10 Steps for Benchmarking the Financial Solvency of ASCs
"Solvency is not just a measure, it's a mindset and a philosophy," said Mr. Chopra. "It's something you should promote with physicians, administrators and staff. Talk about the measures to help with financial solvency and secure your future for the road forward."
Throughout his presentation, Mr. Chopra discussed the key concepts for achieving and retaining financial solvency:
1. Live within your means — Don't take on too much debt because your center won't be able to handle it. "Debt is something that gives you the opportunity to pursue things in the future on the promise that you are able to enhance your cash flow in the future," said Mr. Chopra. "Credit cards and banks will jump to give you loans, but be careful."
2. Stay on top of accounts receivable — Convert IOUs from patient responsibility payments to pay for medical supplies and materials, which can be a measure for solvency. "See how much AR aging you have," said Mr. Chopra. "Measure the cases you have out and the days outstanding from the time you serve the patient to when you are getting paid. Twenty-five to 40 days is a good range."
3. Perform a liquidity test — A liquidity test of current assets versus current liabilities should be assessed. If it isn't positive, you may have trouble converting rent, medical supplies and payroll. "You've got to have the discipline to look at financial statements to see what the trends are in terms of cost and revenue," said Mr. Chopra. "Make friends with the trends."
4. Use facts in your decision-making process — Approach decision-making sessions armed with facts and figures, not anecdotes. Be careful not to make snap judgments based on emotions in the spur of the moment. "Provide analytical support for the decision," said Mr. Chopra. "That speeds up the process because the administrator knows if a doctor wants to use the center, they need a game plan. Promote long-term thinking to make sure you can manage the center going forward."
5. Measure profitability of cases — Look at financial statements and make sure the cases you perform are profitable. Insurance contracts should cover at least the overhead of the procedure; if it doesn't, be careful about performing too many of those cases within the ASC. "Payors are starting to agree with us," said Mr. Chopra. "They are starting to accept our data showing them our costs compared to those of the hospital. Use that data for financial solvency."
6. Benchmark the center — Benchmarking is an opportunity to look inside the ASC, comparing internal and external numbers for growth. There are several benchmarking sources, such as ASCA and VMG Health that can provide good quality measures. "Network with other ASC administrators and centers about their benchmarks and figure out what they are doing," said Mr. Chopra. "However, every ASC is different, so understand what you are comparing to and don't draw the wrong conclusion."
7. Translate your vision into a hard operational structure — Use budgeting to translate your vision into a hard operational structure. "You have to have a good capital structure to be financially solvent," said Mr. Chopra. "Strategy development is about taking chances, but also saying 'No.' Spine might work in some markets, but not all markets. Strategy is about where you are going in the future."
8. Think about the comprehensive budget — Administrators and board members must think about the budget 360 degrees three-dimensionally. This means knowing where you are going and how to get there. Consider physician succession plans, budgets and ownership going forward. "The budget is a function of the report, not an end to itself," said Mr. Chopra. "Adapt your budget, revisit it on a quarterly basis. Talk to nurses, vendors and others to see where the savings and potential rising numbers are for the future."
9. Include physicians in the decision-making process — Physicians invest in ASCs because they want to be part of the decision making process and in control of their own destinies. "Make disciplined and informed decisions," said Mr. Chopra. "Update your bylaws and make sure you revisit them, especially if you have an adverse event. Something from 10 years ago may not make sense today from a regulatory perspective."
10. Keep an eye on the future — Know where the trends are headed in the future and how you can take advantage of new opportunities. "Talk about ACOs and how it's going to create opportunities for your center," said Mr. Chopra. "Payors are under tremendous pressure by people who pay their bills to fight for cost alternatives. That's an opportunity for our centers. If you are an impendent center, aligning with the hospital can have benefits for contracting and cost management."
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