At the 10th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 15, Greg Horner, MD, managing partner with Smithfield Surgical Partners, spoke on eight steps necessary in the transition from out-of-network to a contracted ASC model.
1. Estimate potential volume. Dr. Horner recommended ASCs do this by combing through physicians' office data, by payor and specialty. "Stay conservative," he said. "The recommended rule of thumb is to use 50 percent of the potential volume when determining what the center is worth.
2. Create a financial model. Dr. Horner called this a "multivariate 'what-if' calculator." This is when a practice takes variable costs and control costs, calculating how those variable factors could potentially affect the ASC's bottom line. The most important variables are volume, variable costs, fixed costs and revenue. Variable costs include staff costs, including wages and hours worked per case, and supplies. Fixed costs aren't always that fixed, said Dr. Horner. Expenses for services such as garbage and laundry can fluctuate depending on patient volume. Dr. Horner also recommended a "historical stress test," which compares an ASC's slowest and busiest months. "This can tell you what might happen when you increase volume," said Dr. Horner.
3. Start negotiations early. Dr. Horner said it could take six months or up to a year to fully negotiate contracts. "Use revenue targets and take advantage of pricing power. It's reasonable to use outsources to handle this negotiation," he said. He also recommended ASCs turn to their physicians and poll them to find out how they can contribute to negotiation efforts.
4. Improve staffing. "I suggest using specialty specific benchmarks," said Dr. Horner. "Use your volume data, segregate it into specialty specific data, and help motivate employees with that." Dr. Horner said, when it comes to incentive programs, it is best to use non-financial metrics to maintain good morale. "Finally, you may want to consider putting managers in place -- salaried people held to these specialty specific benchmarks. These folks can oversee the other staff and help them meet benchmarks."
5. Add volume. Dr. Horner said ASCs should motivate current physicians and also look for physicians outside of the center. These may be other independent physicians or those deemed as "political outsiders." It may be time, but ASCs should aim to make peace and bring them into the center.
6. Reduce supply costs. This is 18 to 22 percent of projected revenue, according to Dr. Horner. "Projected volume is a useful tool to negotiate supply costs, and GPOs are super helpful with that. They will play each company off each other," he said. He also said it's crucial to compare apples to apples. Even costs as small as those for gloves can vary by 10 percent.
7. Optimize service lines. Some out-of-network ASCs may have had no reason to invite certain specialties in the past, but now those specialties can become very profitable in centers. "You may consider taking on larger tasks, like joint arthroplasty," said Dr. Horner. "You have to use RVUs to apportion the staff costs. You should do a monthly review with them, and there might be some cases in which you need to narrow your focus."
8. Think outside the box. Dr. Horner recommended out-of-network ASCs think outside of their center. "We've considered mergers and strategic partners. The in- and out-of-network strategy involves partnering with another center, contracting one of them and remaining out-of-network with another. Then you already know what you'll get paid when out-of-network goes away. Dr. Horner recommended ASCs talk to a local hospital or ASC management company to bring in a strategic partner, as they can add purchasing and contracting power. If the future doesn't look bright when you go in network, it might be time to sell the center. "If you think you're at your peak, and this is the most profitable the center will be, then it's definitely time to sell," said Dr. Horner.
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