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Author Archives: Robert Zasa

Advanced Methods of Contracting for ASC Services

By Robert Zasa, MSHHA, FACMPE and Randy Todorovich, BSRN, CASC Lower operating costs, higher quality of care and increased patient satisfaction have fostered the creation of ambulatory surgery centers (ASCs) in almost every area of the nation. Over 5,000 ASCs operate in the US today. Most major cities have multiple ASCs. And most hospitals or physician groups either sponsor or participate in a center. While a few markets still have out-of-network ASCs (not contracted with major or multiple insurers or other payers), this contracting approach is diminishing as hospitals, physicians and insurance companies form their own provider networks. ASCs have saved Medicare and payers millions of dollars, and saved patients millions out-of-pocket through reduced deductibles, co-payment and coinsurance. Despite this success and because ASCs are so ubiquitous in many markets, payers of all types use their leverage to continue downward pressure on pricing. This has dramatically increased reductions in reimbursement for ASCs over the last 5 years, even though ASC operating costs have naturally risen. Contracting with payers has become very competitive among existing ASCs and potentially challenging for new ASCs due to pricing driven by dominant payers or provider panels in their market. Thus, ASCs have been forced to seek new avenues of reimbursement and ways of differentiating in their market. This has been aided by many new surgical procedures clinically accepted into outpatient delivery over the last 5 years. Advances in anesthesia agents, technology for minimally invasive surgery, and innovative surgical techniques and instrumentation are enabling many procedures to be safely and more cost effectively delivered in the outpatient setting. ASCs are seizing the opportunity by becoming specialized surgery centers (such as spine, total or partial joint, or retina surgery) or by adding new specialty services lines (such as cardiology) into their mix.   Bundled Pricing To be more attractive to payers and Worker’s Comp carriers, and differentiate from other outpatient providers, ASCs are offering bundled pricing for the pre-operative medical exam, surgery and anesthesia, as well as the surgeon’s pre- and post-operative treatment and physical therapy. We have experienced bundling of anesthesia, surgeon and facility fees more commonly requested in mature managed care markets by third party administrators (TPAs) representing large or local self-insured employers. For bundled pricing, fees must first be negotiated with the surgeon, anesthesiologist and surgery center. Then the bundled fee is negotiated with the TPA or medical management firm. Typically these arrangements are being developed as a narrow network with the surgeons, anesthesiologists and surgery center as the preferred or only provider of specific services for a designated geographic area. Bundled pricing eliminates several cost layers in medical management and in the payment model. The pricing is competitive and profitable for the providers, but gives the TPA and employer a predictable lower cost for an episode of care. This type of contracting is labor intensive on the front end as it involves physician fees and education as well as facility or technical fees. TPAs are selective in the markets where they do business depending on state laws, rules and regulations. To gain market share and profit for our ASCs, our firm is working with TPAs and, where possible, their local employer clients to provide bundled services on an exclusive basis. We have negotiated bundled contracts with three national TPA and medical management companies. The majority of this business has been with self-funded employers, but it may expand eventually to Worker’s Comp business.   Direct Contracting Many issues in health care are cyclical in nature. Direct contracting with employers, popular in the 80s (and which our firm executed with hospitals and surgery centers), is returning with some variations. ASCs are finding more self-insured companies and Worker’s Comp carriers amenable to cost effective direct contracting for services, especially the high volume orthopedic, pain and spine procedures. Some of these arrangements are made directly with national Worker’s Comp carriers; others with TPAs and/or medical management companies. These companies contract with employers and/or payers to manage certain types of procedures that can be commonly done on an outpatient basis. Direct contracting removes the pricey administrative fees charged by market dominant payers as well as moving them out of expensive hospital-based, outpatient surgery departments. Our firm contacts these companies on behalf of our surgeons and anesthesiologists, and then negotiates a bundled fee that is acceptable to all parties including the medical management company and the employer or payer. The medical management company is involved with pre-surgical protocols and directs the patients to our surgeon for their assessment and, if applicable, to our ASC for the outpatient surgical part of the treatment. If an orthopedic group associated with our ASC provides physical therapy, occupational therapy, CT and/or MRI, we encourage the medical management firm to contract with our orthopedic group for all those services as well. This enables case managers to coordinate with a single provider group, and enhances accountability for a better and timelier patient outcome.   Implant Reimbursement In the last several years, a contentious issue in managed care contracting has been implants and carve-outs for costly procedures. These are two different topics, both relative to payer negotiations. “Carve-outs” are defined as procedures categorized in one payment level by Medicare and/or a payer level of reimbursement, but due to cost concern, a provider wishes to carve out that procedure and increase its reimbursement. This is commonly done in an ASC specialized with well-known physicians in a market where the inflated procedure costs at local hospitals greatly increases “the spend” by payers or employers. Many payers will negotiate these carve-outs on a limited basis. Implant reimbursement has become sensitive in contract negotiations because implants are an unpredictable cost to the payer. Frequently used in orthopedic, neurosurgery and hand surgery, implant costs will continue to increase until some implants come off trademark. Generic or off-trademark companies have made inroads competing with well-known manufacturers, reducing the cost of certain implants. But implants are expensive, and managing their costs is now a major concern for ASC administrators and managers. On the reimbursement side, payers are using third parties with consolidated purchasing power so they can make a profit by buying implants in bulk and receive reimbursement by insurance companies. Many national payers are now contracting with these firms as it makes the implant cost more predictable for their budgets. From a payer contracting perspective, it is now common for payers to negotiate a minimum threshold based on the implant cost. For ASCs, this threshold can range from $250-$5,000. Once the cost threshold is achieved, the payer will reimburse the cost of the implant based on the invoice. The provider absorbs some of the implant cost.   Continuing Change Ahead As the Affordable Care Act matures and most likely becomes modified by Congress (as was Medicare when it first was established), there will be continued modifications to ambulatory care and surgery reimbursement. Ambulatory surgery management companies, physician executives and administrators will have to pay constant attention to proposed changes in reimbursement from both the government and commercial payers. Frequent reimbursement changes and potential reductions require ASC managers to be resourceful and creative in an effort to maintain fair reimbursement for their ASC. ASCs continue to be the most cost-effective, high quality outpatient delivery system. Patients, employers and payers have come to appreciate the ASC contribution to a healthcare system that is, and will continue to be, under considerable strain.   Robert J. Zasa, MSHHA, FACMPE is a Co-founder and Managing Partner of ASD Management. rzasa@asdmanagement.com   Randy Todorovich, BSRN, CASC is Senior Vice President Managed Care of ASD Management. randyt@asdmanagement.com


The 5 Cardinal Sins of Developing a Surgery Center

by: Robert J. Zasa, MSHA, FACMPE Managing Partner, ASD Management   1. Don’t overbuild. Many physicians underestimate the efficiency of an ASC and plan too large a space to accommodate patients. Many planners and architects, though well meaning, oversize the facilities and build them to hospital grade construction specifications. These folks do not have to live with costs they plan. Just in time inventory, disposable anesthesia circuits, specialized prepackaged surgical packs, reduced size of medical records significantly reduce space requirements for storage, anesthesia rooms (which can be replaced by an anesthesia closets), medical records, and no sub-sterile rooms between ORs as well as reduced sterile storage. It has been our experience that every extra 1,000 square feet operationally costs the center approximately $50,000 per year, including rent, insurance, housekeeping and housekeeping supplies, staffing, utilities, property taxes, common area maintenance and repairs, extra HVAC and extra equipment. There is a tendency to equip the space if it is built. The vast majority of ASCs have not had to increase the size of their center for additional cases due to the advances of technology, greater efficiencies and anesthesia drugs in terms of reducing recovery time, and ability to make more product use of their employees. ASCs built too large result in a permanent expense that owners have to bear financially. This is a major issue to avoid for potential for ASD owners.   2. Do not over-equip. Some fixed and much movable equipment does not need to be brand new. Remanufactured equipment that comes with guarantees is much less expensive. There are multiple sources for this equipment. Just because you have the space does not mean that you have to equip or furnish it. Equipment procurement companies that work on a fixed fee and do not take referral fees from manufacturers, save the owner(s) a lot of money since they purchase so much equipment for year. They also know this equipment is most reliable, or in contrast which equipment needs more repair than the other. One can outfit things in stages. Most equipment can be acquired in a short period after it is ordered. There is no reason to pay interest or lease charges for equipment that is not used routinely, hoping that some physician will use it. ASC owners can develop per use arrangements with equipment dealers, particularly for scopes, laser, and other specialized equipment that is expensive but not used often, paying only when the equipment is used. It is not smart to tie up cash, particularly in equipment, which can often be leased with an option to buy for a reasonable interest rate.   3. Do not overstaff. When opening, an ASC owner does not know how many cases physicians will really do, nor how quickly the wrap–up will occur. The staff will not be as efficient working in the facility, since they are new to the facility as well. However, you want to provide very good service at the beginning, and at least one extra nurse FTE is a good idea, particularly in the preoperative/recovery area. This is a location where there is no support patient contact, and those nurses have a great deal to do with the center’s patients starting on time and efficient discharge of the patients. Guidelines for staffing in a multi-specialty center doing approximately 2,400 to 3,000 cases per year are 1) to have total payroll (salary, benefits, plus contract labor for business office in clinical areas) not greater than 25-27% of the net revenue of the facility, and 2) achieve staffing level of 10-11 man-hours per total worked hours per patient (not procedures). Doing more endoscopy and pain cases will lower the worked hours per patient. More orthopedic, plastic, and eye patients and cases involving children will increase the number of worked hours per patient. You can always add staff; it is hard to fire them. Second, staffing is the largest variable cost in operating the ASC. Too many staff causes undue financial burden on an ASC. Flex staffing to help meet the variability in hourly caseloads should be extensively used in an ASC. Permanent, part-time and PR. staff are critical when opening and operating a successful surgery center. The level of quality in service to the patient is a function of staffing; however in trying to meet that goal, many centers carry three to four staff more members than is necessary. There needs to be some financial parameters set on the staffing along with a good statistical basis to allow proper staffing to give good patient service, but not lose control of this critical operating parameter.   4. Do not under capitalize the business. For small business like an ASC, cash is king. Many surgery centers fail because they run out of cash and do not have enough staying power to get over the slow growth, paying problems or issues with over expenditures or time delays for the project. Proper cash flow planning is critical. This should be done at the beginning of the project. Proper business plans should be developed at the beginning of the project that projects the proper amount of pre-opening expenses and delayed cash flows due to initial accounts receivable delays when starting. Payer contracts take time to put in place after the opening of the center and getting Medicare approval. Also, the caseload ramp-up should be very conservative for the first 6 months to plan prudent cash flow and cash needs of the business. For accounts receivable, projections less than 60 days for the first six months of operations are unrealistic (the rule of thumb is to use 120 days for the first 6 months, and then tighten down to 50 days outstanding as operations move forward). The current amount of investment per share or per unit must be calculated correctly to collect enough cash to cover the startup months. Many ASCs undervalue the amount per share for purposes of making the deal more attractive to many doctors. They often then find they have not raised enough cash to fund the project or construction, tenant improvement overruns or delays in the project. A good guideline is to raise 25 to 30 percent of the total project needs from the investors. This percentage includes the per-opening costs, equipment costs and operating costs for the first 3 months of operations. The credit line for the three months of operations should also be arranged in case delays occur so the ASC never runs out of cash in its startup of 18 months (6 months for pre-opening and the first elements of operation).   5. Do not allow one physician or group to own too many shares. Unless the center is being developed for that surgeon’s practice, professional jealousy creates a situation where many doctors do not want to work at the center owned significantly by one or two other surgeons. No one wants to line the pocket of another surgeon based upon real work. There are better ways to properly remunerate founding surgeons. The surgeons who conceive and take time away from their practice to develop an ASC deserve to buy extra shares and/or obtain a nominal development fee and/or Board of Manager fees at an appropriate, administrative rate, if they will provide ongoing Board services. Units or shares can be divided into founder shares and non-founder shares. We have not found that Class A and Class B stock works. No surgeon wants to be considered Class B; however, you can develop a different category of shares relating to the amount of effort people will put in to help develop the center. Founder surgeons that have given up time from their practices can be allowed to purchase more shares than others (having nothing to do with their case volume) that were in the deal first, took the risks others did not, and spent legitimate time in developing and establishing success of the center. This is a very sensitive area when initially structuring the center. The rule of thumb is to make sure that tangible services are being delivered and that they are visible in order to justify any additional fees and/or additional shares being purchased by the founding surgeons. It is also strongly suggested that the per share cost of the founding surgeon be exactly the same as everybody else, not only for legal reasons, but also for political reasons as well. Undervaluing the shares for founders leads to numerous problems, which can be easily avoided by allowing the founders to have more shares, and other mechanisms described above.


10 Key Factors for Turnaround of ASC Operations

By Robert Zasa, MSHA, FACMPE Managing Partner, ASD Management   1. Establish measurable Critical Success Factors and use routinely. Attached to this article is a list of critical success factors that are used to measure the key results in a surgery center. The Ambulatory Surgery Center Association has developed benchmarks such as ones listed in below that help measure an ASC against others. Many national ASC management companies use these. The benchmarks are available to members of ASCA; and some state ASC organizations, like California, have them available. The critical success factors, dealing with staffing, pricing strategy, cost per case and other matters, need to be measured on a routine basis. First, define measurable key success factors for your surgery center and compare those with national survey results. This should be done routinely, with results reported to the management committee of the Ambulatory Surgery Center (ASC) and physician owners.   2. Assure debt financing is at the lowest possible rate with good terms. Usually there are three sets of financing. The first is financing related to the real estate and property. The second is financing related to the equipment. The third is financing related to working capital. This may be represented as a credit line at the bank. Review all of financing on a relatively routine basis (at least every 3 years). Many times, recourse financing is available for equipment and/or some portion of the working capital. Some financing options include some portion of the guarantees “burning off” or ceasing the guarantees after a certain period once the ASC achieves positive cash flow or is profitable for 24 months. This enables the owners of the facility to obtain a loan or lease without requiring them to personally guarantee the funds for a long duration in order to un-encumber their balance sheets. This type of financing is typically available for a slightly higher interest rate. In many cases, it behooves the physicians to sign a loan like this, rather than further indebt themselves to the center. It is also important to avoid long-term debt on equipment with fair market values at the end of the term. Preferably, the lease should be capitalized. This is accomplished by structuring the lease terms so equipment can be purchased by the facility for one dollar. This strategy precludes the center from paying further consulting fees for valuation of the equipment as well as the 10-15% fair market value for the equipment’s residual value. Most of the equipment may change in terms of the technology. Therefore, the center should not be in the position of purchasing equipment at fair market value when the technology is already obsolete. Financing should never be signed with joint and severable terms, nor should documents be signed with spouses’ signatures (unless this is a requirement of the state). There are many financing companies and opportunities available outside of local banks that will not require joint and severable terms. In looking at the various financing companies, you must deal with established players. These are firms that have been around for 15 to 20 years and have an extensive list of heath care clients they have served in the past.   3. Establish an ongoing, managed care contract review process. It is imperative to continually review the revenue derived from payers. Comparisons should be made on the discounts given to each payer by CPT Code. Compare the most common terms of the contracts among all payers. If a contract does not make sense after a comparative review, don’t be afraid to re-negotiate or cancel the contract especially if the center is unable to get appropriate terms from the individual payers. Use the comparison terms to compare the contract between each of the payers and correct any deficiencies seen in each payer’s contract. Let the payer know none of the other players in the market are requiring such demands. This has been a successful negotiation tool at many centers. Sometimes, the institution of a non-participating provider status can be helpful. It may be more profitable to institute this strategy rather than sign up for all the contracts in a specific area when the payers submit rates close to the cost of performing the case or very close to Medicare. It is not worth adding volume to the center for no increase in net income. In this instance, the contract may simply cause the facility to extend hours with no additional profitability. It behooves the center to be a non-participating (non-contracted) provider. Many surgery centers finally decide to cancel contracts after review of the volumes from certain payers for the significant discounts that were given. In short, an ASC may see half the number of patient’s for over twice the fees and not have to worry about such large contractual allowances. There is increasing pressure by payers to have ASCs in-network; however, ASC owners must be very careful to analyze the financial impact of each contract, which networks the payers use (many use multiple networks in order to lower the price using “silent PPOs” where pricing defaults to the lowest fee of any of the networks in which the payer participates. It is important that a review of contracts is done routinely. The reimbursement and comparisons of reimbursements by CPT Code or by the new APC Codes should also be reviewed at the center at least every six months. This is part of the ASC’s pricing strategy. A good manager can control the net revenue per case, outside of the mix of services that it offers by clearly watching the discounts given and contracts signed with various payers.   4. Assure organizational and ownership structures that are fair and current. It is important for the administrators to stay current with state and federal regulations and statutes. Each year, a brief review of the National and State health care statutes should be performed by the center’s attorney, to make sure the ASC is in compliance. In addition, if there are any significant changes within the federal regulation statutes that may assist or hinder the center from practicing in a certain manner, these are reviewed as well. Investigate if there are any beneficial changes in the law. For example, in certain states it is beneficial to change limited liability corporations (LLC’s) to LLP’s because of state tax codes. Also, it is important to prune the ownership using buy-out provisions in the operating agreement to make room for new physicians before offering new units or shares to existing physicians. This practice is employed to avoid dilution of existing partners and/or LLC unit members. Often times, physicians are retiring and wish to liquidate their shares. These are excellent units to sell to additional physicians joining an existing partner’s practice or new surgeons in the community that would benefit from using the surgery center. Avoid overly aggressive partner and non-partner compensation formulas. Some surgery centers have strong patterns of over compensating partners. The cash reserves of the center are depleted due to distributions, while non-partners are still continuous users of the center and need to have equipment and other kinds of investments by the surgery center. If the cash is all taken out at the end of the year, non-partners and partners will not have enough cash reserves to continue the business in an appropriate way. It is also important to rotate the membership of the medical advisory committee and the governing board to gain fresh ideas and to broaden participation. his occurs every year in most well run surgery centers. It is important that the units in the surgery center or partnership shares are not sold to groups, but sold to individual physicians. The composition of group practices is fragile. Often times, the surgeon who was a key user of the center may leave. If the group owns the share rather than the surgeon, the group retains the unit despite the fact that it has no participants in the surgery center. This may cause legal problems as well as other problems. Additionally, there may be arguments regarding who the share belongs to—the group or the individual physician who allowed the group to participate in the first place. It is easier for the center to buy and sell shares if individual surgeons own the shares, rather than group practices. However, this scenario is not true if the surgery center is owned solely by the group practice on its site. In this case, the unit(s) should remain with the group practice.   5. Establish the center’s distinctive competence to create a marketing edge. “Distinctive competence” is something that the surgery center is known for within the community. It is important that the center administrator identifies holes in the ambulatory care market and tries to fill those holes using the surgeons and the ambulatory surgery center as delivery vehicles. The surgery center will probably be known for two or maybe three good specialties, such as excellence in orthopedics or GYN. This will be a reflection of the quality of the physicians using the surgery center. It is important to identify specific specialties and market them to create a position in the community’s collective mind that the center has particular expertise in a defined area of medicine. For example, the center may have a number of orthopedic surgeons who like to work in the sport’s medicine area. There may be a large number of knee and joint and foot surgery procedures performed in the center that would give distinctive competence in sports medicine. That could be emphasized by holding clinics for runners, having lectures by the surgeons about sports medicine, and the center sponsoring a run or another sports medicine type of event in conjunction with the local YMCA or athletic club or football team. The center may have a contract with several sports teams in the area or high schools that would further distinguish itself in sports medicine. In short, the manager should define two or three areas where it is clear the center has a distinctive competence that creates a magnet for the surgery center and its doctors for these services.   6. Establish an ongoing review of pricing strategy. At least twice a year, a comprehensive review of the ASC fee schedule should be conducted. At a minimum, the cost per case on a procedure basis should be verified, and prices should be reset so the facility’s net income margins are achievable. To determine the maximum fee that the market will bear in an effort to exceed these goals, comparisons to the competitors’ pricing should be made. Finally, the percentage by which the facility fee schedule exceeds the major payers’ reimbursement schedule should be studied. These comparisons can be achieved by researching multiple sources of information. However, three of the most productive avenues are to: 1) Have your surgeons ask their patients to bring them their bills or EOB’s. 2) Study the contractual trends and the Usual and Customary allowables (UCA’s) from your top 10 payers. 3) Buy bills from local patients by running an advertisement in the local newspaper and offering to pay patients for any competitor bills or Explanation of Benefits (EOB’s). When purchasing bills and EOB’s through an ad, it is important to specify that the surgery should have been performed within the last (6) months to ensure the data is current enough for use in the study. Secondly, specify the type of procedures you are interested in purchasing. Establish your top 20 types of cases prior to the study and purchase only bills and EOB’s that fall into this category. Note: typically, the top 20 procedures will represent 80 percent of the total volume of the center. This method of acquiring data is surprisingly successful if the patient is given the proper incentive. Payments of $25 to $40 per bill are usually sufficient and will generate 20 to 30 responses within a month long ad campaign in a metropolitan area. The surgeons in a facility are also a great source of data for fee analysis. Their patients are the ASC’s patients. Particularly when an ASC is set up as a physician partnership, the surgeons are more willing to get involved in the operations of the facility. Make sure that specific procedures are tracked and the preferred dates are specified so that the data obtained is usable. The payers are often reluctant to share data with the facility since their objective is to bring the required reimbursement rates down as low as possible. However, by tracking the contractual trends among the ASC’s 10 top payers and building payer profiles into the center’s computer system, a determination of how much the fee changes will impact your net revenue can be made. Once the data collection phase is complete, compare the competition’s data and the contractual trends to the fee schedule employed at the facility. When looking at the bills, the guiding principal should be to stay 20 to 30 percent below the fees of the competing hospitals and within 5 percent above or below the competing ASC rates. With the contract study, the key is to track the trends. Obviously, if most of the contracts are on a discount from fee type of basis, an increase to the fee schedule will impact net revenue of the center significantly. On the other hand, if most of the contracts are based on Medicare groupers or a flat fee per case, raising fees won’t make much of a difference. Moreover, if the Usual and Customary allowables are close to the facility charges, the ASC’s fees are too low. The industry standard for write-offs is around 75-80% of billed charges for ASCs that are predominantly contracted with a large number of payers. This number is much less if the center is predominantly out of network. If the ASC has a number of payer contracts, the ASC fees should be calculated above the UCA in the area to deliver the profit margin desired by the owners.   7. Establish and utilize proper employee and physician incentives. Aligning employee and physician goals with the center is crucial in achieving ultimate success. A profit sharing plan for employees is a sure way to keep them focused on the goals of the center, particularly if the plan is tied to specified goals showing how each parameter impacts the bottom line. Employees should be educated on the profit plan for the center and updated monthly on how their performance compares to this plan. Examples of such goals are: Man hours per patient Staffing as a % of net collections Supply cost per case below what is used in the profit plan Phones answered in less than 3 rings A/R days at 50 or less Inventory less than a certain $ amount per month Net revenue per case above a benchmark Contractual allowance and bad debt less than the budgeted percentage Pre tax net income greater than the profit plan By employing clinical and business criteria such as those above, specified goals lead to the achieved profit. These goals are more tangible and show the employees how they can impact the profitability of the facility. Profit plan formulas vary from one center to the next. In centers experiencing $200,000 or more in profit, incentive pools of 2 to 5 percent of net income are common. Distributions are typically handled at any time other than Christmas. Employees should know the reward is something they earned, not a gift. Most profit plans are distributed at the discretion of the Board of Directors with authority to change the plan to reflect changes in actual achievement of the goals. Motivating physicians is an important part of ensuring success. The more they feel like part of the facility team, the more they will bond with the center. Forming a physician partnership is an obvious way of achieving this goal. However, be careful in the way the partnership is structured. Make sure the partnership is not set up in a way that would cause inducement of cases (i.e., never make payments tied to number of cases the surgeon performs at the center). Rather, distribute any cash based on the pro-rata share of the total investment that the surgeon contributed for his ownership in the center. Whether or not a partnership is in place, it is important to make the surgeon part of the decision team. While the limited liability of a surgeon partner precluded him or her from participating in the day-to-day management of the facility, there are many areas where they can participate particularly in problem solving. Getting a physician to participate in the formation of a solution to a problem ensures that he or she is motivated to see the solution work. Additionally, it is very important to ask the physicians what their needs are, measure how well the center is addressing these needs, and then report these results back to them. A final encouragement for physicians is to make them feel important while they are at the center. Personalized lockers and scrubs, breakfast and lunches with their favorite foods and personalized music go a long way in making surgeons feel at home and keep them coming back.   8. Continually conduct market assessments to establish new services. It is important to stay up to date on the latest trends and developments in surgical technology as well as the changes in the standards of care in the area where the facility is located. Conducting market assessments on a routine basis, will enable the center to identify procedures which have been: 1) historically performed only on an inpatient basis but are now performed in an ASC; 2) newly enhanced as a result of advances in technology; and 3) newly created categories of treatment as a result of medical research. Over the past several years, there has been a constant shift of surgery from the inpatient hospital OR to the ASC. This fact is true for many reasons. The predominant change is occurring in the standard of care around the country because of improvements in anesthetic agents and the availability of quality home care. An illustration is the movement of more complicated ENT, open knee, more extensive shoulder arthroscopies, and most recently ACDF and mini-discectomy procedures, When these procedures are routinely performed on an outpatient basis in the center’s community, they should be brought before the Medical Advisory Committee for review and potential addition to the delineation of privileges for qualified surgeons. Additionally, the health care technology industry is one of the fastest growing in the nation. There are new advances in technology being marketed to the surgeons on a daily basis. Many of these new enhancements allow physicians to perform treatments on their patients with totally new methodologies. An obvious example is laparoscopy, which opened up a whole new arena of outpatient surgery. The growth of spine procedures done on an outpatient basis is another example. These advances are continually presenting the surgeon and the center with new and improved ways to deliver care in a less invasive manner; and should be monitored and incorporated into the center’s scope of services as soon as possible. Another important area of market assessment for the center is in newly created categories of surgery. Dermatologists, oral surgeons, neurosurgeons and pulmonary physicians were not typically part of the utilizing surgeon list in the past. However, with the onset of: 1) varicose vein stripping, 2) new types of dermabrasion, 3) “rubberbanding” instead of wiring in jaw osteotomies, 4) advances in broncho-dialation and other new procedures, we are seeing more and more of these specialists working at ASCs. When considering the addition of new services, be careful to check what reimbursement (if any) the insurance carriers in the area are willing to pay for these services. Because of the nature of new procedures, there may not be a payment category established for the procedure or the default code reimbursement (for non-included CPT codes) in the payer contract does not cover the cost or render enough profit for the facility. This reimbursement issue for new procedures must be addressed before they are added to the approved list and performed at the ASC. Reimbursement by CPT code by payer for these procedures should be thoroughly researched before performing these procedures at the ASC. . Finally, prior to allowing the surgeon to perform the case, make sure the Medical Advisory Committee and governing body grant approval for the procedure and the physician. Likewise, this information should be documented in the physicians’ credentials file. The physician should have similar privileges at a local hospital, and have the appropriate medical education and proctoring to perform the new procedure.   9. Implement flexible staffing and group purchasing with just-in-time inventory. Very few surgery centers guarantee their employees 40 hours per week or offer preset shifts. It is important this expectation be clearly communicated to the staff prior to hiring so that the expectations are appropriate. Employees should know up front that when case volumes are low, they would be asked to go home early even if this means working less than a 40-hour week. The traditional 8-hour day may not always be an option in an ASC. Many employees work four, 10-hour days or have schedules that vary even greater. While most employees have a set clock-in time, this time is typically not the same for all employees. For example, the pre-op staff may come in at 5:30 am while the OR staff doesn’t arrive until 7:00 am. The business office staff should have varying start times as well so there is always someone to greet the patient upon arrival at 5:30 am as well as schedule cases from the surgeons’ offices as late as 5:00 pm. Group purchasing is another operating guideline that lends the center significant cost savings. If the center is free-standing (i.e., not affiliated with a hospital) it is imperative that some type of leverage be gained with the vendors by participating in a buying group. MedAssets is an excellent purchasing group, which is ASC friendly. Groups like MedAssets typically charge a per-month membership fee in exchange for guaranteeing maximum costs that can be charged by a host of vendors. If the center has the volume to justify costs lower than the standard purchasing group rate, it is usually permissible to strike a deal with the local/regional sales rep and lower the price beneath the contracted rate. Savings of 15 to 40% t are typical when participating in group purchasing. Another major cost saving tool is to ensure the center only has the minimum amount of supplies necessary on the shelves. Inventory should be counted quarterly to ensure that accounting methodologies employed for cost per case are accurate. At this time, it is wise to inventory what is on the shelves that need not be; and, get rid of it. Expired drugs can be sent to charities, and those that are still good can be shipped to other ORs for cash or traded for items with other centers and the local hospital. A rule of thumb is to maintain less than 1.5 months worth of total supplies on your shelves. On those items, which can be ordered just in time, keep no more than a seven-day supply. Also, keep as much inventory on consignment as possible. Items such as IOL’s, breast implants and orthopedic screws and plates are commonly offered as consignable items from the manufacturers or distributors. The center should maintain par levels (i.e., maximum and minimum levels of inventory) and ensure the volumes of each item stay within these parameters. If the center does not have par levels established on routine items, such as syringes and gauze, a simple way to set these levels is to determine what the average supply usage of each item is by analyzing utilization over a 3-month period and dividing this number by the number of days in the period. Next, determine what the lead-time between ordering the item and receiving it from the vendor is. If it takes one day to receive the item, order only a 1- day supply. If it takes 5 days, order a 5-day supply. This is your minimum. The maximum amount in just in time inventory management will match the minimum amount except in those circumstances where the item cannot be ordered as a single. In instances when the item must be ordered by the case, the case amount is the maximum. Obviously, there will be many items that are not routine and are needed only for a given case. These items should be ordered to arrive just in time for the case. This goal can be easily accomplish once the lead-time analysis has been conducted and the distributor is making daily deliveries to the center.   10. Review and revise service contracts. All surgery centers have a multitude of contracts in place due to the limited staff employed at this type of facility. These agreements cover services such as housekeeping, preventative maintenance and bio-medical, pharmacy, laundry and linen, hazardous waste removal, landscaping, ambulance, blood bank and the like. Most contractual obligations require a minimum of a 1-year commitment. For this reason, it is a good to go through all the contracts on an annual basis and determine: 1) Was this a good relationship? 2) Was this service truly needed; and, did it properly cover the services it was set up for? 3) Could I get the same level of service from another source at a better rate? 4) Is there language that should be changed to enhance the service. 5) Have there been any changes to the service requirements implemented by the State or Federal licensing regulations or the accreditation standards? Reviewing contracts routinely will ensure the center is in full compliance with all regulating bodies and the center is receiving the proper level of service at the best price.


The Next Five Years: Trends and Strategies for ASCs

By Robert Zasa A new trend in the ASC industry is the rise of independent ASCs (smaller, yet multi-specialty) affiliating with each other to form regional ASC networks. These networks can engage with ACOs or with other large payers. Many of these centers, particularly on the west coast, wish to stay independent but need multiple regional locations to remain competitive. In states such as New Jersey and California, where hospital networks are particularly strong, ASCs have already, and will continue to form affiliations with these larger networks. Following the typical model of 51% hospital ownership, ASCs can collect larger reimbursements than they can obtain on their own because of the hospital’s ability to leverage payers. While lower than the standard HOPD rates, hospital-affiliated ASCs can achieve reimbursement rates that are typically 15-20% higher than those of freestanding ASCs. This strategy increases the surgery center’s net revenue and distribution payments to the physicians. Along with stronger reimbursements, increased procedure and case volume will continue to drive new business to ASCs. Medicare has recently increased the number of spine procedures performed at ASCs for which they will provide reimbursement. Additionally, ASCs continue to expand their range of services to drive patient volume and increase revenues, performing everything from total joint replacement, cardiac pacemaker installation, improved GI procedures and more. A more general, yet equally important trend for ASCs is the growing number of physicians leaving their practices, retiring or selling their practices to hospitals. ASC administrators will need to increase their focus on physician recruiting to remain successful. Younger physicians who had a stake in recently sold practices and surgery centers, and independent physicians who have not yet affiliated with an ASC will be primary targets for recruiting. Finally, growing numbers of surgeons are aligning with large group practices (which are joint venture partners in the surgery center using the group practice exemption) and primary care physician networks. Primary care physicians in large group practices drive ASC surgical volume by referring patients to the surgeons. In addition, management companies who are working with these physician groups are expressing interest in becoming a partner in a surgery center, which allows them to invest without contending with management compliance issues. As revenue is generated by the group, it is distributed using their own income distribution formula through the practice. Regardless of the vehicle, it will be more common for primary care physicians to align with the surgeons and surgery centers in the near future.


Key Factors to Turnaround ASC Operations

This article was posted online by SurgiStrategies on June 20, 2012, and is copyrighted by Virgo Publishing. The original posted article can be read here. By Robert Zasa Managing Partner, ASD Management We have extensive experience in operating ambulatory surgery centers throughout the United States. The purpose of this article is to delineate some of the most important factors to improve the operating results of surgery centers. The following will assist the administrator in a surgery center to focus on the most critical factors for the success of a center and prioritize key objectives for the physician owners. Establish measurable, critical "success factors," and use routinely. Assure debt financing is at the lowest possible rates with good terms. Usually there are three sets of financing. The first is the financing related to the real estate and property. The second is the financing related to the equipment; and, the third is financing related to working capital. This may be represented as a credit line at the bank. It is important that all of the existing financing is reviewed on a relatively routine basis (at least every three years). Many times, recourse financing is available for equipment and/or some portion of the working capital. Some financing options include some portion of the guarantees “burning off" or ceasing the guarantees after a certain time period once the ASC achieves positive cash flow or is profitable for 24 months. This enables the physicians and other owners of the facility to obtain a loan or lease without requiring them to personally guarantee the funds for a long duration of time in order to un-encumber their balance sheets. This type of financing is typically available for a slightly higher interest rate. In many cases, it behooves the physicians to sign a loan such as this, rather than further indebt themselves to the center. It is also important to avoid long-term debt on equipment with fair market values at the end of the term. Preferably, the lease should be capitalized. This is accomplished by structuring the lease terms so that the equipment can be purchased by the facility for $1. This strategy precludes the center from paying further consulting fees for valuation of the equipment, as well as the 10 percent to 15 percent fair market value for the equipment’s residual value. Most of the equipment may very well change in terms of the technology; and, the center should not be in the position of purchasing equipment at fair market value when the technology is already obsolete. Financing should never be signed with joint and severable terms, nor should documents be signed with spouses’ signatures (unless this is a requirement of the state). There are many financing companies and opportunities available outside of local banks that will not require joint and severable terms. In looking at the various financing companies, you must deal with established players. These are firms that have been around for more than 15 to 20 years and have an extensive list of healthcare clients they have served in the past. Establish an ongoing managed care contract review process. It is imperative to continually review the revenue derived from HMOs and PPOs. Comparisons should be made on the discounts given to each payor by CPT Code. Compare the most common terms of the contracts among all payors. If a contract does not make sense after a comparative review, don’t be afraid to re-negotiate or cancel the contract, especially if the center is unable to get appropriate terms from the individual payors. Use the comparison terms to compare the contract among each of the payors and correct any deficiencies seen in each payor’s contract. Let the payor know none of the other players in the market are requiring such demands. This has been a successful negotiation tool at many centers. Sometimes, the institution of a non-participating provider status can be helpful. It may be more profitable to institute this strategy rather than sign up for all the contracts in an area specifically, when the payors submit contracts to the surgery center at rates that are close to the cost of performing the case, or very close to Medicare. It is not worth adding volume to the center for no increase in net income. In this instance, the contract may simply cause the facility to extend hours with no additional profitability. Rather, it would behoove the center to be a non-participating (non-contracted) provider. Many surgery centers finally decided to cancel contracts after review of the volumes they received from certain payors for the significant discounts that were given. In short, an ASC may see half the number of patients for more than twice the fees and not have to worry about such large contractual allowances. There is increasing pressure by the payors to have ASCs in-network; however, ASC owners must be very careful to analyze the financial impact of each contract, which networks the payors use (many use multiple networks in order to lower the price using “silent PPOs" where pricing defaults to the lowest fee of any of the networks in which the payor participates). It is important that an ongoing review of contracts is done routinely. The reimbursement and comparisons of reimbursements by CPT code or by the new APC codes should also be reviewed at the center at least every six months. This is part of the ASC’s pricing strategy. A good manager can control the net revenue per case, outside of the mix of services that it offers, by clearly watching the discounts given and contracts signed with various payors. Assure organizational and ownership structures that are fair and current. It is important for administrators to stay current with state and federal regulations and statutes. Each year, a brief review of the national and state health care statutes should be performed by the center’s health care attorney to make sure that the ASC is in compliance with all regulations and statutes. In addition, if there are any significant changes within the federal regulation statutes that may assist or hinder the center from practicing in a certain manner, these are reviewed as well. Investigate whether there are any beneficial changes in the law. For example, in certain states it is beneficial to change limited liability corporations (LLCs) to LLPs because of the state tax codes. Also, it is important to “prune" the ownership using buy-out provisions in the operating agreement to make room for new physicians before offering new units or shares to existing physicians. This practice is employed to avoid dilution of existing partners and/or LLC unit members. Often times, physicians are retiring and they wish to liquidate their shares. These are excellent units to sell to additional physicians joining an existing partner’s practice or new surgeons in the community that would be able to benefit from using the surgery center. Strongly avoid overly aggressive partner and non-partner compensation formulas. Some surgery centers have very strong patterns of overcompensating partners; and, the cash reserves of the center are depleted due to distributions, where as the non-partners are still continuous users of the center and need to have equipment and other kinds of investments by the surgery center. If the cash is all taken out at the end of the year, non-partners, as well as partners, will not have enough cash reserves to continue the business in an appropriate way. It is also important to rotate the membership of the medical advisory committee and the governing board to gain fresh ideas and to broaden participation. This occurs every year in most well run surgery centers. It is important that the units in the surgery center or partnership shares are not sold to groups, but sold to individual physicians. The composition of group practices is fragile. Often times, the surgeon who was a key user of the center may leave. If the group owns the share rather than the surgeon, the group retains the unit despite the fact that it has no participants in the surgery center. This may cause legal problems with Stark Laws as well as other kinds of problems. Additionally, there may be arguments regarding who the share belongs to—the group or the individual physician who allowed the group to participate in the first place. Thus, it is easier for the center to buy and sell shares if individual surgeons own the shares, rather than group practices. However, this scenario is not true if the surgery center is owned solely by the group practice on its site. In this case, the unit(s) should remain with the group practice. Establish the center’s “distinctive competence" to create a marketing edge. "Distinctive competence" is something that the surgery center is known for within the community. It is important that the center administrator identifies “holes" in the ambulatory care market and tries to fill those holes using the surgeons and the ambulatory surgery center as delivery vehicles for those services. The surgery center will probably be known for two or maybe three good specialties, such as an excellence in orthopedics or gynecology. This will be a reflection of the quality of the physicians using the surgery center. It is important to identify specific specialties and market the specialties to create a position in the community’s collective mind that the center has particular expertise in a defined area of medicine. For example, the center may have a number of orthopedic surgeons who like to work in the sports medicine area. There may be a large number of knee and joint and foot surgery procedures performed in the surgery center that would give it distinctive competence in sports medicine. That could be emphasized by holding clinics for runners, having lectures by the surgeons about sports medicine, and the center sponsoring a run or another sports-medicine type event in conjunction with a local YMCA, athletic club or football team. The center may have a contract with several sports teams in the area or high schools that would further distinguish itself in sports medicine. In short, the surgery center manager should define two or three areas where it is clear that the center has a “distinctive competence." This definition creates a magnet for the surgery center and its doctors for these services. Establish an ongoing review of pricing strategy. At least twice a year, a comprehensive review of the ASC fee schedule should be conducted. At a minimum, the cost per case on a procedure basis should be verified; and, prices should be reset so that the facility’s net income margins are achievable. To determine the maximum fee that the market will bear in an effort to exceed these goals, comparisons to the competitors’ pricing should be made. Finally, the percentage by which the facility fee schedule exceeds the major payors’ reimbursement schedule should be studied. These comparisons can be achieved by researching multiple sources of information. However, three of the most productive avenues are to: 1) Have your surgeons ask their patients to bring them their bills or EOBs; 2) Study the contractual trends and the usual and customary allowables (UCAs) from your top 10 payors; and 3) buy bills from local patients by running an advertisement in the local newspaper and offering to pay patients for any competitor bills or explanation of benefits (EOBs). When purchasing bills and EOBs through an ad, it is important to specify that the surgery should have been performed within the last six months to ensure the data is current enough for use in the study. Second, specify the type of procedures which you are interested in purchasing. You should establish your top 20 types of cases prior to the study and purchase only bills and EOBs that fall into this category. Note: typically, the top 20 procedures will represent 80 percent of the total volume of the center. This method of acquiring data is surprisingly successful if the patient is given the proper incentive. Payments of $25 to $40 per bill are usually sufficient and will generate 20 to 30 responses within a month-long ad campaign in a metropolitan area. The surgeons in a facility are also a great source of data for fee analysis. Their patients are the ASC’s patients. Particularly when an ASC is set up as a physician partnership, the surgeons are more willing to get involved in the operations of the facility than is true in other settings. Make sure that specific procedures are tracked, and the preferred dates are specified so that the data obtained is usable. The payors are often reluctant to share data with the facility since their objective is to bring the required reimbursement rates down as low as possible. However, by tracking the contractual trends among the ASC’s 10 top payors and building payor profiles into the center’s computer system, a determination of how much the fee changes will impact your net revenue can be made. Once the data-collection phase is complete, compare the competition’s data and the contractual trends to the fee schedule employed at the facility. When looking at the bills, the guiding principal should be to stay 20 percent to 30 percent below the fees of the competing hospitals and within 5 percent above or below the competing ASC rates. With the contract study, the key is to track the trends. Obviously, if most of the contracts are on a discount-from-fee basis, an increase to the fee schedule will impact the net revenue of the center significantly. On the other hand, if most of the contracts are based on Medicare groupers or a flat fee per case, raising fees won’t make much of a difference. Moreover, if the usual and customary allowables are close to the facility charges, the ASC’s fees are too low. The industry standard for write-offs is around 75 to 80 percent of billed charges for ASCs that are predominantly contracted with a large number of payors. This number is much less if the center is predominantly out of network. If the ASC has a number of payor contracts, the ASC’s fees should be calculated above the UCAs in the area to deliver the profit margin desired by the owners. Establish and utilize proper employee and physician incentives. Aligning employees’ and physicians’ goals with those of the center is crucial in achieving ultimate success. A profit-sharing plan for employees is a sure way to keep them focused on the goals of the center—particularly if the plan is tied to specified goals which show the staff how each parameter impacts the bottom line. Employees should be educated on the profit plan for the center and should be updated monthly on how their performance compares to this plan. Examples of such goals are: Man hour per patient Staffing as a percentage of net collections Supply cost per case below what is used in the profit plan Phones answered in less than three rings A/R days at 50 or less Inventory less than a certain dollar amount per month Net revenue per case above a benchmark Contractual allowance and bad debt less than the budgeted percentage Pre-tax net income greater than the profit plan By employing clinical and business criteria such as those listed above, the specified goals lead to the achieved profit. These goals, however, are more tangible and show the employees how they can impact the profitability of the facility (i.e., the net income is more likely to be reached if the explicit goals are being met). Profit plan formulas vary from one center to the next. In centers experiencing $200,000 or more in profit, incentive pools of 2 to 5 percent of net income are common. Distributions are typically handled at any time other than Christmas. The employees should know that the reward is something they earned, not a gift. Most profit plans are distributed at the discretion of the board of managers who has the authority to change the plan to reflect changes in the actual achievement of the goals, which may be outside of the employees’ control. Motivating physicians is an important part of ensuring success. The more they feel they are a part of the facility team, the more they will bond with the center. Forming a physician partnership is an obvious way of achieving this goal. However, be careful in the way the partnership is structured. Make sure that the partnership is not set up in a way that would cause inducement of cases (i.e., never make payments tied to number of cases the surgeon performs at the center). Rather, distribute any cash based on the pro-rata share of the total investment that the surgeon contributed for his or her ownership in the center. Whether or not a partnership is in place, it is important to make the surgeon part of the decision team. While the limited liability of a surgeon partner precluded him or her from participating in the day-to-day management of the facility, there are many areas where they can participate, particularly in problem solving. Getting a physician to participate in the formation of a solution to a problem ensures that he or she is motivated to see the solution work. Additionally, it is very important to ask the physicians what their needs are; measure how well the center is addressing these needs; and then, report these results back to them. A final encouragement for physicians is to make them feel important while they are at the center. Personalized lockers and scrubs, breakfast and lunches with their favorite foods, and personalized music go a long way in making surgeons feel “at home" and keep them coming back. Continually conduct market assessments to establish new services. It is important to stay up to date on the latest trends and developments in surgical technology, as well as the changes in the standards of care in the area where the facility is located. Conducting market assessments on a routine basis will enable the center to identify procedures which have been: 1) historically performed only on an inpatient basis but are now performed in an ASC setting, 2) newly enhanced as a result of advances in technology and 3) newly created categories of treatment as a result of medical research. In the past several years, there has been a constant shift of surgery from the inpatient hospital operating rooms to ASCs. This fact is true for many reasons. The predominant change is occurring in the community standard of care around the country because of improvements in anesthetic agents and the availability of quality home care. An illustration of this concept is the movement of more complicated ENT, open knee, more extensive shoulder arthroscopies and, most recently, ACDF and mini-discectomy procedures. When these procedures are routinely performed on an outpatient basis in the center’s community, they should be brought before the Medical Advisory Committee (MAC) for review and potential addition to the delineation of privileges for qualified surgeons. Additionally, the healthcare technology industry is one of the fastest growing in the nation. There are new advances in technology being marketed to the surgeons on a daily basis. Many of these new enhancements allow the physicians to perform treatments on their patients with totally new methodologies. An obvious example is laparoscopy, which opened up a whole new arena of outpatient surgery. The growth of spine procedures done on an outpatient basis is another example. These advances are continually presenting the surgeon and the center with new and improved ways to deliver care in a less-invasive manner; and should be monitored and incorporated into the center’s scope of services as soon as possible. Another important area of market assessment for the center is in newly created categories of surgery. Dermatologists, oral surgeons, neurosurgeons and pulmonary physicians were not typically part of the utilizing surgeon list in the past. However, with the onset of: 1) varicose vein stripping, 2) new types of dermabrasion, 3) “rubber banding" instead of wiring in jaw osteotomies, 4) advances in broncho-dialation and other new procedures, we are seeing more and more of these specialists working at ASCs. When considering the addition of new services to the facility, be careful to check out what reimbursement (if any) the insurance carriers in the area are willing to pay for these services. Because of the nature of these new procedures, there may not be a payment category established for the procedure or the default code reimbursement (for non-included CPT codes) if the payor contract does not cover the cost or render enough profit for the facility. This reimbursement issue for new procedures must be addressed before they are added to the approved list and performed at the ASC. Reimbursement by CPT code by payor for these procedures should be thoroughly researched before performing these procedures at the ASC. Finally, prior to allowing the surgeon to perform the case, make sure the MAC and governing body of the center grant approval for the procedure and the physician. Likewise, this information should be documented in the physician's credentials file. The physician should have similar privileges at a local hospital, and have the appropriate medical education and proctoring to perform the new procedure. Implement flexible staffing and group purchasing with “just in time" inventory. Very few surgery centers guarantee their employees 40 hours per week or offer preset shifts. It is important that this expectation be clearly communicated to the staff of the facility prior to hiring so that the expectations of the employee are appropriate. Employees should know up front that when case volumes are low, they will be asked to go home early—even if this means working less than a 40-hour week. Additionally, the traditional 8-hour day may not always be an option in an ASC. Many employees work four 10-hour days or have schedules that vary even more greatly. While most employees have a set clock-in time, this time is typically not the same for all employees. For example, the pre-op staff may come in at 5:30 a.m., while the OR staff doesn’t arrive until 7:00 a.m. The business office staff should have varying arrival times as well, so that there is always someone available to greet the patient upon arrival at 5:30 a.m., as well as scheduling cases from the surgeons’ offices as late as 5:00 p.m. Group purchasing is another operating guideline that lends the center significant cost savings. If the center is freestanding (i.e., not affiliated with a hospital), it is imperative that some type of leverage be gained with the vendors by participating in a buying group that is ASC friendly. Groups such as MedAssets typically charge a per-month membership fee in exchange for guaranteeing maximum costs that can be charged by a host of vendors. If the center has the volume to justify costs lower than the standard purchasing group rate, it is usually permissible to strike a deal with the local/regional sales rep and lower the price beneath the contracted rate. Savings of 15 to 40 percent are typical when participating in a group-purchasing program. Another major cost-saving tool is to ensure that the center only has the minimum amount of supplies necessary on the shelves. Inventory should be counted quarterly to ensure that the accounting methodologies employed for cost per case are accurate. At this time, it is wise to inventory what is on the shelves that need not be—and get rid of it. Expired drugs can be sent to charities; and, those which are still good can be shipped to other ORs for cash or traded for items with other centers and the local hospital. A rule of thumb is to maintain less than 1.5 months worth of total supplies on your shelves. On items that can be ordered “just in time," keep no more than a 7-day supply. Also, keep as much inventory on consignment as possible. Items such as IOLs, breast implants and orthopedic screws and plates are commonly offered as consignable items from the manufacturers or distributors. Moreover, the center should maintain par levels (i.e., maximum and minimum levels of inventory) and ensure that the volumes of each item stay within these parameters. If the center does not have par levels established on routine items such as syringes and gauze, a simple way to set these levels is to determine what the average supply usage of each item is by analyzing the utilization amount during a three-month period, and dividing this number by the number of days in the three-month period (i.e., 90 days). Next, determine the lead-time between ordering the item and receiving it from the vendor. If it takes one day to receive the item, order only a one-day supply. If it takes five days, order a five-day supply. This is your minimum. The maximum amount in “just in time inventory" management will match the minimum amount, except in those circumstances where the item cannot be ordered as a single. In instances when the item must be ordered by the case, the case amount is the maximum.Obviously there will be many items that are not routine and are needed only for a given case. These items should be ordered to arrive “just in time" for the case. This goal can be easily accomplished once the lead-time analysis has been conducted and the distributor is making daily deliveries to the center. Review and revise service contracts. All surgery centers have a multitude of service contracts in place due to the limited staff employed at this type of facility. These agreements cover services such as housekeeping, preventive maintenance and bio-medical, pharmacy, laundry and linen, hazardous waste removal, landscaping, ambulance and blood bank. Most contractual obligations require a minimum one-year commitment. For this reason, it is a good idea to go through all the contracts in place at the facility on an annual basis and determine: 1) Was this a good relationship? 2) Was this service truly needed, and did it properly cover the services it was set up for? 3) Could I get the same level of service from another source at a better rate? 4) Is there language that should be changed to enhance the service? 5) Have there been any changes to the service requirements implemented by the state or federal licensing regulations or the accreditation standards? Reviewing these contracts routinely will ensure that the center is in full compliance with all regulating bodies and that the center is receiving the proper level of service at the best price.


Anatomy of a Do-Over

by Robert J. Zasa, MSHHA, FACMPE, Managing Partner, ASD Management There is a movie with the name "City Slickers" that was popular in the 1980’s. Three men at a dude ranch are on a cattle drive trying to find themselves and reorient their lives. One man has had an affair at his father-in-law’s business. As a result, he has gotten divorced, lost his job and his children. His best friend tells him his life is a "do over," just like when they were kids playing stick ball and a mistake was made. During the game, everyone immediately understood that he made a mistake or misstep and the player immediately would ask the group to "do over" the play. Managing an organization is similar. Management is a series of plays that are called and the team has to execute them. Sometimes mistakes of commission or omission occur. Sometimes the players don’t get along. Sometimes the play book becomes stale or predictable. And what about the new players? How are they brought along to participate and still understand the team’s goals? Sometimes a new coach or quarterback with new plays is necessary to get the team back on track. That’s a "do over." There are a lot of ASCs that are five years and older since their inception. Many of them are do-overs or at the very least need to be refreshed. That starts with the recognition by all of the parties, particularly in the governing body, that new ideas are needed. Outside objective parties should be retained to review the current situation and walk the governing board through the steps of reorganization. This should be done with the key owners and users. Legal review of all of the documents, evaluation by an experienced source, and an operational review of both the revenues and expenses should be completed. Key elements to review in a do-over The organizational issues: The age and number of current physicians. How many new physicians want to buy-in? The current price per share or unit of the ASC. The history of the dividends with the amount that has been paid & frequency. Competition in the area. The price per share or unit at that competitive ASC. Does the ASC entity have both the ownership of the business and the land of building, or just the business of the ASC? Who owns the land, building and equipment? How much is the rent per square foot and is lease triple net or gross? Legal considerations: When was the last time legal documents were reviewed and/or redone? What is the status of the bylaws? What is the status of the partnership agreement? What is the wording in legal documents concerning buying-out partners or members? What is the wording in legal documents concerning retired or relocated physicians not currently active in the center or otherwise nonproductive? What is the buy-in method and formula? What is the buy-out method and formula? Do the documents reflect current healthcare regulations and laws, both federal and state? Revenue issues: Pricing strategy. Retroactive payer contract review of current plans. Which plans to keep and should the center apply for out of network benefits. Collection results and policies. Operational costs: Cost of medical supplies and drugs. Inventory and ability to reduce it to create more distributable cash. GPO arrangements including pricing level. Staffing: What is the pay scale? Length of employment by employees? How many FTEs? Use of per diem or permanent part-time staff? What are the costs of the benefit plan? How much is spent on contract labor and overtime? Service contracts: How many service contracts are there? What is their frequency? What are the costs of the service contracts? Are service contracts related to the building incorporated in the rent, or are they separate? Professional fees and contracts: Medical director’s contract and anesthesia contract. Legal retainer and fees. Accounting contract and fees. What services are being requested on an annual basis? Management contract and fees. What services are deliverable for a year? For all of the contracts, what is the value for what is being paid? Equipment and building financing: What are the amounts and terms of debt for the equipment financing? What are the amounts in terms of debt for the building financing? What is the length of debt for each of these? Can these expenses be improved upon by refinancing? Accounts receivable: Review the balance sheet to assure it reflects the truly collectable accounts receivable. What happens to accounts greater than 90 days? How many are there and what is the collection experience on these accounts? Can these accounts be collected (that review the age and quality of the accounts) to maximize the realized revenues? Building lease: Review the current lease rate and terms. What increases are expected over the next several years? Is the lease triple net (does not include maintenance, taxes and utilities) or is it a gross lease or modified gross lease? Who owns the real estate? Is the lease an arms length arrangement between members that also own the surgery center, or is there a third party involved? What should the lease look like in that market to be at a fair market value? Once a review of all of the above has been completed, the following key decisions need to be made. Who will remain as owners? How will the previous owners of the ASC, or now inactive owners, be bought out? What new partners, if any, will be brought in to replenish the pool of participants in the ASC? What will the financial projections of the newly reorganized ASC look like? What was the valuation of the old ASC? What improvements in the legal documents should be made? What are the total costs of the do-over and the economic benefit? Addressing these key do-over topics can get you back in the game.


Ambulatory Surgery, Critical Management Indicators

By Robert Zasa, MSHHA, FACMPE Managing Partner, ASD Management STATISTICAL ELABORATION TABLE 1. SURGICENTER MONTHLY PERFORMANCE REVIEW In highly technical aspects of society, such as a health care system, it is easy to become focused on the esoteric elements of the field or the system one is trying to manage. Intellectual curiosity leads to a desire to understand all elements of the system in an attempt to master the subject. However, this often leads to focusing on the parts that capture our attention versus the basic substance of the system: the hold instead of the doughnut. The hold captures one's attention, but the substance of the product is what surrounds it. CRITICAL SUCCESS FACTORS To avoid such problems in management, a concept termed critical success factors (CSF) was developed as a management tool. In the 1960s, the basic ideas of management by objectives appeared in the literature (Blake & Mouton, 1964; Herzberg, 1968; Likert, 1961; McGregor, 1960; Odiorne, 1965). Deegan (1977) brought the concept further and coined the phrase "key result areas." The basic precept of CSF is to concentrate on the fundamentals: the elements critical to the success of delivering the product or service. The concept emphasizes delineating the factors that are critical and understanding the fundamental factors that will help the business achieve success in areas of quality, financial performance, personnel, and any other factor that contributes to the success of that business. By focusing on these fundamentals, CSF allow managers to measure consistently the execution of the business plan, evaluate the outcomes, identify problem areas or areas in which management intervention is appropriate, and adjust for any variances in order to execute the game plan of the business consistently. Managers can then ascertain the factors that they believe are critical for that business. Important is that those factors, once identified, are constantly measured. Also, they are measured over periods of time when trends can be observed for those data. Each business has its own CSF. Many hospitals have incorporated CSF into their quality assurance program. CSF has a broad application and is a power tool when the following criteria are met: CSF must be quantified. CSF must be validated. CSF must be tried and fine-tuned, both from internal resources as well as external (consumers of the service). CSF must be consistently measured. CSF must be empirically derived. Ambulatory Systems Development has found in over the past 10 years and in operating more than 40 surgery centers, both hospital-based and free-standing, 16 critical success factors as being the most critical to the financial viability and high-quality delivery of surgical services. These indicators, with actual data from a surgery center, are shown in Table 1. Many of the factors are used in combination with one another, and some are used as free-standing statistics. The data act as a laboratory test does for a physician when trying to diagnose a problem with a patient. The data can indicate a particular problem if the statistic falls outside the normal range. The trained manager can draw several conclusions about what may cause that data to be outside the norm. The manager then may refer to other specific resource data to validate the problem and make necessary management interventions to correct it. Ambulatory care businesses are typically small in terms of gross revenues and profit. Their margins can be quite high, and need to be, to deliver adequate return to the institution or owners. For this reason, constant monitoring of such a business is imperative. Most ambulatory care businesses, such as an ambulatory surgery center, are volume sensitive. STATISTICAL ELABORATION The first statistic in Table 1 deals with the total number of patients; the third statistic deals with the total number of procedures performed. These are two different data. Many times a patient has multiple procedures performed on him or her during one surgery. These two data combine to assist in assessing the average supply cost per case as well as the staffing required for the center. The second CSF is the average number of patients per day. This is a statistic that is typically used for financial analysis. Break-even costs are typically calculated on number of patients per day. This is also critical for staffing. Room utilization is also related to this particular piece of data. It is commonly thought that five outpatient surgeries per room per day are the norm. However, the author's experience suggests that most of the efficiently run surgery centers typically average seven to eight cases per day, depending on the mix of services using the surgery center. These data are based on a multispecialty surgery center rather than a single-specialty center. Many single-specialty centers that are dedicated to short procedures, such as gastrointestinal and eye centers, can average more cases per day due to the proficiency of the surgeon not having to change equipment in the room and the short time taken by these procedures. The number of patients per day statistic is also significant when looking at the scheduling. This number is typically augmented by reviewing the cases per day by day of the week. The surgery center has heavy days and many times the average can be skewed by a particularly heavy day, followed by a particularly light day. For these reasons, the statistic is looked at very critically. Staffing and supply costs are major factors to control in a surgery center, as is true with most ambulatory businesses. Instructions for completing numbers: 1. Includes all revenue derived from surgical charges, laboratory charges, and revenues from other sources. 7. Total hours worked in month divided by 173.3 hours. 8. Total hours worked in month including overtime divided by number of patients. 10. Includes expenses incurred for the purchase of medical, pharmaceutical, anesthetic, supplies, excluding intraocular lenses and other implants. 13. Average daily net revenue for past 2 months divided into accounts receivable. 16. Pre-tax net income from financials divided by net revenue (#5). *Includes quarterly MD distribution and employee profit-sharing accrual. Reprinted with permission from Zasa, R.J. (1989, March/April). Critical success management of ambulatory surgery. Medical Group Management Journal, 33. The fourth factor (Table 1) deals with gross revenues, per case revenues, and contractual allowance and bad debts. These statistics are reported both in aggregate dollar amounts as well as an average revenue per case. This indicator often is an excellent measurement of the case mix occurring in the center. It is also used in financial analysis, particularly in regard to the aggregate net profit per patient. Factors 5 and 6 deal with net revenues and are obviously used for financial purposes. The contractual allowance figure above also assists in measuring the mix of health maintenance organization (HMO), preferred provider organization (PPO), and other contract cases. It allows the manager a quick way of measuring the payer mix of the center. Factors 7, 8, and 9 deal with staffing. They are typically used in combination with the number of procedures and total number of patients (factors 3 and 1). Though normative trends show that there is a very narrow range of acceptable staff-hours per patient, this can drastically be affected by the case mix (many times shown between the ratio of patients to procedures performed) and the total number of cases. To have a facility that is staffed safely, it must have a specific minimum number of staff members in the facility. These are considered fixed staffing costs. In ambulatory businesses, once this particular fixed cost is covered, the profitability increases exponentially. Staffing and supply costs are major factors that must be controlled in a surgery center, as is true with most ambulatory businesses. For this reason, 5 of the 16 indicators deal with staffing. These staff-hours per patient can be altered significantly by using permanent part-time and as-needed staff. The part-time personnel in a surgery center are critical to its staffing pattern. These people may work 3 or 4 days per week for a set number of hours, but they are as familiar with the center's operations as are the full-time staff members. The staffing CSF allow the manager a quick view of how well these part-time personnel are used. Factors 10 and 11 deal with critical operating expenses. Lenses and implants are typically excluded from this statistic, because usually they are expensive and represent wide-ranging costs due to the various types of lenses and implants used in centers. For this reason, these costs skew the data dramatically. Heretofore, these supplies have been billed separately; now the lenses are incorporated into the Medicare cataract with intraocular lens implant (IOL) fee, However, on most income statements for surgery centers, lenses and implants are reported separately as revenue and as expenses. The rest of the medical supplies include all disposable items, all anesthesia drugs, all medical gases, and all supplies for providing the basic laboratory tests (typically a dip stick urine test and a hematocrit). Using this statistic allows the manager to look into one of the five major causes of supply costs being too high: (1) price, (2) amount of supplies on the tray, (3) amount of time the supplies are reused safely, (4) use of generic drugs or multi-dose utilization of certain drugs, and (5) inventory control. Factor 12, total expenses per patient, is calculated and typically subtracted from the net revenue per patient (factor 6) to gain a quick idea of profitability. The data (Table 1) show quarterly physician distributions and employee profit-sharing accruals in this particular expense. It is important that this factor include all expenses. If the outpatient center is hospital-based, there are typically other overhead items included as well as inter-company allocations usually associated with for-profit hospital chains. The important issue is that this factor reflect the total expense per patient of the facility. Factor 13, regarding accounts receivable days uncollected, is critical to the success of an outpatient business. Due to the small revenues as compared to inpatient revenues, collections in outpatient businesses must be monitored closely. Typically, payment is made within 60 days or less in most ambulatory surgery centers. This number can be significantly less than 60 days depending on the number of HMO or PPO contacts one has, because these institutions typically pay surgery centers between 30 and 45 days. Factors 14, 15, and 16 deal with the profitability of the facility and are self-explanatory. The purpose of the data is to give managers an overview of the critical factors for the success of their centers. The CSF can be used in setting goals and objectives for the center staff who have the most impact on the individual factors. Typically, directors of nursing have their performance goals tied to the cost per case and staffing goals. Business managers usually have their goals tied to the accounts receivable days, medical supply costs, and total expenses per patient. In an ambulatory surgery center, everyone is in sales, and often there is profit-sharing with the employees based on the number of cases performed and the profitability of those cases. Total profitability and the number of cases become a tangible indicator and an incentive for all of the employees. When the CSF are measured each month, everyone can see how he or she is doing regarding the profit-sharing plan, much like following the stock price of an investment in the newspaper. When this is done, individuals tend to focus not only on what they do but the success of the business as a whole. The decision to use CSFs can be a powerful management tool. CSFs can assist in helping the manager monitor the business very closely and make appropriate adjustments. The factors do not tell the manager the answer, but tell the manager where to look. Focusing on critical factors for the success of the business allows the manager to address the fundamentals of that business, to build a consensus among the staff on which goals are important and to assist them with executing these goals consistently.


Avoiding Pitfalls When Developing Ambulatory Surgery Facilities

By Robert Zasa, MSHHA, FACMPE, Managing Partner, ASD Management The process of developing a surgery center is a complicated one; there are many obstacles to avoid. This article highlights some of the pitfalls that have been experienced in developing multiple centers throughout the United States. Most importantly, its purpose is to share information on the timing and decisions that should be made, which will result in a more successful center. This article should answer the questions of where to start, how to proceed, and when to bring in the proper consulting expertise to assist in successfully developing an ambulatory center. It is often the case that a physician group or a hospital wishing to do a joint venture with its local physicians will first contact an attorney or an architect (or even worse, buy a piece of property) as the very first step. This is one of the most common mistakes in developing a center because these professionals cannot offer great assistance in this phase of the project. Indeed, they will ultimately be critical to the success of the project. But, the issue of when to use certain types of expertise is critical and they must be used in a cost-effective way. There have been enormous sums of money paid to professionals prior to the time that they are needed, when they mush be carried by the ensuring surgery center. In short, there are preconstruction issues that need to be resolved. First, there should be a critical attitude taken toward whether or not the project should even be initiated. Before deciding to build, the project's financial feasibility should be determined by someone who is familiar with the development and operation of such facilities. This should be done in conjunction with a physicians group with specific data for that specific area, such as land costs, rent costs, actual case mix of the services to be provided in the center, local areas fees, and numerous other critical data. A variety of financial scenarios should be run, based on a multiple volumes of projected caseloads, rather than a typical five-year projection. In other words, the group should see the various levels of the patient volume and the economic effect that each of these patient volumes will bring upon the group. It's very easy to see if the project will economically pencil-out if case volumes and case mix is present. it is also easy to see and determine if the project is a stretch project, or one that should be deferred until further volumes are gained by the committee group. Population demographics often have nothing to do with the success or failure of a surgery center. A center's success relies more heavily on those individuals committed to making the center prosper. It is assumed that someone competent to do such projections would be hired by the group to guide it in an objective way. When selecting that individual, the hospital or physician group should ask how many projects the candidate has previously found unfeasible and has advised against. Objectivity is important, particularly at this critical phase of the project. Second, the organizational structure will be critical to the project's success and the achievement of its goals. Though this sounds elementary, the point is often overlooked by groups developing centers. Specifically, it must be decided whether the main purpose of the center is to reap economic benefit for the group or physicians putting the center together. Or, whether its main function is to provide surgeons with the opportunity to be more productive in the way they schedule their cases and allow more office time to see new patients, or even to have ore leisure time. Is the purpose of the center to have only the physicians in the group use the facility, or to have it attractive to outside physicians? All of these issues have enormous ramifications on the physical design, the capital needs of the facility, particularly in regard to equipment and space, and staffing. They also have a critical impact on financial projections. The medical politics of the situation are very important when considering whether or not shares should be given to all on an equal basis, or if a paid board should be instituted in addition to equal shares, or if shares should be given in percentages of current volume of practice. In short, before contacting attorneys or architects, or purchasing land or equipment, these issues need to be addressed and discussed thoroughly by the group with an outside third-party objective individual. There must be consensus on these issues in order to proceed in a logical and efficient way. Finally, assuming that all of these issues can be resolved, a team should be assembled made up of an architect who has had experience doing such projects; a corporate attorney who has experience in health law, health regulation, and setting up structures and syndications; a business developer who will guide the project, make sure it gets built on time, and ensure that all operational considerations are performed, and that the facility is licensed and certified within a set period of time; and an accountant who is familiar with the group's financial status, financial strength, and can work as a critical part of the team on an ongoing basis. Once the critical questions are addressed and the team is assembled, location requirements regarding the facility should then be addressed. Again, it is a waste of time to line up a piece of land, or even put opinion money down if the group does not know the direction in which it is going. The land must be totally responsive to the structure of the group and questions about it will be answered when the critical questions above are addressed. Location requirements will include a physical location in a medical office building if the center is to be located there. Should the center provide access to all of the physicians in the building, or will the center be located in a particular physician's suite? It is now common to have the center open onto a common corridor since there are a great number of facilities that were once single-specialty facilities, now being converted for multispecialty use. The alter-market for such centers is great, and a physician who has set one up for his own office can now often times sell out some of his shares to others and gain financial appreciation for such an investment. The location of the facility is therefore critical if used by others is being considered. Just as critical to a medical group or group of physicians putting together a surgical center is the location of a freestanding center. Traffic count, the proper side of the road, access from traffic lights, are all critical factors in selecting a location. The facility's accessibility to women patients is also critical importance since women account for the largest share of patient volume, particularly in outpatient services. Extensive market research throughout the health care field has shown that women themselves are heavy users, as are their children in their early years. Many times they will help select physicians for their husbands. Therefore, access to this important referral group is critical. Access to a hospital is also critical, particularly for a freestanding center. The proper amount of land and the way it is laid out, the grading of the land, and the zoning of the land are also critical factors. In other words, this is a major decision to be reviewed carefully, usually in conjunction with the architect and business developer. A common pitfall is that a surgeon who is integral to the group owns a piece of land, and the group tries to fit the project on this piece of land. It should, however, be an objective decision for the benefit of all. Once the project is deemed feasible, the goals are set, the purpose is determined, and the team is assembled, there needs to be agreement on the floor plan, as well as the specialties that will be house in the center. The structure of the deal and the investment will be critical, and issues concerning whether physicians will just be able to buy into the facility, need to be resolved. It must be decided which specialties will be included, based on their impact on the architectural design. Second, it must be determined whether or not the facility will be built only for Medicare specifications, or to the state's licensure standards. There are advantages and disadvantages to each side of this decision. In California and Florida, there are extensive architectural and construction cost consequences of deciding to be licensed. Costs for state licensure can run between $50,000 and $150,000 more for the construction costs than for a facility that is merely Medicare licensed. This greatly depends on the type of building in which the center is located, and/or if the facility is a free-standing facility. On the other side, the positive aspects of licensing is that the facility is able to serve PPOs and HMOs, which now often require the facility to be licensed. Furthermore, the facility can be syndicated and sold at some later point. Generally, it is worthwhile to go through the trouble of licensing the facility. If the architect is one who has past experience in these facilities, many efficiencies can be achieved from the original plans. This will keep the additional costs to a minimum, yet meet all the standards required. There are also equipment concerns to be considered when deciding whether to license or just build to Medicare standards. Empirically, it is well worth the effort to seek licensure for the above-mentioned reasons. However, this point needs to be decided by the group and will be dictated by the scope and purpose of the project. Third, the decision of what to include in fixed equipment in designing the center for multispecialty groups will be critical. It is obviously much more complicated to buy a variety of equipment for various specialties. There are numerous purchasing sources. In addition, it should be determined if economies of scale can be made in utilizing the same type of microscopes, for example, for ENT and OB-GYN. These equipment considerations are critical because they will represent a large fixed cost for the facility. As most operators of facilities are aware, the two largest variable costs are staffing and supplies. They are also among the top four total costs of the center. The two largest fixed costs will be the rent and, typically, the equipment lease, or loan to service the start-up costs, which sometimes includes the equipment. The equipment is critical in a surgery center and again, will be dictated by the scope of the project. For instance, fixed equipment, such as sterilizers, will be dependent on the specialties using the facility. In addition, the type of lights and other critical items regarding equipment that will actually be installed in the center, not the movable equipment, will be factors for consideration. It is critical that these issues be addressed early on. The process is much like a game of dominos. When one falls, all the others should fall behind it. If something gets out of sequence, it can have negative consequences for the project. Others will touch on architectural considerations. However, it is important, again, for the purpose and specialties to be decided, in order to determine, for example, if the facility will have piped nitrogen for orthopedic surgeons, or if the caseload will be small enough to use portable tanks. Recovery room bed ratios will be determined on the basis of whether heavy ENT or children's use of the facility is anticipated. Many times facilities have co-utilized their preoperative area when space is restricted, and when there will be a significant amount of ENT volume in the facility. Also scheduling becomes a major critical factor in anticipating patient volumes so that staffing can be properly organized prior to opening. In other words, two ENT physicians should not be coming in at 7:30 on the same day and totally absorbing all recovery room space in the facility. It is better if they can be scheduled for different days and the caseload can be mixed. This is commonly done in well-organized and managed facilities to assist in ensuring that the physical facility lends itself to high-touch and high-quality patient care, rather than just doing a volume of cases every month. The architectural ramifications of such decisions are significant. Further examples are plumbing for Yag lasers for ophthalmologists, and special recovery areas for children as necessary. These issues emphasize the importance of contracting with architect who has designed surgery centers prior to designing other facilities. It is a complicated business, and it is not something for a residential architect to tackle. Finally, several issues should be considered regarding conversion of existing ambulatory surgery centers. Today, many existing single-specialty ASCs are being converted to multispecialty ones, and in these situations, state licensure and architectural considerations come into play. To use a facility for only one practice puts the ASC into one category. To allow it to be used for others often requires that the facility be licensed by the state. As stated earlier, there are significant construction and architectural issues related to this. An analysis should be performed of whether it would be better to leave the facility in its current location or move to a new location. Typically, schematics have been developed by architects for both scenarios and pricing has occurred on a big basis with local contractors. The group can then objectively look at the financial implications of both scenarios. The same issues described earlier regarding equipment and design based on the specialties anticipated also apply for the conversion of an existing ASC. Also, many facilities are located in a medical office building. It is very common for facilities to have a joint waiting room that serves various ambulatory services. It is not uncommon to try to gain efficiencies of space in co-utilizing the waiting room, registration desk, electrical and mechanical rooms, and storage space. Strong consideration should be given to separate entrances with new signs and a new name on the facility, particularly if it is going to be used by multiple physicians.


Trends in the Development of Ambulatory Care Centers

By Robert Zasa, MSHHA, FACMPE Managing Partner, ASD Management Over the last twenty years, there has been significant change in the delivery of ambulatory surgery and ambulatory care services. Many of the initial surgery centers struggled between 1972 and 1982 with challenges such as reimbursement, establishing themselves as perceived, high quality facilities, and establishing the trend that a facility could be run on a profitable basis and still provide good quality of care. These early pioneers laid a solid foundation for many of us who have been involved in the surgery center movement for the last twenty-five years. After 1982 and the approval of Medicare reimbursement for surgery centers, there has been a significant growth in the number of centers. This growth has occurred both in single speciality centers such as ophthalmology, plastic, and gastroenterology centers as well as multi speciality centers. Today there are well over twenty-five hundred ambulatory surgery centers (ASCs) throughout the United States. However, in the most recent three years there has been significant change in reimbursement, competition, and in the delivery of ambulatory surgery services. These changes have had a profound effect on ASC operations. These trends have a profound impact on the way that the facilities will be developed, built, and operated in the future. The purpose of this article is to highlight some of the ambulatory care trends that are occurring within the United States and to note some of the solutions being developed to respond to these trends as they relate to ambulatory surgery. The first trend is there are fewer free standing surgery centers being built and more centers built within a larger facility that offers a wider array of ambulatory care services. Many health organizations such as large group practices, health care systems, and some HMO's are developing multiple facilities within a thirty to forty mile radius of their primary facility. ASCs are being opened within such facilities. Such facilities help healthcare organizations solidify or gain market share. The trend of garnering market share continues to be a strong one in the US. Having a strong market share converts to a stronger position when negotiating with managed care payers. It certainly allows a facility to grow at a faster pace and secure its future in the increasingly competitive health care market. Those who do not gain a strong market share are experiencing either merger or acquisition and will certainly be faced with dwindling revenues in the near future. To avoid that trend, many health organizations have purchased individual physician practices. Many have paid too much for these practices. Many have too many locations and the logistics to service all of the locations has become problematic. In a zealous effort to gain market share, many health care organizations have too many locations and are looking for economies to scale. There are several reasons for this. The first is to develop more of a regional center that is still convenient to patients but at the same time allows providers to gain economies of scale in staffing, supply costs, and group purchasing. Secondly, regionalized facilities provide one attractive location that can serve as a gathering place for all of the professionals. This results in more referrals between the professionals as well as use of ancillary services that are now available due to the fact that there is critical mass within the facility to support them. There tends to be a more sophisticated group of ancillary services available in the regional facilities than can typically be economically supported in the individual's physician's office. Thirdly, consolidation of real estate for health care providers becomes a great incentive to sell off small individual offices and consolidate the providers into a smaller number of larger regional facilities. What we are seeing in health care is basically a regional mall concept being implemented with smaller individual physician office practices being closed. This consolidation is being done still keeping in mind the convenience factor for patients. This trend is certainly mitigated by specific market conditions whereas in some areas this single office will remain due to its critical importance to servicing a particular community. However, this will be more an exception in the future than the norm. These regional centers create more visual presence and have a tendency to be more attractive to patients. They typically have an "architectural signature" that reminds the patient that the facility is affiliated with a particular health care organization. Many health care organizations try to develop four to five major sites within a community depending upon the size of the market and the number of counties serviced. Our firm calls these facilities Big MACC's (Multiple-service Ambulatory Care Centers). Big MACC's typically have the critical mass to support multiple services such as ambulatory surgery centers. Enclosed is a list of common services found in a Big MACC. Most Big MACC's are located in secondary markets and are at least twenty to thirty minutes away from the host facility. They typically include a number of rotating offices for specialists as well as permanent offices for primary care physicians including family practice, internal medicine, pediatrics. Due to the fact that many health care organizations are developing or purchasing multiple sites and an ambulatory care is reimbursed less than hospital outpatient services, the sites need to be developed very efficiently, not oversized, and planned to be expanded in phases. It is very critical to not over build, or over spec these facilities from an architectural standpoint. The facilities should not be over equipped either. If the facility is over equipped, built too large, or built at standards way above the norm and need for ambulatory care services, the fixed costs to be covered by the lesser amounts of ambulatory care reimbursement become prohibitive. These are very specialized buildings that need to be developed in a very cost effective way and equipped similarly. These are facilities different than hospital facilities. These Big MACC's require excellent traffic flow because of the ambulatory care nature of their purpose and they require a significant amount of parking due to the large volume of in and out traffic which occurs within facilities such as these. The facilities should be functional, efficient, with good design and nicely finished. There is nothing inconsistent with having a high quality, cost effective facility and delivering good ambulatory care. In fact the two are complimentary and are necessary given the lower reimbursement which is experienced for ambulatory care than hospital care. For that reason, many health care organizations are now turning to ambulatory care design-build and architectural firms that specialize in such buildings due to their proven expertise to deliver such buildings in a cost effective, functional, and high quality, architecturally designed manner. The second trend is the trend of building smaller, single speciality Ambulatory Surgery Centers (ASCs). There has been an explosion in the number of Plastic, GI, Eye, and Urology centers that have been built over the last several years. Physician practice management companies are also driving this. They want an ASC in their multi-speciality clinic. Many of the companies are building surgery centers within their medical clinics for the specialities as mentioned above, or are consolidating these surgeries with others to form larger multi-speciality surgery centers. This trend is being fueled by the growth needed by the physician management companies which is mostly coming out of ancillary service growth. In addition, as these companies develop more capitated rates for a variety of services, capturing the profits and controlling the costs from out-patient surgery will be more important to them in the future. Other areas they are looking at are birthing centers, diagnostic centers and other types of services that can be legally owned by the group under the group practice exemption of the Stark I and II regulations. The third trend is that Ambulatory Surgery Centers are being built "leaner and meaner". Over the last three years reimbursement for outpatient surgery has dropped 25%. This is due to the HMOs, PPOs and other managed care players gaining larger discounts from ASCs. Medicare has had a freeze on rate increases in surgery centers over the last two years as well. Lower reimbursement means ASCs have to lower cost and one means of doing so is to reduce initial capital costs such as building smaller, more efficient space for ASCs. Another trend is helping ASCs refine space. "Just in time" inventory reduces the bulk storage requirements of surgery centers which has also tended to reduce some of the storage problems that in the past many surgical nurses have complained about in surgery centers. The amount of storage space is simply not needed as it was three years ago before this very cost effective management tool was implemented. Operating room size is now being revisited. Many architects are down sizing the operating rooms or building one very large room for orthopedics or other specialties that need a lot of equipment. Another trend is to put the table on an angle using the deep corners of the room for additional storage space rather than having the table parallel to the back wall. This is an innovative technique and allows equipment to be stored in the room safely, but clearly out of the way of the operating room personnel, anesthesiologist, and surgeon. Additionally, there are better anesthesia drugs available that now allow for patients to be semi-awake while they're being wheeled out of the operating rooms. Since this aides in significant increasing the output of the operating room, ASCs require more recovery room spaces per facility. We are now encouraging our clients to develop four recovery spaces per O.R. This is also due to the fact that there are many other procedures being done in an outpatient surgery center that heretofore had been done in a hospital. The mix of services also has a great deal to do with the number of recovery room spaces necessary. If a lot of children are having ear tubes or tonsillectomies done, theses cases are done in a relatively short time within the operating room and have the tendency to easily impact a recovery room in a short period of time. Likewise, if there is a heavy cataract or GI caseload being done on a particular day, these patients are done quickly in the procedure area and then are in the recovery room in a very short period of time. If a facility is planning to have heavy caseloads in these speciality areas, they need more recovery space than a normal surgery center. In short, the nature of outpatient surgery has changed radically over the last three years in many ways and this is impacting the design of the centers. With reduced reimbursement it is important that the facilities not be built too small, however they be built much more efficiently than in the past. The construction, build out, and equipment costs are heavy fixed costs for a facility. Though they are amortized over a long period of time, they form a large amount of money that needs to be paid each month and raised as start-up capital. If these costs can be controlled properly and appropriately on the front end, it helps insure the success of the surgery center and financial return to the owners. The fourth trend is that Birthing Centers are becoming more and more popular on a free-standing basis. There is an increasing trend of developing labor delivery rooms with post partum rooms physically next to surgery centers particularly in Big MACC's. Prenatal screening is typically done in a Birthing Center now much more than it has ever been done in the past. This has significantly reduced the risk of having a problem with the mother during delivery. There is an accreditation association for Birthing Centers with formal criteria for such facilities. They have done a great deal to help standardize and raise the level of service and design related to such facilities. Typically such facilities are developed with three or four 72-hour beds. These beds allow the patient to stay if it is necessary and/or appropriate for the mother's physical well-being. The operating rooms of the surgery center can be used in case of severe emergency. The ASC can serve as a backup for this particular service when they are both found in a multi-service Ambulatory Care Center (MACC). The fifth trend is the trend of developing Big MACCs as replacement hospitals. There is a large number of small facilities in rural areas that have been built in the past that currently cannot be converted to meet fire safety code requirements. There is a trend to use these older facilities and convert them to nursing homes or assisted living facilities. In addition, there is a trend to build a new facility that has primarily an ambulatory care focus but has have some 72-hour observation and recovery beds available. Typical services in such facilities would include urgent care and extended hours or a full blown emergency department, CT and other diagnostic X-ray services, mammography, ultrasound, a phase I laboratory, a surgery center, four to six medical observation 72-hour beds, a birthing center with post partum backup (using the 72-hour beds). These facilities typically also have permanent offices for Primary Care Physicians, time share space for specialists, EKG stress testing and cardiac diagnostic areas, a small pharmacy, optical area for refractions and glasses, dental space, and typically some type of physical therapy, wellness or cardiac rehab area in the building. Geriatric psych programs, behavioral programs for clinical depression, and alcohol and substance abuse are also popular services to include in such facilities. The services are very market specific. They depend upon the distance between the main provider's facility and the location, the population and physician demographics of the area, as well as competition in the area. A greater number of healthcare organizations are refining their market assessment to understand which ambulatory services are feasible and necessary to deliver to these specific market areas. Population demographics, physician demographics, utilization for outpatient services are typically being analyzed by healthcare organizations to develop specific plans for servicing the medical needs of these secondary markets. Location is very critical for these facilities. The traffic count must be in the sixty to eighty thousand range per day and the location must be easily accessible to interstates and other major thoroughfares within the area. The new ambulatory care facilities basically house "retail" healthcare services. They have many of the attributes of a mall. In fact, many of them are located next to a mall, a Wendy's, McDonalds or other fast food restaurants that have significant traffic. Such market assessment and good financial projects are critical before developing Big MACCs on campus or in secondary markets. It is imperative to know which services in a given market area have the best chance of succeeding, and what is the expected economic return for the services if established. Once the market assessment is completed, a business plan should be developed which includes financial projections for both the development and operations of the facility and all services to be located within it. The projections should include profit/loss projections, cash flows, total source and use of proceeds, projections of equipment and all construction costs, land costs and soft costs for developing the project. It is important these are done. A financial projection also should be done for each service contemplated in the facility. Staffing models, revenue and cost per type of procedure and profit and loss statements are essential for proper planning for these types of services and facilities. This is particularly true for surgery centers being developed off of the campus of the main hospital. Surgery centers are typically not a primary care service or one that flourishes in a satellite clinic. Unless there is a significant critical mass of surgeons, the surgery center is not a good service to put into a satellite clinic. However, if there are significant number of rotating specialists and the Primary Care Physicians are properly trained to do appropriate gastroenterology procedures (that are typically done by a GI physician) and there are existing surgeons in the secondary market that will now utilize the surgery center if one is available, the surgery center may in fact be feasible. It is imperative that an accurate case count be performed and projected before developing a surgery center in such a facility. Many other ambulatory care services leave similar specific requirements that need to be met for them to be financially successful. Good experience in development, joint venturing and managing facilities is required by the individual performing such projections. Surgery centers and many other ambulatory care services are very volume sensitive businesses. It is imperative that projections be done accurately and are operationally sound. For that reason, it is good to have somebody that has experience in operating these facilities and managing them to review or prepare the projections to assure that the cases are not either overstated nor the expenses understated. Planning such ambulatory care facilities also requires those who have had extensive experience in the development of the newer model, cost effective facilities. Significant cost savings in land, construction, design, and equipment costs can be gained by using such a firm for planning, and design/build functions. Many of the same recommendations apply for the planning and development of Birthing Centers. Participation by key obstetric care givers is also essential. Use of specialized design-build firms or architects that specialize in ambulatory care facilities is a growing response to the trends in specialized surgery/ambulatory care services and "leaner and meaner" facilities. Many of these firms are spending significant internal time and resources to further refine their ambulatory care facility space programs, patient flow pattern, clinical spaces, building specifications, and building costs.   In Summary There has been a significant amount of change in the health care landscape over the last three years that particularly impacts Ambulatory Surgery and Ambulatory Care services and facilities; feasibility, development, construction, design, and operations. Health care organizations are moving quickly to capture the ambulatory care market share within secondary markets surrounding their facilities. It is imperative that they do so in order to sustain strong future growth, and continue to obtain key managed care contracts that are important in the future. However as they do so, they must implement their plans, keeping in mind the new trends with the ambulatory care field in order to successfully implement such strategies.


10 Key Factors to Improve in the Operations of Surgery Centers

By Robert Zasa, MSHHA, FACMPE Managing Partner, ASD Management The officers both have extensive experience in operating ambulatory surgery centers throughout the United States. The purpose of this article is to delineate the 10 most important factors to improve the operating results of surgery centers. The following will assist the administrator in a surgery center to focus on the 10 critical factors for the success of a center and prioritize key objectives for the physician owners.   1. Establish measurable Critical "Success Factors" and use routinely. Attached to this article is a list of critical success factors that are used to measure the key results in a surgery center. The MGMA, Ambulatory Surgery Management Society has developed a survey that helps measure these. This survey is available to all those that are in the Ambulatory Surgery Management Society and other members within MGMA. The critical success factors, deal with staffing, pricing strategy, cost per case, and other factors, which need to be measured on a routine basis. The first recommendation of this article is to define measurable key success factors for one's own individual surgery center and compare those with the national survey results. This should be done on a routine basis with results reported to the management committee of the Ambulatory Surgery Center (ASC) and physician owners.   2. Assure Debt Financing is at the lowest possible rates with good terms. Usually there are three sets of financing. The first is the financing related to the real estate and property. The second is the financing related to the equipment; and, the third is financing related to working capital. This may be represented as a credit line at the bank. It is important that all of the existing financing is reviewed on a relatively routine basis (at least every three years). Many times, non-recourse financing is available for equipment and/or some portion of the working capital. Non-recourse scenarios enable the physicians and other owners of the facility to obtain a loan or lease without requiring them to personally guarantee the funds. This type of financing is typically available for a slightly higher interest rate. In many cases, it behooves the physicians to sign a loan like this, rather than further indebt themselves to the center. It is also important to avoid long-term debt on equipment with fair market values at the end of the term. Preferably, the lease should be capitalized. This is accomplished by structuring the lease terms so that the equipment can be purchased by the facility for one dollar. This strategy precludes the center from paying further consulting fees for valuation of the equipment as well as the 10-15% fair market value for the equipment's residual value. Most of the equipment may very well change in terms of the technology; and, the center should not be in the position of purchasing equipment at fair market value when the technology is already obsolete. Investigate "synthetic" real estate financing by using assets of the clinic to create a loan for the construction of the facility and land financing. There are several specialize in this type of financing. Financing should never be signed with joint and severable terms nor should documents be signed with spouses' signatures (unless this is a requirement of the State). There are many financing companies and opportunities available outside of local banks that will not require joint and severable terms. In looking at the various financing companies, you must deal with established players. These are firms that have been around for over 15 to 20 years and have an extensive list of heath care clients, which they have served in the past.   3. Establish an ongoing, Managed Care Contract Review process. It is imperative to continually review the revenue derived from HMO's and PPO's. Comparisons should be made on the discounts given to each payer by CPT Code. Compare the most common terms of the contracts among all payers. If a contract does not make sense after a comparative review, don't be afraid to re-negotiate or cancel the contract especially if the center is unable to get appropriate terms from the individual payers. Use the comparison terms to compare the contract among each of the payers and correct any deficiencies seen in each payer's contract. Let the payer know none of the other players in the market are requiring such demands. This has been a successful negotiation tool at many centers. Sometimes, the institution of a non-participating provider status can be helpful. It may be more profitable to institute this strategy rather than sign up for all the contracts in an area specifically, when the payers submit contracts to the surgery center at rates, which are close to the cost of performing the case, or very close to Medicare. It is not worth adding volume to the center for no increase in Net Income. In this instance, the contract may simply cause the facility to extend hours with no additional profitability. Rather, it would behoove the center to be a non-participating (non-contracted) provider. Many surgery centers finally decided to cancel contracts after review of the volumes that they received from certain payors for the significant discounts that were given. In short, an ASC may see half the number of patient's for over twice the fees and not have to worry about such large contractual allowances. It is important that an ongoing review of contracts is done routinely. The reimbursement and comparisons of reimbursements by CPT Code or by the new APC Codes (once they become instituted) should also be rviewed at the center at least every three months. This is part of the ASC's pricing strategy. A good manager can control the net revenue per case, outside of the mix of services that it offers by clearly watching the discounts given and contracts signed with various payors.   4. Assure Organizational and Ownership Structures that are fair and current. It is important for the administrators to stay current with state and federal regulations and statutes. Each year, a brief review of the National and State health care statutes and should be performed by the center's healthcare attorney, to make sure that the ASC is in compliance with all regulations and statutes. In addition, if there are any significant changes within the federal regulation statutes that may assist or hinder the center from practicing in a certain manner, these are reviewed as well. Investigate whether there are any beneficial changes in the law. For example, in certain states it is beneficial to change limited liability corporations (LLC's) to LLP's because of the state tax codes. Also, it is important to "prune" the ownership using buy-out provisions in the operating agreement to make room for new physicians before offering new units or shares to existing physicians. This practice is employed to avoid dilution of existing partners and/or LLC unit members. Often times, physicians are retiring and they wish to liquidate their shares. These are excellent units to sell to additional physicians joining an existing partner's practice or new surgeons in the community that would be able to benefit from using the surgery center. Strongly avoid overly aggressive partner and non-partner compensation formulas. Some surgery centers have very strong patterns of over compensating partners; and, the cash reserves of the center are depleted due to distributions, where as the non-partners are still continuous users of the center and need to have equipment and other kinds of investments by the surgery center. If the cash is all taken out at the end of the year, non-partners, as well as partners, will not have enough cash reserves to continue the business in an appropriate way. It is also important to rotate the membership of the medical advisory committee and the governing board to gain fresh ideas and to broaden participation. This occurs every year in most well run surgery centers. It is important that the units in the surgery center or partnership shares, are not sold to groups but sold to individual physicians. The composition of group practices is fragile. Often times, the surgeon who was a key user of the center may leave. If the group owns the share rather than the surgeon, the group retains the unit despite the fact that it has no participants in the surgery center. This may cause legal problems with Stark Laws as well as other kinds of problems. Additionally, there may be arguments to regarding who the share belongs to - the group or the individual physician who allowed the group to participate in the first place. Thus, it is easier for the center to buy and sell shares if individual surgeons own the shares, rather than group practices. However, this scenario is not true if the surgery center is owned solely by the Group Practice on its site. Inc this case, the unit(s) should remain with the group.   5. Establish the center's "Distinctive Competence" to create a marketing edge. The "distinctive competence" is something that the surgery center is known for within the community. It is important that the center administrator identifies "holes" in the ambulatory care market and tries to fill those holes within the ambulatory surgery center. The surgery center will probably be known for two or maybe three good specialties, such as an excellence in Orthopedics or GYN. This will be a reflection of the quality of the physicians using the surgery center. It is important to identify specific specialties and market the specialties to create a position in the community's collective mind that the center has particular expertise in a defined area of medicine. For example, the center may have a number of orthopedic surgeons who like to work in the sport's medicine area. There may be a large number of knee and joint and foot surgery procedures performed in the surgery center that would give it distinctive competence in sports medicine. That could be emphasized by holding clinics for runners, having lectures by the surgeons about sports medicine, and the center sponsoring a run or another sports medicine type of event in conjunction with the local YMCA or athletic club or football team. The center may have a contract with several sports teams in the area or high schools that would further distinguish itself in sports medicine. In short, the surgery center manager should define two or three areas where it is clear that the center has a "distinctive competence". This definition creates a magnet for the surgery center in these services.   6. Establish an ongoing review of Pricing Strategy. At least twice a year, a comprehensive review of the ASC fee schedule should be conducted. At a minimum, the cost per case on a procedure basis should be verified; and, prices should be reset so that the facility's Net Income margins are achievable. To determine the maximum fee that the market will bear in an effort to exceed these goals, comparisons to the competitors' pricing should be made. Finally, the percentage by which the facility fee schedule exceeds the major payers' reimbursement schedule should be studied. These comparisons can be achieved by researching multiple sources of information. However, three of the most productive avenues are to: 1) Buy bills from local patients by running an advertisement in the local newspaper and offering to pay patients for any competitor bills or Explanation of Benefits (EOB's); 2) Have your surgeons ask their patients to bring them their bills or EOB's; and 3) Study the contractual trends and the Usual and Customary allowables (UCA's) from your top 10 payers. When purchasing bills and EOB's through an ad, it is important to specify that the surgery should have been performed within the last (6) months to ensure the data is current enough for use in the study. Secondly, specify the type of procedures which you are interested in purchasing. You should establish your top 20 types of cases prior to the study and purchase only bills and EOB's that fall into this category. Note: typically, the top 20 procedures will represent 80 percent of the total volume of the center. This method of acquiring data is surprisingly successful if the patient is given the proper incentive. Payments of $25 to $40 per bill are usually sufficient and will generate 20 to 30 responses within a month long ad campaign in a metropolitan area. The surgeons in a facility are also a great source of data for fee analysis. Their patients are the ASC's patients. Particularly when an ASC is set up as a physician partnership, the surgeons are more willing to get involved in the operations of the facility than is true in other settings. Make sure that specific procedures are tracked and the preferred dates are specified so that the data obtained is usable. The payers are often reluctant to share data with the facility; since, their objective is to bring the required reimbursement rates down as low as possible. However, by tracking the contractual trends among the ASC's 10 top payers and building payer profiles into the center's computer system, a determination of how much the fee changes will impact your net revenue can be made. Once the data collection phase is complete, compare the competition's data and the contractual trends to the fee schedule employed at the facility. When looking at the bills, the guiding principal should be to stay 20 to 30 percent below the fees of the competing hospitals and within 10 percent above or below the competing ASC rates. With the contract study, the key is to track the trends. Obviously, if most of the contracts are on a discount from fee type of basis, an increase to the fee schedule will impact the Net Revenue of the center significantly. On the other hand, if most of the contracts are based on Medicare groupers or a flat fee per case, raising fees won't make much of a difference. Moreover, if the Usual and Customary allowables are close to the facility charges, the ASC's fees are too low. The industry standard for write-offs is around 40 percent. Thus, The ASC's fees should be at least 45 percent above the UCA's in your area.   7. Establish and utilize proper Employee and Physician Incentives. Aligning employees' and physicians' goals with those of the center is crucial in achieving ultimate success. A profit sharing plan for employees is a sure way to keep them focused on the goals of the center particularly if the plan is tied to specified goals, which show the staff how each parameter impacts the "bottom line". Employees should be educated on the Profit Plan for the center and should be updated monthly on how their performance compares to this plan. Examples of such goals are: Man Hours per Patient Staffing as a % of Net Collections Supply Cost per Case below what is used in the Profit Plan Phones answered in less than 3 rings A/R Days at 45 or less Inventory less than a certain $ amount per month Net Revenue per Case above a benchmark Contractual Allowance and Bad Debt less than the budgeted percentage Pre tax Net Income greater than the Profit Plan   8. By employing clinical and business criteria such as those listed above, the specified goals lead to the achieved Profit. These goals, however, are more tangible and show the employees how they can impact the profitability of the facility (i.e., the Net Income are more likely be reached if the explicit goals are being met). Profit Plan formulas vary from one center to the next. In those centers experiencing $200,000 or more in Profit, incentive pools of 2 to 5 percent of Net Income are common. Distributions are typically handled at any time other than Christmas. The employees should know that the reward is something they earned, not a gift. Most profit plans are distributed at the discretion of the Board of Managers who have the authority to change the plan to reflect changes in the actual achievement of the goals, which may be outside of the employees' control. A center that has lost its license or accreditation is usually disqualified from profit sharing. Motivating physicians is an important part of ensuring success. The more they feel like part of the facility team, the more they will bond with the center. Forming a physician Partnership is an obvious way of achieving this goal. However, be careful in the way the partnership is structured. Make sure that the partnership is not set up in a way that would cause inducement of cases (i.e., never make payments tied to number of cases the surgeon performs at the center). Rather, distribute any cash based on the pro-rata share of the total investment that the surgeon contributed for his ownership in the center. Whether or not a partnership is in place, it is important to make the surgeon part of the decision team. While the limited liability of a surgeon partner precluded he or she from participating in the day-to-day management of the facility, there are many areas where they can participate particularly in problem solving. Getting a physician to participate in the formation of a solution to a problem ensures that he or she is motivated to see the solution work. Additionally, it is very important to ask the physicians what their needs are; measure how well the center is addressing these needs; and then, report these results back to them. A final encouragement for physicians is to make them feel important while they are at the Center. Personalized lockers and scrubs, breakfast and lunches with their favorite foods, and personalized music go a long way in making a surgeons feel "at home" and keep them coming back.   9. Continually conduct market assessments to Establish New Services. It is important to stay up to date on the latest trends and developments in surgical technology as well as the changes in the standards of care in the area where the facility is located. Conducting market assessments on a routine basis, will enable the center to identify procedures which have been: 1) historically performed only on an inpatient basis but are now performed in an ASC setting; 2) newly enhanced as a result of advances in technology; and 3) newly created categories of treatment as a result of medical research. Over the past several years, there has been a constant shift of surgery from the inpatient hospital Operating Rooms to the ASC's. This fact is true for many reasons. The predominant change is occurring in the Community Standard of Care around the country because of improvements in anesthetic agents and the availability of quality home care. An illustration of concept is the movement of T&A's, Knee and Shoulder Arthroscopies, and most recently Discectomies. When these procedures are routinely being performed on an outpatient basis in the center's community, they should be brought before the Medical Advisory Committee (MAC) for review and potential addition to the Delineation of Privileges for qualified surgeons. Additionally, the healthcare technology industry is one of the fastest growing in the nation. There are new advances in technology being marketed to the surgeons on a daily basis. Many of these new enhancements allow the physicians to perform treatments on their patients with totally new methodologies. An obvious example is laparoscopy, which opened up a whole new arena of outpatient surgery. The growth of the use of lasers in surgery is another example. Most recently, a substantial portion of the Female Stress Urinary Incontinence (SUI) market has moved into the minimally invasive category through development of a tension free vaginal tape, which can be placed into the pelvis via tiny incisions. These advances are continually presenting the surgeon and the center with new and improved ways to deliver care in a less invasive manner; and should be monitored and incorporated into the center's scope of services as soon as possible. Another important area of market assessment for the center is in newly created categories of surgery. Dermatologists, Oral Surgeons, Neurosurgeons and Pulmonary physicians were not typically part of the utilizing surgeon list in the past. However, with the onset of: 1) varicose vein stripping, 2) new types of dermabrasion, 3)"rubberbanding" instead of wiring in jaw osteotomies, 4) advances in broncho-dialation and other new procedures, we are seeing more and more of these specialists working at ASC's. When considering the addition of new services to the facility, be careful to check out what reimbursement (if any) the insurance carriers in the area are willing to pay for these services. Because of the nature of these new procedures, there may not be a payment category established for the procedure; and, the facility may get caught "holding the bag" if this issue is not address up front. However, since these most of these services represent somewhat complicated cases, they are usually reimbursed at relatively higher rates. Finally, prior to allowing the surgeon to perform the case, make sure that the MAC and Governing Body of the center grant approval for the procedure and the physician. Likewise, this information should be documented in the Physicians' application file. The physician should have similar privileges at a local hospital, and have the appropriate medical education and proctoring to perform the new procedure.   10. Implement Flexible Staffing and Group Purchasing with "Just in Time" Inventory. Very few surgery centers guarantee their employees 40 hours per week or offer preset shifts. It is important that this expectation be clearly communicated to the staff of the facility prior to hiring so that the expectations of the employee are appropriate. Employees should know up front that when case volumes are low, they will be asked to go home early even this means working less than a 40 hour week. Additionally, the traditional 8 hour day may not always be an option in an ASC. Many employees work four, 10 hour days or have schedules that vary even greater. While most employees have a set clock-in time, this time is typically not the same for all employees. For example, the pre-op staff may come in at 5:30 am while the OR staff doesn't arrive until 7:00 am. The business office staff should have varying arrival times as well so that there is always someone available to greet the patient upon arrival at 5:30 am as well as schedule cases from the surgeons' offices as late as 5:00 pm. Group purchasing is another operating guideline that lends the center significant cost savings. If the center is free-standing (i.e., not affiliated with a hospital) it is imperative that some type of leverage be gained with the vendors by participating in a buying group. Amerinet is an excellent purchasing group which is ASC friendly. Groups like Amerinet typically charge a per month membership fees in exchange for guaranteeing maximum costs that can be charged by a host of vendors. If the center has the volume to justify costs lower than the standard purchasing group rate, it is usually permissible to strike a deal with the local/regional sales rep and lower the price beneath the contracted rate. Savings of 10 to 40 percent are typical when participating in a group purchasing program. Another major cost saving tool is to ensure that the center only has the minimum amount of supplies necessary on the shelves. Inventory should be counted quarterly to ensure that the accounting methodologies employed for cost per case are accurate. At this time, it is wise to inventory what is on the shelves that need not be; and, get rid of it. Expired drugs can be sent to charities; and, those which are still good can be shipped to other OR's for cash or traded for items with other centers and the local hospital. A rule of thumb is to maintain less than 1.5 months worth of total supplies on your shelves. On those items, which can be ordered "just in time" keep no more than a seven day supply. Also, keep as much inventory on consignment as possible. Items such as IOL's, breast implants, and orthopedic screws and plates are commonly offered as consignable items from the manufacturers or distributors. Moreover, the center should maintain par levels (i.e., maximum and minimum levels of inventory) and ensure that the volumes of each item stay within these parameters. If the center does not have par levels established on routine items such as syringes and gauze, a simple way to set these levels is to determine what the average supply usage of each item is by analyzing the utilization amount over a three month period and dividing this number the number of days in the three month period (i.e., 90 days). Next, determine what the lead-time between ordering the item and receiving it from the vendor is. If it takes one day to receive the item, order only a one day supply. If it takes 5 days, order a five day supply. This is your minimum. The maximum amount in "just in time inventory" management will match the minimum amount except in those circumstances where the item cannot be ordered as a single. In instances when the item must be ordered by the case, the case amount is the maximum. Obviously, there will be many items that are not routine and are needed only for a given case. These items should be ordered to arrive "just in time" for the case. This goal can be easily accomplish once the lead-time analysis has been conducted and the distributor is making daily deliveries to the center. Review and Revise Service Contracts. All surgery centers have a multitude of service contracts in place due to the limited staff employed at this type of facility. These agreements cover services such as housekeeping, preventative maintenance and bio-medical , pharmacy, laundry and linen, hazardous waste removal, landscaping, ambulance, blood bank and the like. Most contractual obligations require a minimum of a one year commitment. For this reason, it is a good idea to go through all of the contracts in place at the facility on an annual basis and determine: 1) Was this a good relationship? 2) Was this service truly needed; and, did it properly cover the services it was set up for? 3) Could I get the same level of service from another source at a better rate? 4) Is there language that should be changed to enhance the service, And, 5) Have there been any changes to the service requirements implemented by the State or Federal licensing regulations or the accreditation standards? Reviewing these contracts routinely will ensure that the center is in full compliance with all regulating bodies and that the center is receiving the proper level of service at the best price.


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