How to Assess the Profitability of Orthopedic and Spine Cases

At a session at the 10th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference, Andrea Woodell, director of managed care, and Matt Lau, corporate controller, Regent Surgical Health, discussed how ambulatory surgery centers can assess the profitability of orthopedic and spine cases.
Ms. Woodell began by discussing some of the various factors impacting reimbursement. These include:

  • Local payor landscape (e.g., HMO vs. PPO vs. out-of-network payors; do top payors reimburse outpatient spine?)
  • Negotiating power of the facility (e.g., standalone vs. chain vs. hospital partner; ability of facility to quantify savings of moving procedures outpatient).
The ability to quantify savings to payors is critical, says Ms. Woodell. "They don't care about $5,000, they care about $500,000." To do this, whoever is charged with negotiating with managed care companies should count the number of annual cases each spine or orthopedic surgeon who practices at the center took to a hospital that could have been performed at the ASC. Then, compute the difference in cost for all of those cases in the hospital setting, compared to an ASC. "You have to make the payors feel that pressure point," she said.

During negotiations, the ASC should not be afraid to challenge implant thresholds or other contract terms that threaten cases' profitability. Ms. Woodell says that if centers can objectively quantify legitimate costs with payors, they can help educate the payor on the reimbursement that is needed to justify performing the cases.

She cautioned though to beware of payors who say they want global rates. While this can be a profitable model, many payors are not able to yet adjucate claims and would need months to years to be ready. She recommended centers ask the payor, "Can you adjudicate the claim today?"

Mr. Lau took the podium next and explained how administrators can best track their costs, allowing them to understand the level of reimbursement needed to turn a profit.

He explained that total costs include both variable/direct costs (e.g., medical supplies, implants and clinical labor) and fixed costs, both of which must be considered to understand the true cost of each case performed. Knowing this "determines the minimal reimbursement [the center is] willing to accept for procedures," he said.

He then shared a different way of approaching an income statement. Unlike the traditional income statement which takes revenue minus variable and fixed costs, he recommends using a formula that can pinpoint the exact number of cases that must be performed to break even. It is as follows:

Fixed costs per month/Average contribution margin per case = # of cases needed to break even

To be profitable, centers only need to focus on attracting a number of cases larger than the break even number.

More Articles on Surgery Center Profitability:

5 Best Clinical Practices, Business Strategies for Spine-Driven Centers
5 Steps to Integrate Spine Into Your Surgery Center

5 Keys to Transforming a Surgery Center into a Profitable Business




Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.

 

Featured Webinars

Featured Whitepapers

Featured Podcast