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Joe Zasa on Writing the 1st Comprehensive ASC Development & Management Book

What were the motivations and strategies behind writing the first comprehensive book on ASC development & management? Becker’s ASC Review interviews Joe Zasa. View Article    


Increasing the Value of an ASC

From the Ambulatory M&A Advisor Selling an ASC at the highest possible multiple is the main goal for physician owners looking to make a profit off their years of labor at a particular center or business. The Ambulatory M&A Advisor takes a look at some of the ways that owners can strive to obtain said multiple by taking certain steps in the years before selling, that could help the ASC’s value increase. Robert Zasa, founding and managing partner of ASD Management explains that competition in the area, ability to perform services, and the kind of services that are offered in the area are considered valuable to buyers shopping around for an ASC. Zasa says that one of the typical reasons these areas are of value is because it helps the potential buyer assess how many new doctors or what new services they could add to the center to further increase the value. “For example, we have a center in a very competitive area in Los Angeles. What we are trying to do is grow the center. We have a new cardiovascular service that we are adding to selected centers. The decision to add this service is dependent upon the demographics in the area, the competition in the area, and the types of physicians in the area that might do these procedures,” Zasa says. “We are looking at this particular location and have found that nobody is offering cardiology. There happens to be a very good interventional cardiology group and it fit. We were able to syndicate, sell them shares in the center; it is going to increase the revenue significantly for our center. You look at those types of opportunities. Whether we are acquiring a center, or whether we are looking to add revenue to a center; to add to the value, we are either recruiting new physicians, or adding new services like retina, spine and cardiovascular.” Zasa adds that other opportunities to increase the value of an ASC can be seen when examining a center in a remote location. Zasa explains that it is very difficult to add new physicians to a remote area because there are not a lot of physicians in the area, and the ones that are present, are most likely involved in other deals. Zasa says in order to increase the value of an ASC in this situation, adding in new services is the best bet. “In another situation, we have an area that has not been picked over. We are just adding 4 or 5 doctors a year. That’s how we are increasing the value of the center,” Zasa says. Although it may seem like an ideal way to increase the value of an ASC, Zasa says that cutting the costs in a center is not going to significantly increase the value. In his experience, increasing value is really a revenue generation proposition and how much an operator can do that by either adding new services or adding new doctors. Matthew Muller, ASA,Manager with HealthCare Appraisers is on the side that cutting costs can be a way for a surgery center to increase its value. According to Muller, many physician-owned surgery centers have one or more of its physician owners directly involved with managing certain areas of operation of the center, though these physicians may already have their hands busy managing their clinical caseloads. He suggests that it would be worthwhile to spend time reviewing the centers expense structure in detail to confirm there is no waste occurring. Muller says that such attention to detail should already be in place, but this is a simple exercise that may result in additional operating profitability to a surgery center and, in turn, a higher value. Muller explains that staffing and supplies expenses would be two key areas for management to review. An overstaffed surgery center could quickly negatively affect a center’s profitability, especially with payroll related benefits such as health insurance continuing to rise in recent years. Along with payroll, supplies would be a second key expense category to review, he says. “Obviously, that’s a big expense for any surgery center, and we have seen many surgery centers comment on notable annual increases in supply costs from their vendors in recent years. Sometimes, a center may have no choice but to accept these higher costs. However, anything you can do to attempt to renegotiate any of those contracts, or even look to see if there are other vendors to use for some of your main supply expenses, may go a long way in helping to keep supply costs under control. I think supplies and staffing are typically the two biggest expenses a surgery center faces, so making sure those items are getting attention by management is key,” Muller says. On the revenue side, he says that one thing to keep in mind when having a valuation completed is that there is less risk related to positive developments that have already occurred at a center and are supported by historical data, as compared to those that are anticipated to occur. In an example he provides, a surgery center may have recently gone in-network with a new commercial payer it had previously not been doing any cases with. By going in-network, center management may anticipate a material increase in case volume related to patients insured by this payer. “If a valuation of the center occurred before any of these anticipated new cases materialized, the uncertainty surrounding how positive an affect these cases may have on the surgery center would result in higher risk to a potential purchaser of the center, which would be factored into the valuation. Thus, it may be more advantageous to have a valuation completed after there has been an established history of those incremental cases from this new payer. The established history of these cases materializing as management anticipated would lower risk, and have a positive effect on the value of the center,” Muller says. As far as adding new physicians like Zasa suggests, Muller says if a multi-specialty surgery center is looking to add new physicians to perform more cases, it might be a good idea to bring in new cases that have not been established in the center. “This will add some diversity in the case mix, which is typically more appealing to a purchaser. As mentioned previously, it would positively affect value of the center to establish a demonstrated history of these new physicians and cases being performed at the center before having a valuation completed, rather than while these cases were still forthcoming,” he says. Curtis Bernstein of Pinnacle Healthcare Consulting explains that there are several things that can be done in order to increase the value of an ASC. One area that Bernstein says buyers tend to look first is multiples of EBITA. In the case that the buyer is trailing 12 month EBITDA or projected EBITDA, Bernstein says one of the best things an ASC can do to increase value is prove that projected EBITDA is going to be significantly different from trailing EBITDA, and why it’s going to be significantly different. This difference can be seen through recently added services, physicians, etc. When it comes to increasing the number and value of offers, there are also things that can be proactively done, he says. “Just because a potential buyer has a separate valuation done on your ASC, that doesn’t necessarily mean that the offer they present is the maximum number. In order to ensure that you are receiving the best possible number, it is a good idea to go out and entertain different offers,” Bernstein says. “The buyers may not always come back with their highest offer, so you will want to go back to them. The buyers should only go up to the point where they feel comfortable that they’re still paying FMV for that ASC and that interest in the ASC.” Zasa says that focusing on increasing the value of an ASC is something that owners need to be thinking about on a routine basis strategically. “If you are standing still, you are going backwards. Especially in this competitive environment; you want to get every case in your center you can to increase the value. Competitively, we are looking constantly at opportunities to add doctors and services. The third thing is to have a thorough review of the managed care contracts that the center pulls,” he says. Zasa explains that a center’s contracts are also a key factor in estimating and increasing the value of the ASC in question. “We have, what we call at our company, a ‘retroactive contract analysis’. Because many of these surgery center contracts have been negotiated at different times and different years; oftentimes, unless you take a look at all of them, and compare the volume, you are getting paid from that payer by your top 20 CPT codes, and the discount that you give them,” Zasa says. “What we do is have the top 20 procedures listed on the left hand column. Then we have the different payers by plan. We put below that the volume per year, or quarter, etc. that we get from that payer. It’s incredible, because what happens sometimes is you find you are getting less of a discount from one that does more volume and, worse, you are getting a bigger discount for one that does small volume.” Zasa stresses that the payment of the contracts is very important. Not only in terms of fees but in terms of payment terms and other terms. Good contracts increase the value of the center, and that should be reviewed on a routine basis. Richard Romero The Ambulatory M&A Advisor ambulatoryadvisor.com


ASDManagement publishes first comprehensive book on ASC development and management.

After 30+ years in the business, and 1 year in word processing, ASD Management has published the first book taking a systematic approach to the strategies and details of developing and managing an ASC. In the words of co-author Joseph Zasa of ASD Management, “Many articles are published every year, but few describe a proven, systematic approach written by people who are successful developers and operators of surgery centers.” “There are now over 5,000 ASCs in the U.S.,” writes co-author Robert Zasa of ASD Management. “The low cost of ASCs with very high quality of care have fostered the creation of these centers in almost every area of the country.” Yet, not every surgery center is successful in meeting the prime directives of high quality patient care and safety within a profitable center.   Order Now > Developing & Managing Ambulatory Surgery Centers is the first book dedicated to the cornerstones of ASC operations: patient care, business office processes, risk management programs, payer contracting and revenue management. The cornerstones are detailed in the four book components: ASC predevelopment, development, management and lessons learned from the field. Contents is enriched by contributions from the ASD Management team, and experts revered in the ASC industry: Scott Becker JD and Amber Walsh JD of McGuire Woods, Ken Seip of Siemens Financial, Aaron Murski of VMG Health, Joe Baugh of CG/Medvest, Randy Bishop of Surgical Notes, Durr Boyles, Steven Dobias of Somerset CPA and Steve Sorey. And ASC physician leaders: Dr. T K Miller, Dr. John Fitz, Dr. Michael Latham and Dr. Alan Valadie. Informative, current and entertaining, a must for seasoned professionals as well as industry newcomers, instructors and students. First edition published in March 2016.


Robert Zasa and ASD Management Awarded for Excellence

Los Angeles Business Journal has recognized Robert Zasa, managing and founding partner of ASD Management as an outstanding healthcare leader. Mr. Zasa received the 2015 Healthcare Leadership award on behalf of ASD Management for its positive impact on the Los Angeles business community.


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.


ASDM Founder and Managing Partner Robert Zasa named a Top UAB Business Alumni

Robert Zasa, MSHHA, FACMPE, has been named to the Top 25 in the UAB Excellence in Business by the University of Alabama at Birmingham National Alumni Society. The distinction recognizes and celebrates the success of the top 25 businesses owned and operated by UAB alumni. Nominees for the award came from a wide spectrum and were ranked by a rigid criteria. Mr. Zasa, an alumnus of the UAB School of Health Professionals, was recognized during the awards luncheon on March 10, 2015 in the UAB Alumni House.


HOPD to ASC Joint Venture Conversion

Top financial issues, regulatory concerns & more Ambulatory surgery centers are becoming an attractive strategy for hospitals. While some hospitals seek to build their own ASCs or partner with an existing center in the market, others decide to transition an existing outpatient department to a joint venture ASC. In this Q&A from Becker’s ASC Review (Nov. 10, 2014) by Carrie Pallardy, ASD Management’s Vice President Mark Babin describes the process of this conversion and offers insight into the most important issues to consider. Q: Why are hospitals interested in converting a HOPD into an ASC joint venture? Babin: Efficiency. Hospitals are certainly becoming better at reducing their operational costs. They are all following strategic plans, benchmarking success factors, reducing patient readmission and are driven to increase patient satisfaction indexes. Payment and census are all predicated on the success of efficiently running a hospital. The same metrics used do not always translate to the surgery center environment. For example, staff within the hospital is often cross-trained, which is critical for multiple service lines but, ideally in a surgery center you will have the nurses and techs specialists with one or two specialties. This decreases turnaround time, reduces operating room times and improves outcomes, which translates to greater availability to do more cases. Also, a surgery center has greater ability to flex staff if needed, saving money when volume is reduced. Close ORs or procedure rooms when not in use and maximize the open ORs on lighter surgery days. Finally, as one last example, there is still the ability to minimize supply costs if the joint venture uses a national management company. Supply costs are always one of the top three expenses and group purchase organization contracting can usually mirror what the hospital costs are via a national agreement with a known surgery center management company.   Physician alignment More than ever hospitals and physicians are having complex conversations about working together to provide quality care in a reduced payment environment. Narrow networks and population health are two new phrases with the common thread of intending to provide a full scope of measurable services. Surgery centers play a key role. More types of cases are moving to the outpatient environment. Hospitals have the understanding that the reduction in reimbursement rates is offset by the increase in volume and loyalty by the physician. It's part of the conversation. Also, a joint venture is generally less risky than a standalone center with no hospital partner and fits the new model of this cohesion with the hospital, physicians and ancillary services. This is not to avoid the long-standing fact that physicians will have ownership in a surgery center. For a hospital not to participate is to lose a significant volume of cases to a competitive surgical facility. The hospital needs to align with physicians to strategically and proactively drive the future of care in their market.   Payer contracts Health plans are requiring procedures be done at an outpatient surgery center. With HOPD rates 50 percent to 60 percent higher than a standalone center they are incented to have patients receive services from a joint venture center. Health plan medical directors are very involved with understanding what procedures will be approved or even may be done without Medicare recognition (orthopedic total joint procedures for example). Differentiating the center is critical in saturated markets where the payer may utilize the supply of surgery centers to its advantage in driving down rates. Something to consider for any center: published bundle payments and cutting edge procedures not being done elsewhere. In essence, health plans view surgery centers as a critical component offered to their patients. Whether a new center provides competitive care or something that differentiates itself is dictated by the hospital, physicians and demands of the payer and market.   Relevance in the market A joint venture plays into the big picture of staying in front of the changes in healthcare. Opening the surgical services to investors/physicians allows the administration at a hospital to have another mechanism to keep a pulse on their market, competition and coming changes. Q: What are the biggest financial considerations in this type of project? Babin: Without question equipment and working capital are the biggest financial considerations. More often than not the new LLC joint venture will be purchasing the existing equipment from the hospital, whereby the value was derived by a third party. Additionally, there will be new equipment necessary for new service lines or to replace outdated equipment. Our most recent projects had values of $1.5 million to $2.2 million with additional equipment needed of $500,000 or more. What is attractive is most of the equipment is purchased at a fraction of the original cost and the JV has the option of purchasing all or a portion of the existing equipment. All of this should be structured under a five year to seven year capital lease with pro-rata guarantees from the owners or a hospital guarantee with a guarantee fee charged to the physicians. Some of the value of the equipment may be considered as equity from the hospital. Working capital will come in the form of equity from the physicians and provided all of the hospitals equity is not a consideration from the value of the equipment the hospital will put in cash as well. Additionally, a working capital facility must be in place with a bank, usually the one providing the equipment lease. There should be enough working capital and availability in a line for a minimum to cover the first year of operations with a comfortable cushion. Q: Is the resulting joint venture typically between the hospital and a management company or are physicians offered buy-in opportunities? Babin: ASD believes the best model is with physicians and the hospital for the reasons I mention above. ASD can maintain an ownership percentage, but its nominal and usually in the event there is a shortfall on the physicians' side. The hospital dictates what percentage the split should be. Some want to maintain control and will take a greater than 50 percent stake. Others prefer the physicians have majority. Regardless, the boards of every surgery center are split evenly between hospital and physicians with a Medical Advisory Committee comprised completely of physicians. Q: What are the major regulatory concerns in this type of project? Babin: Ensuring compliance with the safe harbor rules under the anti-kick back regulation and making sure that there is no unintended inducement by the hospital toward the physicians. Share prices, the facility lease (provided the hospital is the landlord or master tenant), lease of hospital employees, fair market rate if the hospital is leasing equipment. These are just a few examples and we require all clients seek advice of counsel if there is ever a question. Without exception our hospital partners are hyper-vigilant when it comes any interaction with their physician partners. Q: Are there any common mistakes you've seen made during this process? Babin: Converting a surgery center creates its own set of challenges and usually it is the things that are outside of your control that create the biggest issues. An example is the accreditation surveys and the timeline for receiving the Medicare number. These things you cannot control affect the timing and happen when the center is the most vulnerable. The key is preparation. There is no one way to convert an existing center and the punch list of things that must be done is more than 200 items long. Some consistent considerations are: Are the employees unionized and how will that translate to a new non-union center? What positions need to be eliminated or added? When was the asset purchase agreement finalized and have the interested physicians reviewed the list? Is there a clear understanding of what physicians will join and is there a steering committee? Is the contracting team at the hospital engaged with the project? Will they work with the management company to secure desirable contracts? Will the center need to close or can it stay open with a defined date to "flip" and will it need to be run as in tandem for a period of time as an independent ASC and a department of the hospital? Q: What is your advice for ensuring the transition runs smoothly? Babin: There must be a plan set in place and a timeline with specific action items addressed along that timeline. Set the expectation and build in a time buffer. The hospital administration and key physicians must make up a steering committee and be fully engaged. Key members of the staff that will stay on after the conversion need to participate and contribute to ideas and tasks that need completion. Engage the payers very early on in the process. If they are informed and get excited, they will begin contracting after accreditation and before receiving the Medicare number. This cannot be done soon enough. Early dialogue also uncovers potential issues with getting contracted. Make sure there is a detailed review of the business operations. Knowing what systems have to be replaced, implemented or shared with the hospital (right down to the telephones) has to be addressed early on to consider cost and time to replace and train personnel. Talk to key physicians regarding what changes are required in the surgical environment. Turnaround times, personnel and equipment considerations are vital. Start times are key to physician satisfaction and unless addressed and known to change it will be difficult to get physicians interested as partners.


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.


Are ASCs in for another rough Q1?

By Carrie Pallardy This article is reprinted from Becker’s ASC Review Harsh winter weather and underwhelming financial results were the hallmarks of the first quarter of 2014 in the ambulatory surgery center industry. Winter is threatening to bring another round of record low temperatures in 2015, and the challenges of 2014, if anything, have intensified. How can ASCs prepare for the new year? 2014 retrospective The opening quarter of 2014 was undeniably difficult for the ASC industry, but if nothing else it can serve as a lesson for the times ahead. Here are key points from the first quarter results of eight public ASC companies. AmSurg. AmSurg's revenue increased marginally, 2 percent from $258.2 million in the first quarter of 2013 to $263.1 million. Same-center revenues declined 2 percent. Foundation Healthcare. Foundation Healthcare's revenue was up 18 percent to $22.1 million for the first quarter of 2014. Hospital Corporation of America. HCA's net income inched upwards 0.9 percent to a total of $347 million. The company's net revenue had a larger bump of 4.6 percent to $8.83 billion. Medical Facilities Corporation. MFC reported $72.9 million in revenue, consistent with the amount reported in the first quarter of 2013. Northstar Healthcare. Northstar reported a 194.1 percent growth spurt in net patient service revenue, from $4.1 million in the first quarter of 2013 to $12.1 million. Surgical Care Affiliates. SCA's total net operating revenues, excluding centers the company does not own a controlling interest in, increased 2.1 percent to $196 million. System-wide net operating revenues rose 8.7 percent. Symbion. Symbion's revenue rose slightly from $130.38 million in the first quarter of 2013 to $133.97 million in the opening quarter of 2014. United Surgical Partners International. USPI reported consolidated net revenues of $145.3 million, compared to $145.1 million during the same period in 2013. The majority of these companies reported flat financial results or slight increases in revenue and income. AmSurg, SCA and USPI all made reference to the impact severe winter weather had on patient volume and financial performance in the news releases announcing the quarter's results. Aside from winter woes, ASC companies had to contend with the onset of high deductible insurance plans and expanding effects of healthcare reform. What to expect in 2015 Though predicting the future of healthcare is an uncertain exercise, the new year is just around the corner. Many forces that will shape the upcoming first quarter are already at play. High deductible plans, just beginning to roll out in 2014, will have an even greater impact in 2015 as more patients become insured and select these types of plans. "We will see a state of flux as high deductible plans gain traction," says Joe Zasa, managing partner of ASD Management. Patient volumes may suffer another dip in the opening of 2015. While ASC leaders may not have control over when patients with high deductible plans decide to schedule elective procedures, they can compensate. For example, ASC physicians can schedule heavy Medicare case loads for early in the year, as Medicare deductibles are not nearly as high as the $5,000 or more deductible plans that are rapidly becoming commonplace. If another brutal winter is in store, ASCs can steel themselves for an onslaught of cold and possible closures. For example, Charlotte (N.C.) Surgery Center closed in winter of this year due to weather, but was able to reopen and perform 44 scheduled surgeries without missing a beat with the help of an online pre-admission solution. Healthcare reform is not only affecting providers, but is also reshaping the payer landscape. Payers are facing the same fierce pressures to cut costs and produce quality results. "Many centers were lulled by their 'success' when reimbursement for out-of-network claims was very high," says Mr. Zasa. OON volume, while still leveraged in some markets, is drastically dwindling. More and more ASCs are making the move to in-network. Armed with the knowledge, in part, of what lies ahead for the beginning of 2015, ASC leaders can prepare their centers. "Each ASC is different and must find its niche. It must find ways to grow, recruit and be more efficient," says Mr. Zasa. The best positioned ASCs and companies will be those that shoulder a certain amount of risk. Whether that risk is a gamble like AmSurg's acquisition of Sheridan and Surgery Partner's acquisition of Symbion, a new joint venture or narrow network participation, diversification can pave the way to a stronger first quarter and overall 2015. © 2014 Becker’s ASC Review. Reprinted with permission from Becker’s ASC Review. BeckersASC.com


The Making of Great ASC Board Members & Administrators

12 Key Concepts By Laura Dyrda This article is reprinted from Becker’s ASC Review Leadership can make or break a surgery center. The best centers have strong administrators and board members who motivate and guide the entire organization toward success in the future. 1. Vision. A clear vision will help the leader guide others effectively. "Leaders see the solution or goal and clearly define it," says Joe Zasa, managing partner of ASD Management. "Vision keeps you focused, fueled and helps you finish." These three "F's" — focus, fuel and finish — embody the best leadership qualities: Focus — When vision is so compelling you cannot become distracted. But self awareness is also important. "Focus on the task but keep a third eye on yourself," says Mr. Zasa. "Be spatially aware." Fueled — Communicate vision effectively to set the tone and provide positive reinforcement. Leaders can say, "I've watched you, and I like what I see. If you follow our plan and work hard, you will succeed and achieve results." Finish — Don't quit, even when the going gets tough. "There are peaks and valleys in life. Hanging in there despite setbacks and interference and finishing strong is the solution," says Mr. Zasa. "If your vision is so compelling, it will drive you and force you to hang in there and not quit. If you persevere by finishing, you will generally be rewarded." 2. Perseverance. Perseverance is especially important because even when efforts don't succeed, the ability to avoid quitting and finishing strong projects an important message to staff. "Since we become what we think of ourselves, it is imperative that you don't quit because finishing builds confidence in yourself and gives you the best chance to succeed the next time," says Mr. Zasa. 3. Communication. Communication becomes a second key concept to relay your vision to others and bring them onboard to work toward a common goal. "It is essentially that you get people to buy into your vision," says Mr. Zasa. "The more you communicate and the more they understand, then the more they care, and if they care, there is no stopping them. Roll with the tide, not against." Key tenets for effective communication: Set clear and concise expectations Project genuine and realistic optimism Infuse confidence into the vision Be a storyteller "People retain stories," says Mr. Zasa. "The best speakers are those who tell stories and paint pictures with words, not PowerPoint presentations." 4. Encouragement. When carrying out your vision, encourage others and do for them, not for you. Treat everyone fairly, but not necessarily equally because people are all different. This shows leaders care about their team and could limit conflict and bad feelings. "Make people feel special, but do this genuinely," says Mr. Zasa. "They must genuinely know you care about them. When they don't want to disappoint you, you are succeeding. Additionally, don't contradict people. They will take it emotionally and you can't ever reason with them. It's okay to disagree; it's not okay to be disagreeable." 5. Loyalty. Leadership is influencing people toward a common goal, and leaders who take the time to understand their team and express loyalty will reap the benefits. "Take up for your people. If they're on your team, have their back and be their advocate," says Mr. Zasa. "You must care about your people, create that connection, be accessible and constantly let them know you care about them." 6. Respect. Emotional bonds can motivate team members toward the common vision and produce outstanding results. Respect each other by paying attention to new ideas, thoughts and life events to strengthen this bond going forward. "The highest complement that you can pay someone is to give him or her your undivided and uninterrupted attention," says Mr. Zasa. "Respect each others' opinions and get input before making decisions. Your people are part of your team and a part of the process." 7. Recruitment. Since team members play such an integral part in a strong organization, it's important to recruit well. "Recruiting, vision and execution wins championships," says Mr. Zasa. "Be a fisherman for the right people." Don't tolerate complacency. Figure out whether employees are content or committed to the organization. "We need those who are committed and demand it," says Mr. Zasa. 8. Empowerment. Once the right people are in place, empower them so they can build confidence and assert themselves to help the organization grow. Teach them to identify leadership and motivate others around them. "Motivation is for a particular moment and is important, but empowerment can last a lifetime," says Mr. Zasa. "Recruit well, give them a clear vision that they understand, and then let them do their job. Delegation is the ultimate in levering." 9. Lead by example. If leaders set good examples for their employees and team members, they can demand others do things write and work hard as well. Additional key qualities for strong leaders include: Transparency — Show vulnerability and transparency to build trust. Love — "You can't coach them if you don't love them," Eddie Robinson once said. Kindness — It doesn't cost anything to be nice, but it costs a lot to break your word or be malignant. Honesty — Tell people the truth to show integrity Accountability — Recognize your mistakes and take responsibility to endear team members "Hard work builds confidence and hones competence," says Mr. Zasa. "Additionally, show class and humility. You are who you are, not what you do. Go about your business with class. Show your class all the time and demand it from those who rely on you." 10. Competence. Those who rely on you should also respect you and come to you with their problems. Colin Powell once said "When people stop bringing you their problems, you are done as a leader." Show you are competent with proficient preparation and work. Have a plan and vision and then focus on execution on the micro as well as macro level. "Keep selling your vision but also be sure to focus on the small tasks; the daily things you need to do to win," says Mr. Zasa. "Doing the small things right adds up to big wins and fulfillment of your vision." 11. Focus. Mr. Zasa employs the W.I.N technique, which stands for "What's Important Now." Keep an open mind to change with time and strive toward success. You can barrow ideas from the best in the industry — as well as thought leaders in other industries — to guide your team as a successful whole. 12. Put the team first. When leaders realize lifting up the team becomes most important, they'll be able to accomplish work much more effectively. "When you realize that power or influence begets responsibility for others and not personal gain, you separate yourself from other leaders and move into a select group," says Mr. Zasa. "Do for others and enjoy watching others succeed and grow — it is so much more rewarding and enriching." © 2014 Becker’s ASC Review. Reprinted with permission from Becker’s ASC Review. BeckersASC.com


What Can Football Teach Us about Surgery Center Management?

3 Essentials for ASC Improvement From Joe Zasa By Rachel Fields This article is reprinted from Becker’s ASC Review "As I watched Alabama win this year's national championship in college football as well as the national championship in 2009, it struck me how similar running a surgery center is to coaching a football team," says Joe Zasa, co-founder of ASD Management. Mr. Zasa grew up in Birmingham and attended the University of Alabama, an institution with an abiding love of football and a storied past in the sport. "I have had a particularly unique window with respect to the football program, and particularly the head football coaches, from Bear Bryant to the current coach, Nick Saban," he says. "Over this time, Alabama had three very good coaches and several mediocre coaches. There are similarities between the coaches who succeeded." According to Mr. Zasa, the "rule of three" applies to both sports programs and to business. The most successful programs have: 1. A system. Establishing a system of operations is the core of a surgery center and a sports program, Mr. Zasa says. "The next time you watch Monday Night Football, listen to the starting lineup," he says. "You will find that most of the players did not play on championship teams, or even the historic great college football programs. They were excellent players in mediocre systems." He says the system for a surgery center has three components: 1) clinical systems, 2) business office and 3) risk management. Each area of the surgery center must have a strict adherence to center culture and strategic direction in order to succeed. Mr. Zasa says when his company approaches a surgery center in need of a turnaround, the problems often lie with systematic failures. For example, the surgery center may not load their contracts into a computer system to track their accounts receivable. The supply area may look like a McKesson warehouse — full of supplies that will never be used but have already been purchased, effectively throwing money away. Employees don't have a defined process for doing their jobs, so they end up dropping claims and forgetting to follow up on collections. The surgery center should have a pervasive culture that touches every area of the facility, Mr. Zasa says. This doesn't just mean purchasing and printing out generic policies and procedures for a small business; it means truly understanding how each role in the ASC contributes to profitability and advising staff members on how their tasks should be performed. Staff members should know how to answer the phone, how to drop claims and how to audit processes to track progress. Mr. Zasa says the surgery center should also have an employee bonus program in place that provides tangible financial rewards for good work. The bonus program should not be a "guessing game": Employees should understand they will reap exactly what they sow. 2. Recruitment. According to Mr. Zasa, the Alabama football program has had a top five recruiting class for the last five years — and they have won two national championships. "This is not a coincidence, but it is a mistake to believe that recruiting players is the solution," Mr. Zasa says. "You must have a superior system and superior execution." This doesn't necessarily mean recruiting "stars" if they won't work with the other members of the surgery center, Mr. Zasa says. "We spend a lot of time with staff members, and we have pre-screening tests to make sure they're a good fit for the center," he says. While a small surgery center can't necessarily implement full-time training for each employee, Mr. Zasa says it helps to have regular on-site training and presentations about the center's culture. Physicians and anesthesia providers should be similarly recruited to work within the "system" of the center, he says. Anesthesia groups should be able to turn rooms quickly, choose appropriate drugs for the surgery center and have a strong interest in the quality aspects of the ASC. "You want anesthesiologists and CRNAs who have an interest in outpatient surgery," he says. The same is true for physicians: Every physician recruited to the center should fit within the center's strategic plan, bringing a needed specialty and an eye towards quality improvement. The physician should also get along well with the other providers at the center. 3. Execution. Execution is about completing a series of small tasks that create success in the long run, Mr. Zasa says. A football team can't win a championship just by thinking about it; the team has to run drills during every practice and concentrate on every individual play in order to succeed. Your surgery center might have a good system and great players but fail because of poor execution, Mr. Zasa says. He says execution comes down to what your staff does on a daily basis. The big picture is useful to keep in mind, but every staff member should primarily be focused on his or her daily tasks. If a team member is distracted by thinking about their upcoming vacation or a fight with their spouse, they will jeopardize the success of the ASC just as a football player would jeopardize the potential to win. "Every day, your staff should be thinking, 'This is the job I need to do today,'" he says. "It's about focusing on what's important now." Over time, completing those small daily tasks will add up into long-term success. © 2012 Becker’s ASC Review. Reprinted with permission from Becker’s ASC Review. BeckersASC.com


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.


Assuring Compliance With OSHA’S Needle Safety Requirements

By Sandra Jones Executive Vice President, ASD Management This Q&A is due to be published by the Florida Society of Ambulatory Surgical Centers (FSASC.org), to which Sandra Jones is a regular contributor.   Question: What should I review to assure I am in compliance with OSHA’s needle safety requirements? I read that OSHA was receiving funding to inspect surgery centers in Florida and a few other states. Answer: OSHA announced that it would visit a sampling of surgery centers, freestanding emergency care clinics and primary care medical clinics. Inspections will focus on blood-borne pathogen hazards associated with sharps devices. This "emphasis program" will begin April 25 and continue until September 30, 2012. Can you feel the love? Does the attention to ASCs make you feel special? Certainly ASC administrators are not complaining about lack of attention from federally funded surveyors. Ambulatory surgery centers have had policies, procedures and employee training in place for many years to comply with OSHA regulations and to assure a safe environment for patients and staff. Annual education on blood-borne pathogen exposure, action when an exposure occurs and use of personal protective equipment and engineering control are part of ongoing programs for sharps injury prevention. But with this increase in OSHA inspections, now would be a good time to review your employee education materials, policies and procedures, and sharps injury prevention program. There is an excellent tool available from the Centers for Disease Control (CDC), to help assure your program is up to date. Go to http://www.cdc.gov/sharpssafety/resources.html to download "Workbook for Designing, Implementing and Evaluating a Sharps Injury Prevention Program." The introduction states that CDC specifically designed the workbook to help facilities prevent needle stick and other sharps-related injuries. The publication contains helpful worksheets, checklists and assessment tools. There are examples of monitoring tools and discussion of how results are incorporated into performance improvement activities. Although written to encompass program elements in various types and sizes of healthcare organizations, the workbook provides fundamentals that anyone can use regardless of the facility activity, volume or complexity. Take your internal inspection one step further by having someone else on your staff review policies and practices. The effort can provide a different opinion or insight that can make your policies and practices better. Consider assigning one of your staff to review the CDC Workbook, compare to your policies, judge against practices and help plan monitoring and educational tools. Set up monitoring, develop a report, research injuries or near misses to analyze what may have been done differently to increase safety, determine and implement an action plan, and then re-assess to determine if the action worked. There it is: a sharps injury prevention program that meets requirements and is integrated into your quality assessment/performance improvement (QAPI) program. Come on surveyors; we are always ready!


Avoid Medicare Surveyor Citations of Deficiency in Your Governing Body Minutes

by Sandra Jones  Executive Vice President, ASD Management This Q&A has been reprinted from its original publication by the Florida Society of Ambulatory Surgical Centers (FSASC.org), to which Sandra Jones is a regular contributor.   Question: After talking to fellow surgery center administrators, I learned some inspectors are citing deficiencies because of governing body minutes. What should I put in my minutes? Answer: The state surveyors have spent time in training on the Medicare Conditions for Coverage. During inspections, the surveyors have been familiarizing themselves with your organizational structure, bylaws and policies. So a surgery center may receive a citation tied to a Medicare Condition for Coverage when the staff does not follow the organization's own bylaws or policies. The surveyors seem to be looking at how they will find evidence of governing body activities within your organization. That does not mean they have less expectations for a small surgery center than for a large, high volume surgery center. For a small surgery center with a few physicians handling all committee and governing body activities versus one with dozens of physicians serving on committees and governing body, the responsibilities are not different. So the documentation of the fulfillment of those responsibilities would not be different in the eyes of surveyors. As surgery center managers, we know a surgery center with a few physicians who are the only users and owners, the few physicians are the ones involved in quality assessment and performance improvement (QAPI) daily. And they are the governing body too. Regardless of the complexity of the organization, the same regulations apply and the same documentation needs exist. By focusing on the Medicare Conditions for Coverage and the Interpretive Guidelines' specific mention of the governing body, we can get a good idea of what should be put in minutes. Medicare §416.41 Condition for Coverage, Governing Body and Management states "The ASC must have a governing body that assumes full legal responsibility for determining, implementing and monitoring policies governing the ASC's total operation. The governing body has oversight and accountability for the quality assessment and performance improvement program, ensures that the facility policies and programs are administered so as to provide quality healthcare in a safe environment, and develops and maintains a disaster preparedness plan." Reading the Interpretive Guidelines assists in understanding what surveyors will look for in documentation of activities. The guidelines include statements such as: Delegations of governing body authority should be documented in writing. The governing body is not only responsible for adopting formal policies and procedures that govern all operations within the ASC, but also it must take actions to ensure that these policies are implemented. The guidelines also list some items that surveyors are to research. What are typical items on the governing body’s meeting agenda and how often do they meet? Where is evidence of how the governing body monitors internal compliance with and reassesses the ASC’s policies? Is there any evidence of data collected and submitted to the governing body related to specific ASC policies? Let's stop here for a minute and cite an example. You would have a policy on how instruments are processed. The governing body approves the policy. You implement it. You collect data that shows you have monitored the implementation and performance of the staff. You report to the governing body your findings. Perhaps the governing body members made a suggestion about modifications to the policy, or asked if you were following national guidelines from AAMI or another national organization. Maybe there was a question about training of staff and whether any had attended an outside education event or if there were reference materials available for staff. When you put in the minutes a summary of these activities and comments, demonstrating your governing body is active in oversight, quality assessment, and the administration of policies to provide quality healthcare in a safe environment, you have provided evidence to the inspectors of your governing body’s fulfillment of their responsibility. In fact, in the Interpretive Guidelines for §416.41 it states, "The governing body is responsible for establishing the ASC’s policies, making sure that the policies are implemented, and monitoring internal compliance with the ASC’s policies as well as assessing those policies periodically to determine whether they need revision." The preceding paragraph gives an illustration of how you document compliance to the governing body’s responsibility. The Medicare Conditions for Coverage have several references to governing body responsibility. Some surveyors are closely reading minutes to look for documentation of credentialing and privileging activities and governing body approval. They are looking for more than "All reappointments are current" when reappointments are presented to the governing body. They are looking for more than "See attached minutes of the quality improvement committee." Surveyors want to see some "meat" in the minutes, something that demonstrates the governing body is active in assuming their responsibilities. One great thing about digital documents is that you can do a word search. Use word search to focus your learning of regulations and inspection expectations. Open the CMS Appendix L document and put governing body in the search cell. Read all the areas that mention governing body and make notes of the expected activity. Think about how your minutes, sign off on forms or reports, and on-going QAPI activities help you document your actions and the involvement of and oversight by your governing body. You will probably find you made a lot of notes and now have a better idea of what you need to put in minutes.


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.


Strategies For a Turnaround 1

Five Steps Taken by Florida ASC to Remain Competitive This article, which appeared in Becker’s ASC Review, outlines key initiatives taken by ASD Management to successfully turnaround the Surgical Center for Excellence in Panama City, Florida. by Leigh Page The Surgical Center for Excellence in Panama City, Florida, has taken several steps to keep itself on solid financial footing. Sue Glendon, administrator of the two-OR center, identifies five key steps the center has taken in the past 6-9 months. 1. Changed suppliers. The ASC identified about $53,000 in yearly savings for supplies. This involved moving from one vendor to another for a variety of supplies, such as anesthesia tubing. 2. Switched to a new GPO. By switching to a new group purchasing organization, the ASC expects to save almost $20,000 per year. 3. Began working with a reprocessor. For the first time, the ASC is contracting for reprocessing of equipment such as burrs and blades. In an arrangement with reprocessor Medisiss, the cost of reprocessing is half the cost of buying new equipment. It is still too early to estimate the savings, Ms. Glendon says. 4. Adding a procedure room. The center is in the process of getting authorization to build a procedure room for pain cases. Pain cases are currently being done in ORs, making it more difficult to schedule surgery cases there. 5. Looking to add physicians. The ASC currently hosts orthopedics, ENT, dental, podiatry and pain management. It is looking for an orthopedic surgeon or to add a new specialty. While the area has several ASCs, Ms. Glendon says her center has a competitive edge. "We have high patient and physician satisfaction," she says. "Once physicians start working here, they want to stay." © 2010 Becker’s ASC Review. Reprinted with permission from Becker’s ASC Review. BeckersASC.com


Strategies For a Turnaround 2

Five Ways Florida Surgery Center Made Itself Profitable ASD Managements’ Surgical Center for Excellence in Panama City, Florida went from losing as much as $40,000 a week in 2008 to showing better than benchmark profits in 2009. The two-OR center hosts orthopedics, ENT, dental, podiatry and pain management. Sue Glendon, administrator of the nine-partner center, identifies five key ways it became profitable. by Leigh Page 1. Amped up efficiency. The center began to flip-flop ORs. If a surgeon has cases throughout the day, staff sets up one room while he is finishing a case next door. This is especially helpful for orthopedic cases, which take longer to set up. 2. No holds barred on new technology. When the center introduced Olympus equipment for shoulder and knee surgery, it didn't just buy one piece. It bought one Olympus device for each room. This gives us more flexibility in scheduling, Ms. Glendon says. 3. Well calibrated staffing. Ms. Glendon watches staffing levels very carefully so as to avoid overstaffing or paying overtime. For example, when the ASC has a 14-hour day, she brings in per diem staff and avoids overtime. 4. Improved collections. The ASC brought billing and collections in-house in 2009. "While outsourced billing is impressive, we have found that having our own dedicated billing person is a great advantage," Ms. Glendon says. To help the center's one in-house billing person, other business office staff members are cross-trained in billing. 5. Lean inventory. The center has cut back on inventory. This is done by placing frequent orders and using a vendor who delivers several times a week. © 2010 Becker’s ASC Review. Reprinted with permission from Becker’s ASC Review. BeckersASC.com


Strategies For a Turnaround 3

The following is an excerpt from 20 ASCs Performing More than 10,000 Cases Annually that appeared in Becker’s ASC Review. The excerpt outlines ASD Management’s turnaround strategies to improve the performance and profitability of Kentucky Surgery Center by Jaimie Oh and Rob Kurtz   Kentucky Surgery Center (Lexington, Ky.) Annual case volume: More than 10,000 cases since 2007 Specialties: Orthopedics, ENT, gastroenterology, general surgery, plastics, podiatry, dentistry, pain management, urology, vascular, colorectal, and pulmonary Details: The Kentucky Surgery Center, which opened in December 1986 and is accredited by AAAHC and Kentucky Medicare, is a 28,000-square-foot center with seven ORs and three procedure rooms. This physician-owned facility was started by a handful of surgeons and anesthesiologists and now has more than 100 surgeons on staff. Keys to building/maintaining volume: Administrative Director Glenda Beasley, RN, says maintaining high case volume stems from the staff and physicians jointly providing quality patient care with excellent patient outcomes. "Raising the bar with expectations of only providing care that can be parallel to none is the goal of the center on a daily basis," she says. "Every team member must buy into the notion of bringing their top performance and positive attitude everyday to maintain success on every level." © 2010 Becker’s ASC Review. Reprinted with permission from Becker’s ASC Review. BeckersASC.com


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