The following article is written by Nap Gary, COO; Robert Welti, senior vice president, operations; Matt Lau, corporate controller; and Michael Orseno, revenue cycle director for Regent Surgical Health.
We recently discussed some of the clinical statistics that we review every month as part of managing a surgery center. This week we'll look at the operational and financial statistics that we also review monthly. The format of this article doesn't lend itself to a complete discussion of the topic, so this will be more of a list than an exegesis, but it should provide a sense of the breadth of analysis that needs to be undertaken regularly. Perhaps the most important point to remember is that there's no one measurement that encompasses all aspects of surgery center finances and operations, so analysis, evaluation, planning and response is most effective when managers have current, reliable, complete material information, and understand the uses and limitations of their measurement methods.
Surgery center managers do more slicing and dicing than the venerable Ronco Vegematic ever did. This starts with the revenue elements of the business. We look at the following determinants every month:
• Case volumes
• Revenue
• Collections
• Physician utilization
We measure these first in absolute terms, and then we measure them by various components, including as applicable by specialty, by procedure, by payor, by physician, versus budget and on a trending basis. We pay close attention to net revenue per case.
Net revenue, in fact, serves as a reference point for much of the operational analysis that we perform. We look at salaries, wages and benefits (SWB) as a percent of net revenue. We also look at supply costs as a percent of net revenue. Continuing with the expense analysis, we look at SWB per case, supply costs per case and SWB per OR minute. Labor measurements include hours paid, hours worked, and hours by pre-op, OR and PACU, all on an aggregate and a per case basis. We have implemented case costing in each of our centers which enables us to track costs down to each individual component of the surgical experience, so we can track individual supply quantities and expenses, improve managed care reimbursement, address physician choices and better understand which cases are profitable on a contribution margin basis. The contribution margin is calculated by subtracting the direct variable costs of a case from the expected total collections of a case.
In addition to those direct variable costs which are related to each individual component of the surgical experience, it is also important to look at and factor in the indirect fixed costs that are incurred each month when understanding the overall profitability of the center. Identify those expenses and cash outflows that occur each month, such as rent, utilities, telephone, equipment lease payments and even monthly debt payments. These total fixed costs should be consistent from month to month, and we use these total monthly fixed costs along with the average contribution margin per case to determine the center's break-even point. Simply put, a center's break-even point is the number of cases needed to be performed each month in order for that center to cover all of its expenses, assuming that the payor mix and specialty mix remains consistent. It is calculated by dividing the average contribution margin per case by the total amount of fixed costs per month. Knowing the contribution margin, the monthly fixed costs, and the break-even point provides us with a minimum case volume to target each month.
Other statistics include the following: collections by payor; the interaction among changes in case mix, payor mix and chargemaster adjustments; distributions; reimbursable implants and non-reimbursable implants. Our centers prepare a staffing report weekly that, among other things, looks at anticipated daily case volumes for the next five business days and computes labor hours per case. We use that tool to adjust staffing in response to case volumes.
We measure a variety of elements of the revenue cycle, including lag times between procedure, charge entry, claim submission, statement generation and receipt of payment. We measure net and gross collection rates, accounts receivable aging (gross, net, in 30-day buckets, amounts over 90 days, in dollars and by percent of total A/R) and days in A/R. And finally we look closely at the amount of business office FTEs per case.
Statistics may not lie, but they certainly can lead you to some foolish conclusions if you let them. Thorough tracking of information is only the first part of the battle. The second, and more important, part is determining what it all means. Fluctuations in net revenue, for example, will affect SWB per case. Sometimes the latter measurement appears to show improvement in labor utilization when in fact all it really shows is higher net revenue. Similarly, evaluating desirability of cases merely by looking at costs per case fails to recognize variations among specialties and procedures. The best reimbursed cases often take the longest to perform. Measuring labor costs per OR minute provides a more refined point of reference than labor costs per case. Additionally, in comparing results across centers it’s important to note the material differences by region in labor costs per hour. All of which is to say that operational statistics can't be measured in a vacuum. We make every effort to bring as much material information as possible to bear on the analysis, and then to analyze that information appropriately so that we're managing from the right conclusions.
Learn more about Regent Surgical Health.
More Articles Featuring Regent Surgical Health:
ICD-10/5010 Implementation: Are You Ready?
Understanding Surgery Center Exit Strategies
When a Hospital Loosens its Grip on its ASC: Q&A With Anne Roberts at Surgery Center of Reno
We recently discussed some of the clinical statistics that we review every month as part of managing a surgery center. This week we'll look at the operational and financial statistics that we also review monthly. The format of this article doesn't lend itself to a complete discussion of the topic, so this will be more of a list than an exegesis, but it should provide a sense of the breadth of analysis that needs to be undertaken regularly. Perhaps the most important point to remember is that there's no one measurement that encompasses all aspects of surgery center finances and operations, so analysis, evaluation, planning and response is most effective when managers have current, reliable, complete material information, and understand the uses and limitations of their measurement methods.
Surgery center managers do more slicing and dicing than the venerable Ronco Vegematic ever did. This starts with the revenue elements of the business. We look at the following determinants every month:
• Case volumes
• Revenue
• Collections
• Physician utilization
We measure these first in absolute terms, and then we measure them by various components, including as applicable by specialty, by procedure, by payor, by physician, versus budget and on a trending basis. We pay close attention to net revenue per case.
Net revenue, in fact, serves as a reference point for much of the operational analysis that we perform. We look at salaries, wages and benefits (SWB) as a percent of net revenue. We also look at supply costs as a percent of net revenue. Continuing with the expense analysis, we look at SWB per case, supply costs per case and SWB per OR minute. Labor measurements include hours paid, hours worked, and hours by pre-op, OR and PACU, all on an aggregate and a per case basis. We have implemented case costing in each of our centers which enables us to track costs down to each individual component of the surgical experience, so we can track individual supply quantities and expenses, improve managed care reimbursement, address physician choices and better understand which cases are profitable on a contribution margin basis. The contribution margin is calculated by subtracting the direct variable costs of a case from the expected total collections of a case.
In addition to those direct variable costs which are related to each individual component of the surgical experience, it is also important to look at and factor in the indirect fixed costs that are incurred each month when understanding the overall profitability of the center. Identify those expenses and cash outflows that occur each month, such as rent, utilities, telephone, equipment lease payments and even monthly debt payments. These total fixed costs should be consistent from month to month, and we use these total monthly fixed costs along with the average contribution margin per case to determine the center's break-even point. Simply put, a center's break-even point is the number of cases needed to be performed each month in order for that center to cover all of its expenses, assuming that the payor mix and specialty mix remains consistent. It is calculated by dividing the average contribution margin per case by the total amount of fixed costs per month. Knowing the contribution margin, the monthly fixed costs, and the break-even point provides us with a minimum case volume to target each month.
Other statistics include the following: collections by payor; the interaction among changes in case mix, payor mix and chargemaster adjustments; distributions; reimbursable implants and non-reimbursable implants. Our centers prepare a staffing report weekly that, among other things, looks at anticipated daily case volumes for the next five business days and computes labor hours per case. We use that tool to adjust staffing in response to case volumes.
We measure a variety of elements of the revenue cycle, including lag times between procedure, charge entry, claim submission, statement generation and receipt of payment. We measure net and gross collection rates, accounts receivable aging (gross, net, in 30-day buckets, amounts over 90 days, in dollars and by percent of total A/R) and days in A/R. And finally we look closely at the amount of business office FTEs per case.
Statistics may not lie, but they certainly can lead you to some foolish conclusions if you let them. Thorough tracking of information is only the first part of the battle. The second, and more important, part is determining what it all means. Fluctuations in net revenue, for example, will affect SWB per case. Sometimes the latter measurement appears to show improvement in labor utilization when in fact all it really shows is higher net revenue. Similarly, evaluating desirability of cases merely by looking at costs per case fails to recognize variations among specialties and procedures. The best reimbursed cases often take the longest to perform. Measuring labor costs per OR minute provides a more refined point of reference than labor costs per case. Additionally, in comparing results across centers it’s important to note the material differences by region in labor costs per hour. All of which is to say that operational statistics can't be measured in a vacuum. We make every effort to bring as much material information as possible to bear on the analysis, and then to analyze that information appropriately so that we're managing from the right conclusions.
Learn more about Regent Surgical Health.
More Articles Featuring Regent Surgical Health:
ICD-10/5010 Implementation: Are You Ready?
Understanding Surgery Center Exit Strategies
When a Hospital Loosens its Grip on its ASC: Q&A With Anne Roberts at Surgery Center of Reno