Growth in most ASCs has resulted from dedicated physician owners who embrace outpatient surgery and continue to use and grow the types of surgery that can be performed in their ASC. These physicians have great pride of ownership. But as founding physicians age and mature in their practices, there is a natural drop off in the ASC’s caseload. To continue to grow the ASC, it is imperative to generate new revenue streams by adding new physicians and or new services.
To maximize profitability, most centers over the years have wrung out their operating costs in supplies, implants and purchased services through group purchasing and negotiations with vendors. Today, increased profitability must come from generating new revenue while continuing to carefully manage staffing and supplies/drug/implant costs. Revenue is the lifeblood of the ASC.
Competition has grown in most cities for ambulatory surgery patients. There are now over 5,300 ASCs in the U.S. and the number is growing. This is due to the financial success of this model for providers and patients, and the high patient and physician satisfaction with the ASC’s level of service. In this competitive environment, ASCs must distinguish themselves to gain more patients.
Adding a new service line and demonstrating excellence in delivering that service are very good ways to boost profitability and competitive strength in the market. There are several new ASC service line opportunities arising from increased reimbursement. In the orthopedic area, total knees, hips and joints and hip arthroscopy are being added to the ASC service menu. New spine cases are being adding, including micro-discectomies, laminectomies and ACDF fusions. Interventional cardiology and radiology, and vascular procedures have been approved by Medicare and now offer good reimbursement.
Other procedures, such as peripheral artery disease procedures, dialysis catheters, grafts and pain pumps, are also being added. If you are considering a new service line, several essential elements must be addressed and questions answered.
How does your ASC properly assess the new revenue opportunity financially? Which new service best fits your market and the desire and expertise of the physicians involved in the ASC (there must be a match)? How does your sponsoring group of physicians implement the new service?
In assessing a new service line, consider if your ASC has physicians willing and able to champion the new service and help it grow. Though obvious, without strong physician support, the service line may be good financially for ASCs in general, but not a good fit for your particular ASC. There must be a physician or physicians to champion the service.
Second, consider if the service will fit well within your market. Are there other competitors already providing that service, and is there room for another (for example) spine center? Do your doctors have enough patient volume to pay for the costs of providing the new service and make it financially successful? What service lines are not being provided in your market area? Can you find physicians that are willing and able to provide those services at your ASC?
Tap all your sources to find physicians for the new service. Doctor-to-doctor recruiting is especially effective. Your current physicians will know other good physicians in the area that may be interested in joining your ASC to work on the new service. There may also be surgeons offering the service elsewhere who are unhappy with their current ASC and amenable to moving their practice to a new ASC. This is often the case with younger physicians who do not have as substantial a percentage of ownership as their senior partners and want more return for their work. Recruiting physicians from failing ASCs can also be a good strategy, as long as you are careful. You must be sure these potential physicians have been good partners, have appropriate volume, and have a good reputation that has nothing to do with the failure of the ASC in which they partnered or used.
Vendor reps interact with local physicians every day and know which physicians may be prone to move or are unsatisfied with their present situation. They can be very helpful in identifying new physicians that may be added to the ASC specifically for a new service. Target vendors that represent the new service line.
Financial considerations are an essential part of planning a new service line. You must do research to determine in-and out-of-network reimbursement, starting with Medicare rates as a base low rate of reimbursement and then reach out to commercial payers. What is the reimbursement for the service in your market from Medicare and commercial payers? Can you still offer that service if it is considered “new” on an out-of-network basis and get reimbursed?
You must consider physical requirements for providing the new service, as they sometimes dictate more expenditure. You must know if any new equipment, electrical or mechanical issues are required. If so, investigate how vendors may be able to assist you in helping establish the new service. Is there a vendor partner who can provide equipment at no fee for a short time, supplies at a promotional cost or free pricing for initial months?
Pricing strategy is key, and this is a function of how much money is needed to bring the new service on line, and then sustain it. Begin your financial projections with legal, accounting, equipment and other capital start-up costs. Will you need any renovation for the building and additional staffing? What will be the supply/drug/implant costs?
A return on investment needs to be assessed. Calculate revenue by procedure to project the expected net revenue for the new service line. Make a best estimate of the number and type of procedures for the year, calculating the net revenue (collected dollars per procedure) based on best estimates of reimbursement (research your area). Costs for salary, supplies, drugs, implants, rent, accounting, legal and other normal operating expenses get subtracted to determine the best estimate of a cash profit for that service.
Next, calculate the estimated reimbursement for procedures versus the expected discounts from area payers. For example, if the typical discount from payers is 80-85% of charges in the area, based on the projected reimbursement, a mark-up on the projected net revenue must be calculated to project a proper return on investment. This provides an estimate of the profit needed to meet the return on investment target.
Final stages of planning include several factors. Establish clinical protocols using best practices from what your physicians and nurses have researched from other ASCs that have successfully added the service. It is the responsibility of your nurse administrator to assure all supplies, drugs, implants and all other clinical items are ready. Set up a good revenue cycle, proper coding and insurance verification for the new service to assure proper payment. A dry run with the staff is a good idea to assure smooth patient service once the program is implemented.
Finally, your ASC governing board should set criteria for clinical, patient and physician satisfaction, and financial measures for the success of the new service. This will help to objectively determine if the service is successfully meeting your ASC’s goals, and provide criteria for feedback and improvement for the continued success of the service line.
Adding a new service line is a team effort among all the stakeholders of the ASC. It should be an exciting time for growth of your ASC. With strong physician and staff support, as well as proper operational planning and objective financial planning, the service line has the best chance of being successfully implemented.
Robert Zasa is president and founder of Ambulatory Systems Development. Contact: RZasa@asd-asc.com or 626-840-4248.