Healthcare is in a time of transition, and surgery centers are not exempt from reimbursement pressures, acquisition opportunities and increasing expenses. Joyce (Deno) Thomas, senior vice president with Regent Surgical Health, discusses 10 tactics for surgery centers to prepare for the next 10 years.
1. What is the condition of your physical plant? Ms. Thomas says strategic planning should start with a consideration of your physical plant. "If you look at the physical plant, it will tell you what immediately needs to be done within the next year, as well as what needs to be done within three to five years," she says. If you have a brand-new facility, Ms. Thomas says your immediate task is maintenance. Make sure the facility stays pristine in order to attract physician-investors and patients. "It's a matter of waxing the floors and washing the baseboards every quarter right now," she says. "In the next two years, you'll need to repaint the main traffic area."
If you work in an aging facility, think about how to keep the surgery center "fresh" on a yearly basis. Ms. Thomas says she works with old facilities that will need to look at replacing their HVAC systems and vacuum compressor pumps in the next five to 10 years. In the next three to five years, you may want to install new flooring or make other improvements to assure patients and physicians that you still provide great patient care. Like it or not, an attractive facility gives an impression of clinical quality. Ms. Thomas says while you may not be able to predict exact costs for maintenance over the next 10 years, you should be able to make an educated guess as to the cost of repairs and lost case volume if the center had to close.
2. When will your current physician owners retire? Physician owners are the lifeblood of a facility; without their case volume the surgery center cannot turn a profit. Ms. Thomas advises ASC administrators to look at the age of their physicians and determine when recruitment will be most critical. "If the majority of your partners are in the 50-60 year old age group, they're going to be 60-70 years old in 10 years," she says. "Who are you going to recruit to replace them?" She says if your facility is well-run, your current physicians may want to purchase the shares sold by departing partners. Unfortunately, this does nothing to increase your revenue because the current physicians still bring the same case volume.
Ms. Thomas recommends that ASC leaders consistently look for new physicians coming into the community. A young physician may be interested in surgery center ownership but lack the funds to purchase shares in a profitable surgery center. In this case, Ms. Thomas says a relationship with a local bank can be beneficial. "Direct the new physician to a bank that can offer them a short-term, low-interest loan to buy the share," she says. "You need to have avenues and options for him."
3. Which service lines could benefit profitability in the future? You may want to add service lines to your surgery center over the next 10 years, either to make up for low reimbursement in other areas or simply to add case volume. Some specialties compliment others, so you may be able to add case volume with minimal investment.
For example, an orthopedic-driven ASC can add pain with relative ease, while a general surgery center can add gynecology because of the dual use of laparoscopic technology and video towers. She says spine is becoming more popular because of high reimbursement levels, but facilities should be careful when deciding to implement it — the specialty comes with high equipment costs and a space necessity. Surgery centers adding spine should have 400,000 square feet of room, she says.
4. What is the local hospital doing to purchase practices or employ physicians? If the local hospital is making moves to poach your physicians, you need to know about it sooner rather than later. Don't wait until the horse is out of the barn, Ms. Thomas says; talk to your physicians now about recruitment tactics by your competitors. "You need to know what's going on in your market and be upfront with your doctors," she says.
If a physician's practice is purchased by the local hospital, physicians may still be able to negotiate contracts that allow them to keep their shares in the surgery center. If hospital employment is becoming more common in your community, talk to your physicians about their plans for the future and determine where you can find a stream of independent, entrepreneurial-minded surgeons.
5. Will you need to replace critical staff in the next five to 10 years? Physicians aren't the only ones in short supply; Ms. Thomas says it's also getting more difficult to recruit OR nurses. "If you have lovely, well-seasoned OR nurses that the doctors adore, you may not be able to replace them quickly," she says. "We need to start getting our young nurses in to start shoring up our resources."
She says surgery centers can form partnerships with local surgical tech and nursing schools; surgical tech schools generally allow their techs to do clinical rotations at surgery centers, and nursing schools can provide a stream of graduating providers every year too. She says in the meantime, the surgery center should cross-train its pre-op and PACU nurses to ensure that a vacancy in the OR staff can be filled easily.
6. What are payors doing in your market? Make sure you understand whether your payors are reimbursing you well for your services, Ms. Thomas says. Start by looking at the Medicare fee schedule in your area and comparing it to your commercial reimbursement. "You never want to be reimbursed less than Medicare on your commercial contracts," she says. "There are some major payors that are offering less than Medicare, and you have to be very upfront and say no."
When negotiating payor contracts, you absolutely must know your costs; Ms. Thomas recommends breaking it down to costs per every 15 minute quadrant. This means that when you're evaluating your reimbursement, you can determine easily whether your revenue will cover your costs. She also recommends using a database to manage your fee schedule, to make sure there are no outlier CPT codes that are reimbursing the incorrect amount.
7. How will your salaries and benefits adjust over time? Surgery centers generally give standard of living salary increases on a yearly basis to keep up with inflation. In order to understand how your costs will affect your profitability over the next 10 years, Ms. Thomas asks surgery center leaders to think about how salaries will have to increase.
"Surgery centers have been very generous with salaries and benefits historically, paying 100 percent of health insurance benefits and giving an 8 percent match on the 401(k)," she says. "It's not necessarily realistic now, but in order to recruit, we have to keep our finger on what people are making in the community."
She says the surgery center should analyze salaries and benefits annually to determine whether the surgery center can give merit increases. If raises are not an option, the ASC must determine another way to stay competitive and retain staff, such as inexpensive "perks" and a focus on a family atmosphere.
8. Would a management company or hospital partner benefit your ASC? More surgery centers are turning to hospital partners to increase market share, boost reimbursement and decrease supply costs. Ms. Thomas says hospital/physician joint ventures are certainly a good idea for many surgery centers, but that a management company can be a useful mediator in sorting out potential problems between the parties.
"There are still some hospitals that are not physician-friendly," she says. "We have found that our current model — where the hospital is the majority partner, the management company is a tiny partner and the physicians own around 49 percent — allows the physicians to maintain total control of day-to-day operations." She says in this case, the management company serves as a "buffer" between the hospital and the physicians and helps to build trust over time. "The physicians know the hospital won't try to put them under the hospital's thumb with unnecessary regulations, and the hospital knows the physicians will deliver a quality service," she says.
9. When does your lease run out? If your surgery center has a long-term lease, you need to know when it expires, Ms. Thomas says. Knowing this information will help you decide whether you want to renew the lease and stay in the current facility or move elsewhere. When the lease expires, the owner may decide to up the rent. Otherwise, you will need approximately three years to prepare for and execute a move to a new location, Ms. Thomas says. If your lease is due to expire in a few years, you should be thinking about your location now.
10. Who in your surgery center should be groomed for leadership now? It's always useful to have a few staff members at your surgery center that could move into management positions if necessary. This simplifies the hiring process and ensures that you'll hire someone trustworthy and capable.
Ms. Thomas recommends looking at your staff members to determine which have "inherent leadership qualities" — a trait she says is different than the ability to do your current job. "Look at them beyond their current level of competence," she says. "You're looking for leadership skills that you can take and improve over time."
Learn more about Regent Surgical Health.
Related Articles on Surgery Center Turnarounds:
VMG Health's Intellimarker Trends: Staffing Expenses and Efficiencies
ASCA: Pennsylvania Report Undervalues State Surgery Centers
8 Qualities of Forward-Thinking Surgery Center Administrators
1. What is the condition of your physical plant? Ms. Thomas says strategic planning should start with a consideration of your physical plant. "If you look at the physical plant, it will tell you what immediately needs to be done within the next year, as well as what needs to be done within three to five years," she says. If you have a brand-new facility, Ms. Thomas says your immediate task is maintenance. Make sure the facility stays pristine in order to attract physician-investors and patients. "It's a matter of waxing the floors and washing the baseboards every quarter right now," she says. "In the next two years, you'll need to repaint the main traffic area."
If you work in an aging facility, think about how to keep the surgery center "fresh" on a yearly basis. Ms. Thomas says she works with old facilities that will need to look at replacing their HVAC systems and vacuum compressor pumps in the next five to 10 years. In the next three to five years, you may want to install new flooring or make other improvements to assure patients and physicians that you still provide great patient care. Like it or not, an attractive facility gives an impression of clinical quality. Ms. Thomas says while you may not be able to predict exact costs for maintenance over the next 10 years, you should be able to make an educated guess as to the cost of repairs and lost case volume if the center had to close.
2. When will your current physician owners retire? Physician owners are the lifeblood of a facility; without their case volume the surgery center cannot turn a profit. Ms. Thomas advises ASC administrators to look at the age of their physicians and determine when recruitment will be most critical. "If the majority of your partners are in the 50-60 year old age group, they're going to be 60-70 years old in 10 years," she says. "Who are you going to recruit to replace them?" She says if your facility is well-run, your current physicians may want to purchase the shares sold by departing partners. Unfortunately, this does nothing to increase your revenue because the current physicians still bring the same case volume.
Ms. Thomas recommends that ASC leaders consistently look for new physicians coming into the community. A young physician may be interested in surgery center ownership but lack the funds to purchase shares in a profitable surgery center. In this case, Ms. Thomas says a relationship with a local bank can be beneficial. "Direct the new physician to a bank that can offer them a short-term, low-interest loan to buy the share," she says. "You need to have avenues and options for him."
3. Which service lines could benefit profitability in the future? You may want to add service lines to your surgery center over the next 10 years, either to make up for low reimbursement in other areas or simply to add case volume. Some specialties compliment others, so you may be able to add case volume with minimal investment.
For example, an orthopedic-driven ASC can add pain with relative ease, while a general surgery center can add gynecology because of the dual use of laparoscopic technology and video towers. She says spine is becoming more popular because of high reimbursement levels, but facilities should be careful when deciding to implement it — the specialty comes with high equipment costs and a space necessity. Surgery centers adding spine should have 400,000 square feet of room, she says.
4. What is the local hospital doing to purchase practices or employ physicians? If the local hospital is making moves to poach your physicians, you need to know about it sooner rather than later. Don't wait until the horse is out of the barn, Ms. Thomas says; talk to your physicians now about recruitment tactics by your competitors. "You need to know what's going on in your market and be upfront with your doctors," she says.
If a physician's practice is purchased by the local hospital, physicians may still be able to negotiate contracts that allow them to keep their shares in the surgery center. If hospital employment is becoming more common in your community, talk to your physicians about their plans for the future and determine where you can find a stream of independent, entrepreneurial-minded surgeons.
5. Will you need to replace critical staff in the next five to 10 years? Physicians aren't the only ones in short supply; Ms. Thomas says it's also getting more difficult to recruit OR nurses. "If you have lovely, well-seasoned OR nurses that the doctors adore, you may not be able to replace them quickly," she says. "We need to start getting our young nurses in to start shoring up our resources."
She says surgery centers can form partnerships with local surgical tech and nursing schools; surgical tech schools generally allow their techs to do clinical rotations at surgery centers, and nursing schools can provide a stream of graduating providers every year too. She says in the meantime, the surgery center should cross-train its pre-op and PACU nurses to ensure that a vacancy in the OR staff can be filled easily.
6. What are payors doing in your market? Make sure you understand whether your payors are reimbursing you well for your services, Ms. Thomas says. Start by looking at the Medicare fee schedule in your area and comparing it to your commercial reimbursement. "You never want to be reimbursed less than Medicare on your commercial contracts," she says. "There are some major payors that are offering less than Medicare, and you have to be very upfront and say no."
When negotiating payor contracts, you absolutely must know your costs; Ms. Thomas recommends breaking it down to costs per every 15 minute quadrant. This means that when you're evaluating your reimbursement, you can determine easily whether your revenue will cover your costs. She also recommends using a database to manage your fee schedule, to make sure there are no outlier CPT codes that are reimbursing the incorrect amount.
7. How will your salaries and benefits adjust over time? Surgery centers generally give standard of living salary increases on a yearly basis to keep up with inflation. In order to understand how your costs will affect your profitability over the next 10 years, Ms. Thomas asks surgery center leaders to think about how salaries will have to increase.
"Surgery centers have been very generous with salaries and benefits historically, paying 100 percent of health insurance benefits and giving an 8 percent match on the 401(k)," she says. "It's not necessarily realistic now, but in order to recruit, we have to keep our finger on what people are making in the community."
She says the surgery center should analyze salaries and benefits annually to determine whether the surgery center can give merit increases. If raises are not an option, the ASC must determine another way to stay competitive and retain staff, such as inexpensive "perks" and a focus on a family atmosphere.
8. Would a management company or hospital partner benefit your ASC? More surgery centers are turning to hospital partners to increase market share, boost reimbursement and decrease supply costs. Ms. Thomas says hospital/physician joint ventures are certainly a good idea for many surgery centers, but that a management company can be a useful mediator in sorting out potential problems between the parties.
"There are still some hospitals that are not physician-friendly," she says. "We have found that our current model — where the hospital is the majority partner, the management company is a tiny partner and the physicians own around 49 percent — allows the physicians to maintain total control of day-to-day operations." She says in this case, the management company serves as a "buffer" between the hospital and the physicians and helps to build trust over time. "The physicians know the hospital won't try to put them under the hospital's thumb with unnecessary regulations, and the hospital knows the physicians will deliver a quality service," she says.
9. When does your lease run out? If your surgery center has a long-term lease, you need to know when it expires, Ms. Thomas says. Knowing this information will help you decide whether you want to renew the lease and stay in the current facility or move elsewhere. When the lease expires, the owner may decide to up the rent. Otherwise, you will need approximately three years to prepare for and execute a move to a new location, Ms. Thomas says. If your lease is due to expire in a few years, you should be thinking about your location now.
10. Who in your surgery center should be groomed for leadership now? It's always useful to have a few staff members at your surgery center that could move into management positions if necessary. This simplifies the hiring process and ensures that you'll hire someone trustworthy and capable.
Ms. Thomas recommends looking at your staff members to determine which have "inherent leadership qualities" — a trait she says is different than the ability to do your current job. "Look at them beyond their current level of competence," she says. "You're looking for leadership skills that you can take and improve over time."
Learn more about Regent Surgical Health.
Related Articles on Surgery Center Turnarounds:
VMG Health's Intellimarker Trends: Staffing Expenses and Efficiencies
ASCA: Pennsylvania Report Undervalues State Surgery Centers
8 Qualities of Forward-Thinking Surgery Center Administrators