollars that used to be incrementally profitable is now incrementally unprofitable." He suggests ASCs work to move as many employees as possible to per diem status and utilize block scheduling to achieve this better balance.
Learn more about NovaMed.
Read more practical guidance to improve your ASC profitability:
- 6 Changes to Improve Physician Productivity in ASCs
- 4 Goals for Cutting Down ASC Costs
- 15 Processes Your ASC Should Benchmark