Whenever someone asks me what it takes to succeed in the ASC business, I immediately tell them about "the five C's." These are the five core concepts or competencies that must be mastered by physician-owners at all types of ASCs, in every region, if they are to prosper.
I will highlight each of these in more detail later, and describe their importance. However, as spine surgery centers have proven to be feasible businesses (and in some cases absolutely outstanding ones), we've recently expanded our thinking and added "three C's for spine:"
5 universal C's
Our many years of experience in the industry have shaped our thinking about the requirements for profitable ASC businesses. We apply the five C's as best practices and foundational elements of the business model for all types of centers, including spine ASCs. And we use them as a means to engage the owners around common goals and shared responsibilities.
Case volume and mix. ASC success is predetermined long before the doors open. We firmly believe that no surgery center should be launched until the right volume and mix of cases is assured. While many ASCs start with the assumption that they'll grow into sufficient volume over time, ours is a fixed-cost business; hence, a baseline volume is required to support operations. At many underperforming ASCs, optimistic partners start digging a hole on day one and are never able to climb out. An analogy from the travel business: An airline with the most experienced and skilled pilots, the friendliest staff, best reservation system and most attractive fares will still lose money if only 50 percent of the seats are filled.
Business plans should be based on fully accurate, highly detailed and rigorously validated case volume projections. In spine, this often requires the addition of pain management cases to augment the lower number of major spine procedures (pain cases are also an effective way to orient patients to the notion of outpatient treatments and to the ASC itself). These projections should be viewed as a "go/no-go" decision in the planning process for new ASCs.
Once facilities are operational, case volume and mix should be monitored and analyzed carefully, by surgeon, with the results communicated to all stakeholders and compared each month to actual projections. That way, issues can be identified proactively and addressed quickly, long before the hole gets too deep.
Contracts. It's nearly impossible to overestimate the importance of strong contracts to ASC success. In our experience, about 20 percent of the cases generate about 80 percent of the profit. An ASC's contract portfolio must reflect that ratio. That's one of the few generalizations that can be made about outpatient spine contracting, however. The in-network vs. out-of-network (OON) question, particular market conditions and constantly changing reimbursement rates, mean each ASC needs to seek contracts tailored to its unique goals, specialties and location. Contracts for supplies, implants and instruments must also be negotiated carefully. Because of the complexity and many details involved, contracting is arguably the area where corporate partners can deliver the most value.
Spine ASCs raise unique contracting issues. Certainly, the revenue potential is terrific, largely because ASCs compete directly with hospitals and usually not other ASCs. OON contracts must be properly managed and understood to realize the high upside. Considerable follow-up work is necessary, too. On the payor side, the opportunity to reduce costs by moving cases from hospitals to ASCs is just as compelling (which we'll discuss more later). While OON contracting may not provide long-term synergy, the high cost will often bring payors to the table. The lack of Medicare groupers for most spine procedures means many payors do not yet understand how to asses outpatient spine fees and most payors do not understand how to accurately assimilate the costs of spine cases at hospitals.
Another issue is how pain cases can help boost revenue at the ASC, even though, in some cases, they can be more lucrative for physicians who treat such patients in their offices. Based on our experience, we believe that a small spine surgery center with one OR and one procedure room can generate 100 percent annual return on investment with 400 surgeries and 1,500 pain cases. Bigger isn't necessarily better when it comes to developing new spine surgery centers.
Again, the OON issues are the keys, both strategically and operationally. It's also important to remember that there is still plenty of work to do when your spine surgery center is OON. Everybody at the ASC — surgeons, RNs and business office staff — must be educated to handle OON issues. First and foremost, claims and billing must be monitored to ensure claims are paid accurately and in line with contracts. Once in-network, payor relationships should be tended carefully, with an emphasis on mutually beneficial arrangements. Re-negotiation strategies should be ready in case of regulatory change or market shifts. It's important to recognize that optimal contracts are usually moving targets; ASCs willing to do their homework can often improve contracts after they're signed. In fact, we revisit each contract with changes of some sort at least twice annually.
Case costing. One hallmark of profitable ASCs is knowing how much it costs to perform each type of case, including any variable costs (like supplies and instrumentation), and how much they are reimbursed. Further, surgeons and staff alike understand why those figures are important and how they affect the bottom line. In outpatient spine facilities, with more expensive equipment and implants involved, the value of case costing only increases.
Case costing is closely related to volume projections in that it defines the requirements for profitability and provides insight into contracting needs, physician preferences and practice patterns. Put simply, without accurate case costing data, it's difficult to tell a profitable contract from a money-losing one. With detailed cost data, surgeon-owners will quickly see what drives profitability and where improvements are necessary. Strategically, case costing provides the transparency necessary to build strong partnerships. Operationally, it clarifies the need for supply standardization, comprehensive fee schedules and other effective management practices.
Compressed schedules. Schedule compression is an important — but often undervalued — technique for improving productivity. It can also boost revenue by making time for non-owner surgeons to use the ASC. Clustering cases helps ensure that staffing costs and other overhead are minimized at lower-volume ASCs. We counsel our surgeon-partners that it's perfectly acceptable to turn off the lights on Thursdays and Fridays if caseloads are too light. Busier centers will want to employ block scheduling, set deadlines for OR reservations and regularly communicate available slots. Turnover times of 10 minutes or less between cases should be the goal for many types of procedures.
In spine ASCs, the scheduling issue may seem less urgent in that fewer cases are necessary to sustain profitable operations. Because spine cases typically last longer, speedy OR turnover may be less important at spine-focused ASCs than at multi-specialty centers. Compressed scheduling and productivity are critical, however, if pain cases are also handled at the spine surgery center. Treating three or more pain cases in an hour is a worthy and feasible goal. At some centers, these procedures are handled in street clothes to keep things moving along. Typically, these challenges are not too difficult, which is one reason why pain often makes an excellent complement to spine-focused ASCs.
Cash. Managing cash is all about managing accounts receivable (A/R) and ensuring contracts are administered properly. Top-performing ASCs manage these tasks more effectively. That's true for all types of centers, including spine. Conversely, almost all unsuccessful centers struggle with A/R. "Swamped," "overwhelmed," "nightmare" — those are the words most often used to describe ASCs with serious A/R issues. The stakes are high, however. OON cases may require that ASC staff collect $20,000 checks from patients.
How to avoid this common problem? Efficient, knowledgeable and detail-oriented staff — whether employed by the ASC or a management partner — is a must. The goal is to process every claim expediently and stay on top of A/R status at all times. That starts by completing insurance forms long before treatment day, securing pre-authorizations and always taking co-payments when patients arrive. It's particularly important that potential problems are identified early for OON cases, with patients made aware of the process and their responsibilities. These should be the rules, not the exceptions.
Further, post-treatment, operative notes should be based on templates and processed quickly, claims submitted electronically to payors and individual claims followed up aggressively. Yes, it's a lot of work, but that's how centers can operate at 38 days or less of receivables. There's no doubt that the payoff — strong and predictable cash flow — is well worth the effort.
Three additional C's for spine
The five universal C's apply to all types of surgery centers. The following are three additional concepts that lay the groundwork for business and clinical success at spine-focused ASCs.
Surgeon and patient comfort. In some regions, outpatient spine has become very popular — up to 10-15 percent of all spine cases. In other areas, surgeons are not yet comfortable with outpatient spine, thanks to local biases and standards, the influence of hospitals and payors and physician misconceptions about risk and patient preferences. This is gradually changing. As more neurosurgeons, orthopedic spine surgeons and other specialists become comfortable in outpatient settings, more and more cases (including more advanced treatments) will migrate to ASCs.
What we've found in launching a number of successful spine-focused ASCs is that patient selection is the critical component to surgeon comfort. Not every case is well suited for ASCs. Thus, to minimize the risk of co-morbidities and complications, patients must be evaluated on a case-by-case basis. Obesity, surgical approach or positioning issues, history of respiratory illness and sleep apnea are the main criteria. Well-defined contingency plans are also critical for reaching the appropriate comfort level with outpatient spine. Additionally, only those cases where surgeons have suitable experience should be handled at ASCs. Outpatient surgery centers are not the place to learn new techniques, especially in spine. That's what our medical director and surgeons tell me.
Patient comfort is important, too. I know spine surgeons who bring all their spine patients to the ASC before surgery, either for initial pain treatments or simply to familiarize them with the facility, staff and the idea of outpatient care. Familiarity breeds comfort and significantly reduces patient anxiety. Patient perceptions are also affected by referring physicians, RNs, PAs and the like. Therefore, all of these people should be educated about the appropriateness and advantages of outpatient treatments.
Confident staff. This "C" is an extension of the previous one. Spine-focused ASCs need to have top-notch staff committed to the highest clinical standards. The entire staff should be strong proponents of outpatient spine and fully trained with specific procedures. Further, they should be active participants and strong team players who understand their roles. In all of our centers, if the staff or anesthesiologists are uncomfortable with a patient or case, they can veto certain cases handled on an outpatient basis.
Staff confidence is also a matter of remaining calm under pressure, helping to devise back-up plans for emergency transfers and trusting in those plans if complications arise, as they inevitably will. The good news is that ASCs often liberate surgeons to choose exactly the team they want to work with. Typically, that means skilled, experienced and confident staff the surgeons trust.
Collaboration with payors. Since outpatient spine is a relatively new phenomenon, payors are uncertain about what it means to their business or how to approach it. Equipment and supply providers have been similarly hesitant. As a result, many payors have dragged their feet on signing on any contracts for fear that they would sign bad ones. Some even preferred to ask their customers (employers) to pay higher rates than admit their confusion.
For entrepreneurial surgeons, the lack of reimbursement standards and Medicare grouper rates represents a great opportunity. Specifically, spine-focused ASCs should work directly with payors to define algorithms for specific treatments and forge a comprehensive payment system for outpatient spine. Collaborating in this way may cost established spine ASCs some of the massive revenue they're currently generating, but by demonstrating a savings for the payors, they'll be more likely to capture a steady, long-term profitable revenue stream.
The risk is that this will prove to be a narrow window of opportunity. Even the slowest-moving payors will eventually "crack the code" on outpatient spine. Collaborating with them now on mutually beneficial deals will help ensure outpatient spine remains profitable for ASC owners as it inevitably grows more popular with patients and more comprehensible to payors.
Bottom Line: 5 + 3 C's lead to success in outpatient spine
Many of the surgeons we've worked are motivated to join ASCs because they want to focus on treating patients and delivering the highest quality care. In other words, they have very good reasons for investing in an ASC. And while some surgeons really enjoy the business, most are less interested in the details of claims management, supply standardization or payor negotiations. We developed the "5 C's (+ 3)" to help surgeon-owners understand the importance of these concepts, their role in adding value to the spine ASC businesses and their impact on surgeons' return on investment. We believe such high-level understanding is useful. But the C's are also valuable in highlighting the many moving parts that must be monitored and synchronized if an ASC is to achieve near- and long-term profitability. In other words, spine-focused ASCs that master the 5+ 3 C's are well on their way to success.
Mr. Leland (jleland@bluechipsurgical.com) serves as managing partner of Blue Chip Surgical Center Partners, a surgery center development and management company focused on spine and multi-specialty ASCs. Learn more about Blue Chip Surgical Center Partners .
The five C's are:
- Case volume and mix
- Contracts
- Case costing
- Compressed schedules
- Cash
I will highlight each of these in more detail later, and describe their importance. However, as spine surgery centers have proven to be feasible businesses (and in some cases absolutely outstanding ones), we've recently expanded our thinking and added "three C's for spine:"
- Surgeon and patient comfort
- Staff confidence
- Collaboration with payors
5 universal C's
Our many years of experience in the industry have shaped our thinking about the requirements for profitable ASC businesses. We apply the five C's as best practices and foundational elements of the business model for all types of centers, including spine ASCs. And we use them as a means to engage the owners around common goals and shared responsibilities.
Case volume and mix. ASC success is predetermined long before the doors open. We firmly believe that no surgery center should be launched until the right volume and mix of cases is assured. While many ASCs start with the assumption that they'll grow into sufficient volume over time, ours is a fixed-cost business; hence, a baseline volume is required to support operations. At many underperforming ASCs, optimistic partners start digging a hole on day one and are never able to climb out. An analogy from the travel business: An airline with the most experienced and skilled pilots, the friendliest staff, best reservation system and most attractive fares will still lose money if only 50 percent of the seats are filled.
Business plans should be based on fully accurate, highly detailed and rigorously validated case volume projections. In spine, this often requires the addition of pain management cases to augment the lower number of major spine procedures (pain cases are also an effective way to orient patients to the notion of outpatient treatments and to the ASC itself). These projections should be viewed as a "go/no-go" decision in the planning process for new ASCs.
Once facilities are operational, case volume and mix should be monitored and analyzed carefully, by surgeon, with the results communicated to all stakeholders and compared each month to actual projections. That way, issues can be identified proactively and addressed quickly, long before the hole gets too deep.
Contracts. It's nearly impossible to overestimate the importance of strong contracts to ASC success. In our experience, about 20 percent of the cases generate about 80 percent of the profit. An ASC's contract portfolio must reflect that ratio. That's one of the few generalizations that can be made about outpatient spine contracting, however. The in-network vs. out-of-network (OON) question, particular market conditions and constantly changing reimbursement rates, mean each ASC needs to seek contracts tailored to its unique goals, specialties and location. Contracts for supplies, implants and instruments must also be negotiated carefully. Because of the complexity and many details involved, contracting is arguably the area where corporate partners can deliver the most value.
Spine ASCs raise unique contracting issues. Certainly, the revenue potential is terrific, largely because ASCs compete directly with hospitals and usually not other ASCs. OON contracts must be properly managed and understood to realize the high upside. Considerable follow-up work is necessary, too. On the payor side, the opportunity to reduce costs by moving cases from hospitals to ASCs is just as compelling (which we'll discuss more later). While OON contracting may not provide long-term synergy, the high cost will often bring payors to the table. The lack of Medicare groupers for most spine procedures means many payors do not yet understand how to asses outpatient spine fees and most payors do not understand how to accurately assimilate the costs of spine cases at hospitals.
Another issue is how pain cases can help boost revenue at the ASC, even though, in some cases, they can be more lucrative for physicians who treat such patients in their offices. Based on our experience, we believe that a small spine surgery center with one OR and one procedure room can generate 100 percent annual return on investment with 400 surgeries and 1,500 pain cases. Bigger isn't necessarily better when it comes to developing new spine surgery centers.
Again, the OON issues are the keys, both strategically and operationally. It's also important to remember that there is still plenty of work to do when your spine surgery center is OON. Everybody at the ASC — surgeons, RNs and business office staff — must be educated to handle OON issues. First and foremost, claims and billing must be monitored to ensure claims are paid accurately and in line with contracts. Once in-network, payor relationships should be tended carefully, with an emphasis on mutually beneficial arrangements. Re-negotiation strategies should be ready in case of regulatory change or market shifts. It's important to recognize that optimal contracts are usually moving targets; ASCs willing to do their homework can often improve contracts after they're signed. In fact, we revisit each contract with changes of some sort at least twice annually.
Case costing. One hallmark of profitable ASCs is knowing how much it costs to perform each type of case, including any variable costs (like supplies and instrumentation), and how much they are reimbursed. Further, surgeons and staff alike understand why those figures are important and how they affect the bottom line. In outpatient spine facilities, with more expensive equipment and implants involved, the value of case costing only increases.
Case costing is closely related to volume projections in that it defines the requirements for profitability and provides insight into contracting needs, physician preferences and practice patterns. Put simply, without accurate case costing data, it's difficult to tell a profitable contract from a money-losing one. With detailed cost data, surgeon-owners will quickly see what drives profitability and where improvements are necessary. Strategically, case costing provides the transparency necessary to build strong partnerships. Operationally, it clarifies the need for supply standardization, comprehensive fee schedules and other effective management practices.
Compressed schedules. Schedule compression is an important — but often undervalued — technique for improving productivity. It can also boost revenue by making time for non-owner surgeons to use the ASC. Clustering cases helps ensure that staffing costs and other overhead are minimized at lower-volume ASCs. We counsel our surgeon-partners that it's perfectly acceptable to turn off the lights on Thursdays and Fridays if caseloads are too light. Busier centers will want to employ block scheduling, set deadlines for OR reservations and regularly communicate available slots. Turnover times of 10 minutes or less between cases should be the goal for many types of procedures.
In spine ASCs, the scheduling issue may seem less urgent in that fewer cases are necessary to sustain profitable operations. Because spine cases typically last longer, speedy OR turnover may be less important at spine-focused ASCs than at multi-specialty centers. Compressed scheduling and productivity are critical, however, if pain cases are also handled at the spine surgery center. Treating three or more pain cases in an hour is a worthy and feasible goal. At some centers, these procedures are handled in street clothes to keep things moving along. Typically, these challenges are not too difficult, which is one reason why pain often makes an excellent complement to spine-focused ASCs.
Cash. Managing cash is all about managing accounts receivable (A/R) and ensuring contracts are administered properly. Top-performing ASCs manage these tasks more effectively. That's true for all types of centers, including spine. Conversely, almost all unsuccessful centers struggle with A/R. "Swamped," "overwhelmed," "nightmare" — those are the words most often used to describe ASCs with serious A/R issues. The stakes are high, however. OON cases may require that ASC staff collect $20,000 checks from patients.
How to avoid this common problem? Efficient, knowledgeable and detail-oriented staff — whether employed by the ASC or a management partner — is a must. The goal is to process every claim expediently and stay on top of A/R status at all times. That starts by completing insurance forms long before treatment day, securing pre-authorizations and always taking co-payments when patients arrive. It's particularly important that potential problems are identified early for OON cases, with patients made aware of the process and their responsibilities. These should be the rules, not the exceptions.
Further, post-treatment, operative notes should be based on templates and processed quickly, claims submitted electronically to payors and individual claims followed up aggressively. Yes, it's a lot of work, but that's how centers can operate at 38 days or less of receivables. There's no doubt that the payoff — strong and predictable cash flow — is well worth the effort.
Three additional C's for spine
The five universal C's apply to all types of surgery centers. The following are three additional concepts that lay the groundwork for business and clinical success at spine-focused ASCs.
Surgeon and patient comfort. In some regions, outpatient spine has become very popular — up to 10-15 percent of all spine cases. In other areas, surgeons are not yet comfortable with outpatient spine, thanks to local biases and standards, the influence of hospitals and payors and physician misconceptions about risk and patient preferences. This is gradually changing. As more neurosurgeons, orthopedic spine surgeons and other specialists become comfortable in outpatient settings, more and more cases (including more advanced treatments) will migrate to ASCs.
What we've found in launching a number of successful spine-focused ASCs is that patient selection is the critical component to surgeon comfort. Not every case is well suited for ASCs. Thus, to minimize the risk of co-morbidities and complications, patients must be evaluated on a case-by-case basis. Obesity, surgical approach or positioning issues, history of respiratory illness and sleep apnea are the main criteria. Well-defined contingency plans are also critical for reaching the appropriate comfort level with outpatient spine. Additionally, only those cases where surgeons have suitable experience should be handled at ASCs. Outpatient surgery centers are not the place to learn new techniques, especially in spine. That's what our medical director and surgeons tell me.
Patient comfort is important, too. I know spine surgeons who bring all their spine patients to the ASC before surgery, either for initial pain treatments or simply to familiarize them with the facility, staff and the idea of outpatient care. Familiarity breeds comfort and significantly reduces patient anxiety. Patient perceptions are also affected by referring physicians, RNs, PAs and the like. Therefore, all of these people should be educated about the appropriateness and advantages of outpatient treatments.
Confident staff. This "C" is an extension of the previous one. Spine-focused ASCs need to have top-notch staff committed to the highest clinical standards. The entire staff should be strong proponents of outpatient spine and fully trained with specific procedures. Further, they should be active participants and strong team players who understand their roles. In all of our centers, if the staff or anesthesiologists are uncomfortable with a patient or case, they can veto certain cases handled on an outpatient basis.
Staff confidence is also a matter of remaining calm under pressure, helping to devise back-up plans for emergency transfers and trusting in those plans if complications arise, as they inevitably will. The good news is that ASCs often liberate surgeons to choose exactly the team they want to work with. Typically, that means skilled, experienced and confident staff the surgeons trust.
Collaboration with payors. Since outpatient spine is a relatively new phenomenon, payors are uncertain about what it means to their business or how to approach it. Equipment and supply providers have been similarly hesitant. As a result, many payors have dragged their feet on signing on any contracts for fear that they would sign bad ones. Some even preferred to ask their customers (employers) to pay higher rates than admit their confusion.
For entrepreneurial surgeons, the lack of reimbursement standards and Medicare grouper rates represents a great opportunity. Specifically, spine-focused ASCs should work directly with payors to define algorithms for specific treatments and forge a comprehensive payment system for outpatient spine. Collaborating in this way may cost established spine ASCs some of the massive revenue they're currently generating, but by demonstrating a savings for the payors, they'll be more likely to capture a steady, long-term profitable revenue stream.
The risk is that this will prove to be a narrow window of opportunity. Even the slowest-moving payors will eventually "crack the code" on outpatient spine. Collaborating with them now on mutually beneficial deals will help ensure outpatient spine remains profitable for ASC owners as it inevitably grows more popular with patients and more comprehensible to payors.
Bottom Line: 5 + 3 C's lead to success in outpatient spine
Many of the surgeons we've worked are motivated to join ASCs because they want to focus on treating patients and delivering the highest quality care. In other words, they have very good reasons for investing in an ASC. And while some surgeons really enjoy the business, most are less interested in the details of claims management, supply standardization or payor negotiations. We developed the "5 C's (+ 3)" to help surgeon-owners understand the importance of these concepts, their role in adding value to the spine ASC businesses and their impact on surgeons' return on investment. We believe such high-level understanding is useful. But the C's are also valuable in highlighting the many moving parts that must be monitored and synchronized if an ASC is to achieve near- and long-term profitability. In other words, spine-focused ASCs that master the 5+ 3 C's are well on their way to success.
Mr. Leland (jleland@bluechipsurgical.com) serves as managing partner of Blue Chip Surgical Center Partners, a surgery center development and management company focused on spine and multi-specialty ASCs. Learn more about Blue Chip Surgical Center Partners .