In a session titled "Keys to Transforming Surgery Centers into a Profitable Business," at the 10th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago, Tom Yerden, CEO of TRY Healthcare Solutions, Jimbo Cross and Jeff Peo, vice presidents of acquisitions and development at Ambulatory Surgical Centers of America, discussed how to manage a profitable ambulatory surgery center. Barton C. Walker, partner at McGuireWoods, moderated the session.
1. Assess debt structure and recruitment potential. The panel began by discussing warning signs indicating that an ambulatory surgery center cannot be made into a profitable business. According to Mr. Yerden, it is important for an ASC to stay on equal footing with its hospital partner. "I also look at the balance sheet and the debt structure of an ASC that's in trouble," he said. "You can’t fix one that is poorly conceived. There may also be a lack of unaffiliated surgeons in your market or poor leadership. And if there is a hospital partner that you let control your center, you need to get them out of the way."
2. Evaluate the payor market. Mr. Cross added that a poor payor market is also a common red flag. "There may be a high Medicare and Medicaid mix, and that's an area we can't fix," he said. "Recruitment is also an issue. I see too many surgery centers with not enough physicians available, or physicians choosing hospital employment. But if you're diligent about cost structure and managing across benchmarks, and if you have top line revenue, you can fix a lot."
3. An unwillingness to change can be a barrier to profitability. Mr. Peo said that other unsuccessful surgery centers display an unwillingness to change. "If somebody has been at the surgery center meetings and conferences for years and doesn't take any of the information back, that's a red flag," he said.
4. Consultants can be helpful in negotiating contract rates. The panel then discussed the process of negotiating the best contract rates. "If you're in a traditional market with lower rates, one option is to hire a consultant," said Mr. Cross. "They know what the hospitals and surgery centers are being paid, and they can negotiate on your behalf. If you get the right hospital partner, they can also help you negotiate better rates."
Mr. Peo added that contract negotiation is not a quick process. "It takes a while to get a contract negotiated, and you have to make sure you're negotiating for what will have the biggest impact in your surgery center," he said. "Be very aware of what is going to have an effect on your top and bottom line."
5. Set revenue and case goals to assess profitability. The panel then discussed how to assess profitability. "You want your return on investment to be 25 percent per year or more," said Mr. Yerden. "Otherwise I'd advise against developing the project. But sometimes there are other compelling reasons to develop a facility, particularly if there is a hospital in your market." He added that ambulatory surgery centers tend to overbuild and underbill."
You should have 1,200 cases per room per year," he said. Mr. Cross said that Mr. Yerden's case number was a conservative estimate. "You could really squeeze 2,000 cases per year per OR, but it's specialty-dependent," he said. "Ultimately, 40 percent of every dollar coming into the door should be profitable, coming back to the partners."
1. Assess debt structure and recruitment potential. The panel began by discussing warning signs indicating that an ambulatory surgery center cannot be made into a profitable business. According to Mr. Yerden, it is important for an ASC to stay on equal footing with its hospital partner. "I also look at the balance sheet and the debt structure of an ASC that's in trouble," he said. "You can’t fix one that is poorly conceived. There may also be a lack of unaffiliated surgeons in your market or poor leadership. And if there is a hospital partner that you let control your center, you need to get them out of the way."
2. Evaluate the payor market. Mr. Cross added that a poor payor market is also a common red flag. "There may be a high Medicare and Medicaid mix, and that's an area we can't fix," he said. "Recruitment is also an issue. I see too many surgery centers with not enough physicians available, or physicians choosing hospital employment. But if you're diligent about cost structure and managing across benchmarks, and if you have top line revenue, you can fix a lot."
3. An unwillingness to change can be a barrier to profitability. Mr. Peo said that other unsuccessful surgery centers display an unwillingness to change. "If somebody has been at the surgery center meetings and conferences for years and doesn't take any of the information back, that's a red flag," he said.
4. Consultants can be helpful in negotiating contract rates. The panel then discussed the process of negotiating the best contract rates. "If you're in a traditional market with lower rates, one option is to hire a consultant," said Mr. Cross. "They know what the hospitals and surgery centers are being paid, and they can negotiate on your behalf. If you get the right hospital partner, they can also help you negotiate better rates."
Mr. Peo added that contract negotiation is not a quick process. "It takes a while to get a contract negotiated, and you have to make sure you're negotiating for what will have the biggest impact in your surgery center," he said. "Be very aware of what is going to have an effect on your top and bottom line."
5. Set revenue and case goals to assess profitability. The panel then discussed how to assess profitability. "You want your return on investment to be 25 percent per year or more," said Mr. Yerden. "Otherwise I'd advise against developing the project. But sometimes there are other compelling reasons to develop a facility, particularly if there is a hospital in your market." He added that ambulatory surgery centers tend to overbuild and underbill."
You should have 1,200 cases per room per year," he said. Mr. Cross said that Mr. Yerden's case number was a conservative estimate. "You could really squeeze 2,000 cases per year per OR, but it's specialty-dependent," he said. "Ultimately, 40 percent of every dollar coming into the door should be profitable, coming back to the partners."