ASC Valuation Analysis: 3 Biggest Opportunities for ImprovementThis article is written by Todd Mello, Partner and Co-Founder of HealthCare Appraisers, and Nicholas Newsad, Senior Associate at HealthCare Appraisers.
The three biggest variations we see among ASCs that can be controlled are related to information systems, liability insurance premiums, and underutilization of facilities.
ASC Information Systems
As a general overview, good information systems are great tools for ASC owners to manage their business. The reporting tools alone are instrumental in effective management. You cannot manage what you cannot measure. We have encountered many ASCs without good information systems that have to endure a great manual labor effort just to tabulate basic metrics like case volumes by physician, payor mix or supply costs per case.
Our experience is that ASCs that utilize information systems intended for physician practices tend to under-realize their contracted reimbursement rates. Billing and collections can be managed much more effectively when ASCs use an information system that is intended for an ASC. For example, ASC-specific information systems tie supply usage to specific cases. ASC billing systems will automatically add billable supplies and implants codes to cases that used those items. The billing systems can also be used to track outstanding dictation reports, the length of time after surgery it takes to file claims and follow-up on unpaid balances.
ASC information systems are also critical to supply cost management. ASCs that don't log their supply usage on every case can't track the cost to perform these cases. Some ASCs save lots of money on inventory by getting implantable devices like intra-ocular lenses and orthopedic hardware on a consignment basis.
Liability insurance premiums
We also see a fair amount of variation in the pricing of liability insurance. Some ASCs are getting coverage for much less than their peers. We have seen premiums vary 200 percent to 300 percent from one ASC to another. Some of this variation could probably be nullified by conducting annual Requests for Proposals from several insurance carriers every year. We've observed that professional management companies are particularly good at reducing insurance costs.
Scheduling with excess capacity
Finally, there are substantial differences in profitability between ASCs with excess capacity. We have seen some of these ASCs rely on PRN staff and only open for surgery two to three days per week. Other ASCs maintain full-time staff and experience considerable "down-time." The ASCs that staff vertically and only open two to three days per week can often break-even or turn a profit on far less cases than ASCs that open every day with full-time staff.
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