6 Ways to Dig Deeper Into ASC Financial Metrics
Matt Lau, corporate controller for Regent Surgical Health, discusses six benchmarking tips that will clarify your understanding of your center’s performance and could help improve operations.
1. Analyze payor mix and payor reimbursements by specialty rather than just overall. Many surgery centers look at their payor mix to determine where their reimbursement is coming from. Mr. Lau says "We go one step further and ask, 'What is our payor mix within each specialty?". For example, he would look at the surgery center's total pain volume and determine what percentage of those cases are billed to Medicare, Blue Cross, workers' comp and other payors. He says he also drills down even further to determine reimbursement on a per-case basis by payor within each specialty.
Once you have an idea of your payor mix and payor reimbursements by specialty, take your last year of data and look at how your payor mix and reimbursements per case have changed for that specialty. "You might be able to tell that within orthopedic cases, you've really been pushing workers' comp because you're in a state that pays decent workers' comp rates," Mr. Lau says. "You'll see that your overall net collection for orthopedics is higher because you implemented the initiative to increase the proportion of higher-paying workers' comp cases."
He says you need that extra level of detail to determine when initiatives are working and when action is needed. For example, you might notice that your percentage of Medicare in a certain specialty has increased over the last year. Because Medicare reimbursement cannot be swayed — and is generally lower than commercial reimbursement — it may be important to push for higher-paying commercial cases to make up for the jump in Medicare volume. "Without that extra level of detail, you may not be able to head off a disturbing trend," Mr. Lau says.
2. Analyze every line in your income statement on a per-case basis. Mr. Lau says most centers analyze their overall net revenue on a per case basis to determine how reimbursement has changed over the last year. But he says the buck shouldn't stop there: Administrators should keep doing that for every single line item on the income statement. "Your medical supply costs per case, implant costs per case, labor costs per case — all the way down to the bottom line," Mr. Lau says.
He says it's important to look at these statistics over longer periods of time, because looking at data from the previous month may not show the complete picture. "Most centers have seasonality in their volumes; you may see lower numbers in January and February, and higher numbers at the end of the year," Mr. Lau says. "What we like to look at is not only how these revenues and expenses move on a month-to-month basis, but how they compare in this calendar quarter versus the same calendar quarter of the prior year."
When you analyze your income statement this specifically, you can generally get a better idea of operational changes. For example, if you recruited a new physician in one specialty, that could explain a jump in total revenues. If you undertook an initiative to reduce implant costs, you could see a significant difference in those numbers. Furthermore, if there haven’t been any significant operational changes, but you are still seeing per case costs increasing, these comparisons can act as a “red flag” and alert you to inefficiencies and cost savings opportunities.
3. Look at income statements on a per-business day basis. Mr. Lau says this may seem silly, but you should look at your income statement on a per-business day basis. He says "What I mean by that is that most places aren't open Saturday or Sunday, and so some months have 18 or 19 weekdays and others have 22 or 23,". If you just look at your total monthly numbers, you may think you did better — or worse — than you actually did compared to other months.
For example, in September you might have net revenues of $550,000 over 19 workdays, compared to $580,000 over 23 workdays in October. You would think, from looking at the total revenue, that October was a more productive month than September. But in fact when the revenue is divided by the number of workdays in the month, September is shown to be more efficient. Once you understand this, you can look at "what worked" in the good months — did you do something different with scheduling, or were you booking more high-reimbursement cases?
4. Consider the number of collection days each month. The same goes for the number of collection days in a month. Most surgery centers have collection goals for each month, often based on the collection record and case volumes from the previous month. But months with more workdays are significantly more likely to show higher collections than months with fewer workdays. Make sure you're dividing your total collections by the number of business days, and adjust your monthly goals accordingly. "If you're proactive and setting goals for your business office, you will want to adjust the goal based on the number of collection days for the next month," he says.
5. Compare to your own record — not to other centers. Mr. Lau says many surgery centers benchmark against national, regional or local data, essentially comparing their operational data to that of other surgery centers. He says while this can be useful, it's generally much more telling to compare your current data to your past data.
This is because surgery centers vary tremendously based on a variety of factors. For example, if your surgery center is heavily orthopedics, you will have higher net revenue per case than a center that performs primarily GI or pain management. You will also have longer case times and turnover times, making it difficult to compare with a more naturally efficient surgery center.
Even if you're comparing to another center with a similar case mix, you may be comparing to a center that depends on out-of-network reimbursement rather than negotiating contracts with payors. "Rarely are you going to find a center that's doing exactly what you do and operating with the same cost structures," Mr. Lau says. "The only way you can really, truly track what's going on with the center is to compare your current numbers against what you've done in the past." He says every center should go back as far as they can in comparing their numbers — previous month, previous quarter, previous year, previous five years, etc.
6. Track expenses in further detail. Mr. Lau recommends tracking a few expenses you may not have thought of — sales tax and freight charges. These expenses, which normally are listed separately within vendor invoices, should be tracked separately; in addition to medical supply and implant costs.
"You should do this because your center may have deals with your purchasing agents or GPOs that freight should be a certain percent per shipment," Mr. Lau says. "Sometimes vendors have a glitch in the system and you're charged for freight when it's not in your contract." He says you should be able to track those costs to make sure sales tax and freight costs match up with your expectation from the vendor.
Learn more about Regent Surgical Health.
Related Articles on ASC Turnarounds:
How Does Revenue Compare for 10 Surgery Center Specialties?
5 Key Trends for ASC Financing Opportunities
5 Steps for ASCs to Make Big Equipment Purchases
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