7 Key Financial Metrics at Surgery Centers
There are several metrics important for a surgery center's survival, but only a few that are absolutely crucial to follow and measure on a regular basis. These metrics can help administrators identify problems early and measure the center's success over time.
"When we see revenue, case volume, and cost numbers fluctuating, we know there might be a problem and we dig deeper," says Matt Lau, Corporate Controller at Regent Surgical Health. "It could be a function of bringing in a new physician or doing higher acuity cases. But if not, you have to figure out why and you may not know to ask what is driving the increases or decreases if you don't calculate the simple metrics and compare numbers on a consistent basis. These metrics are the start of understanding the factors driving the business volatility."
Mr. Lau discusses seven key financial metrics for surgery center administrators.
1. Monthly cash goal. The most important number for administrators to remember is the cash goal per month, or the amount they'll need to collect in order to pay the bills. Know how much your center spends on average per month on average and that is how much you need to collect to break even.
"If you are bringing in less than that number, you have operational issues and you won't be able to pay your bills," says Mr. Lau. "If you do more than that, it's good and you'll have some extra pay for additional equipment, distributions, bonuses and other things you wouldn't be able to do otherwise."
Have that number in mind every month so you know how many cases you need to perform per month to break even. "The case volume break even point measures the cases you need to generate to reach your cash goal," says Mr. Lau. "Those numbers help guide the surgery center to the all important cash break even goal. That's the difference between making and losing money."
2. Net revenue per case: specialty mix. Revenue is based on what ASCs receive on a net revenue per case basis and the volume of cases. Track and measure the ups and downs over time in net revenue per case and then dig deeper to see what causes the changes.
"We go into specialty and payer mix," says Mr. Lau. "These factors usually drive the shifts between increases and decreases in net revenue per case."
For example, if an orthopedics and ENT-driven ASC brings in a gastroenterologist, the case volume will increase but net revenue per case will decrease because those cases are reimbursed much less on average.
"That influx of lower dollar cases, while good for the overall center, will drive the net revenue per case down," says Mr. Lau. "Those shifts in specialty mix will impact what you can expect to get in your net revenue per case."
3. Net revenue per case: payer mix. The other factor impacting net revenue per case is payer mix. If your ASC usually has around 30 percent Medicare case volume and you add a surgeon performing a high percentage of Medicare cases, you're net revenue per case will decrease.
"After you have this influx of new cases, your ratio of cases billed to Medicare will go up," says Mr. Lau. "Medicare is traditionally a much lower payer on a per case basis. That payer mix will drive a decrease in net revenue per case."
4. Individual physician case volume. Dig deeper into financial metrics to isolate individual physician habits. Track case volume from individual surgeons on a monthly basis and compare their numbers over the years.
"This is the concept of 'same store sales' for large companies with locations around the country," says Mr. Lau. "But instead of the store, we track the physician. We compare what the physician brings to our centers over the year and track whether volume changes from year to year. We look at how many cases a surgeon does in the first quarter of 2012 versus 2013 to see that change."
Measuring the "same store sales" can show monthly trends on physician behavior as well. This will help you understand swings in case volume and identify potential issues. "When you combine these metrics per physician with the overall net revenue per case variance and shifts in specialty and payer mix, it gives you a full understanding of what goes on with your revenue and what drives collections," says Mr. Lau.
5. Cash outflow: supply costs. Supply costs are one of the two biggest expenses for ASCs and should be tracked on a monthly basis. Measure the total supply costs as a percentage of total revenues as well as on a supply cost per case basis to compare how you're covering those costs.
"Really measure that on a regular basis and line up those numbers every month to see how you're doing," says Mr. Lau. "We calculate cost per case as a percent of net revenue and compare it to last year so we really know what drives any fluctuation."
You can even dig deeper to separate out the typical medical supply costs from the implants, drugs and pharmacy expenses, and down further to sales tax and shipping costs to measure every component going into direct supplies.
6. Cash outflow: labor hours per case. Labor costs are the second largest expense for most surgery centers and should be measured every month. Figure out the hours per case by calculating all labor hours that were paid from the total number of payroll hours and dividing that by the number of cases performed during that month.
"We'll compare ourselves to the last month and what we did in the last quarter to the same quarter from the prior year to see how the labor hours per case fluctuate," says Mr. Lau. "We also go more granular than that. We have a spreadsheet for each center comparing labor hours per day and per week. If we examine the numbers from the previous week and look at our caseload in the coming week, we can see where there's potential to flex staff members."
If there are fewer cases scheduled on a particular day, you don't need a full staff. Find ways to flex hours so labor costs are controlled. In addition to tracking clinical hours per case, Mr. Lau examines business office hours and administrator hours per case.
"We look to see who we can flex on a daily basis based on the number of cases we have scheduled for the upcoming week," says Mr. Lau. "Hours per case are one of the most important factors in controlling total labor costs."
7. Labor costs per case. After figuring the labor hours per case, you can find the labor cost per case by dividing the total payroll by the number of cases in any given month. These numbers are useful to benchmark and control costs in the future.
For example, if you figure total labor cost per case is $40 and your center does 300 cases per month, then you can figure what the center will save if you cut even one labor hour per case. That could mean $12,000 saved per month and $144,000 per year.
"Knowing the labor cost and hours per case and being able to control those labor hours translates into higher net income over time," says Mr. Lau. "Being able to flex people who wouldn't be productive if we didn't have the cases scheduled on a day-to-day basis translates to cost savings. Following these labor metrics will improve cash flow and the financial well being of the center."
Even if there isn't one person who is staying an extra hour, add up a few minutes from each person — an extra 10 minutes for the surgical tech or 15 minutes from the nurse — and you start to reduce that extra time per case.
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