ASC Development

Sports metaphors can be overused in business, but this one is on-target: In, football, a team's success in the win column directly correlates with its success in the red zone – the last 20 yards before the goal line. Sports metaphors can be overused in business, but this one is on-target: In, football, a team's success in the win column directly correlates with its success in the red zone – the last 20 yards before the goal line. As such, coaches devise and employ special plays to ensure their success inside the red zone. While ASCs' successes are measured in terms of profitability and return on investment rather than touchdowns and extra points, ASCs also have an analogous red zone – the 60-day period immediately preceding the date when an ASC is scheduled to receive its certificate of occupancy (CO) from the local building authority.

The development of an ASC can take 18 to 20 months to complete, and not all are successful in the red zone, as evidenced by the reports that roughly one-third of new ASCs fail. Reasons given for this high failure rate are excessive equipment purchases, the absence of a pro-forma, excessive square footage, inadequate managed care contracts and various anti-competitive actions by hospitals. Here's what you need to know about executing in the red zone to ensure your new ASC is a success.

Crucial But Not a Crisis
The 60 days before an ASC gets its CO is a period of intense activity, a time when you might feel as if you're hemorrhaging capital with no transfusion of funds from patient care in sight: Final construction payments, the majority of equipment invoices, and many working capital bills will be presented for payment. You'll hire staff during this time and start adding employees to the payroll. If the individuals involved in planning and developing the ASC prepared a realistic pro-forma that included financial data and accurate project development times – before development began – then there should be no problems. However, anything that delays the CO presents a significant obstacle to financial success, as the entire project could be delayed by months.

And there are many such potential delays lurking, delays that can lead to failing in the red zone. For example, if you fail to have the boilers on your sterilizers inspected, don't timely apply for a pharmacy inspection, don't timely complete and submit the CMS 855, or fail to properly implement any one of perhaps a hundred other tasks, you could potentially fail a state inspection. In most states, failure to pass an inspection means you go to the back of the line for re-inspection. This type of glitch could delay your project by an unanticipated one to two months – which would mean you would need additional working capital from either the owner or additional loans. Regardless of the source of the extra monies, the added debt will delay the ASC's profitability.

Many of the crises encountered near the end of a project can be avoided, however, with the proper planning: by mapping the state regulatoryprocess, by developing an integrated timeline for all project tasks and by identifying and completing critical tasks early in the development process. Mapping the Regulatory Process Each state has a process whereby the state licenses and then, under federal contract, certifies a facility for Medicare participation. Put that way, licensure and certification sound almost simple – but make a mistake in predicting the timeframe and requirements, and failure is almost certain. I can't give you an educated guess on these, either, as it's rare for any two states to have the same process; to find a publication or guidance describing the various state processes; and to deal with the same set of inspection agencies in each state. In my experience, various parts of state regulatory issues can be handled by any of these offices:

  • sanitarian,
  • fire marshal,
  • department of construction,
  • board of pharmacy,
  • boiler inspection department,
  • department of radiation protection,
  • department of hazardous waste,
  • department of water quality,
  • department of health – licensure division,
  • department of health – Medicare division and
  • department of health – Medicaid facilitiation.

Each agency will have a pre-determined inspection sequence, and scheduling an inspection may take weeks. To avoid missing any deadlines and delaying your project, it's a good idea to map the regulatory process in your state at the very beginning of the project. Start by communicating with, or better yet, visiting your state department of health to ensure you identify all relevant inspection agencies and learn who schedules the inspections for each agency. This will let you develop a timeline – the ASC version of a football playbook – that sequentially lists the actions you need to take along with the start and end times for each task. You should integrate all project tasks on the timeline, including those listed above dealing with regulatory aspects and inspection.

This gives you a centralized visual representation of the project so that you're less likely to miss critical steps. In fact, many computer software programs are available to help simplify timeline creation and tracking task completion for you. Linking Tasks on the Timeline Some tasks simply can't be started and completed if the developer/consultant were to wait to implement them in the Red Zone. There are also tasks dependent upon or linked to other tasks that must be done sequentially, which makes it almost impossible to start and complete such linked tasks during those critical final 60 days.

The critical tasks are primarily related to the acquisition of construction materials that require long lead times. Some examples:
  • heating, ventilation, and air-conditioning units (extremely long delivery times);
  • emergency generators and transfer switches;
  • vacuum pumps;
  • rated doors and door assemblies;
  • ADA-compliant door hardware; and
  • concrete (which is very limited in supply in some areas).

Other tasks are directly linked to another task which must be completed before the task can begin. Here are some examples, and how they might appear on your timeline:

Tasks Linked tasks
- complete CMS 855 - undergo Medicare certification inspection
- obtain state pharmacy license - obtain DEA license to buy drugs and medical gases
- acquire insurance for ASC - negotiate managed care contracts
- obtain DEA license - buy medical gases
- undergo boiler inspection - obtain state approval of ASC


9 Key Benefits of Red Zone Management

1. Early focus on completing the project leads to consensus building and on-time job completion.
2. We're able to eliminate the development of most crises near the end of the project.
3. We've been able to achieve better planning among all members of the development team.
4. Working capital budgets are met and pro-formas are generally not exceeded.
5. Medical partners have a higher degree of satisfaction in the process.
6. General contractors like the process and honor their commitments.
7. The ASC opens on time, sees patients shortly after opening and receives reimbursements from patient care early in the ramp-up process.
8. We dramatically reduce the time needed to fully develop a center, thereby saving substantial resources.
9. We cross the red line – in three years of using red zone management, we've finished more than 90 percent of projects on time.
Planning in the Red Zone
If this were an ideal world, you could rely on a timeline to ensure orderly completion of your project. Since it's the real world, though, you have to view the timeline as a guide while being prepared to quickly adjust as needed. Just before you enter the red zone, you should assess how well you have achieved objectives and whether any changes must be made.

At this time, the principals on the development team should meet, assess their progress to date and develop a detailed plan to finalize the project. At a minimum the meeting should include the developer, the architect, the general contractor, the equipment planner, the interior designer and the ASC's director. The general contractor is the key player in this meeting; he should report when the CO will be received and he should be reminded that the ASC will be scheduling equipment deliveries, hiring staff and purchasing services based on this crucial date. The date must be accurate and, once given, he should do everything necessary, including hiring added staff, to meet it. Some would say this date is a function of the dates stipulated in the construction contract; however, we don't mention contract dates at this meeting, and prefer to ask the contractor to commit to an absolute date. We have generally found that a contractor will impose a more demanding date on himself than if we impose an artificial one on him. In certain circumstances, it may be advisable to offer economic incentives if the contractor can accelerate the schedule.

Managing the Red Zone
Once you have an absolute date for the CO, you can identify all remaining key tasks and their required completion times at the pre-red zone meeting. Type this list and distribute to all project participants – it's your red zone plan. Be sure to charge just one person with maintaining the plan and communicating changes to all participants. Each participant must understand that any deviation from the plan must be immediately reported to the person in charge of the red zone plan, who likewise has to communicate all changes to all participants, and devise a means of overcoming any obstacles that may cause the plan to fail. Once the plan is distributed to members of the team, weekly conference calls (or more frequently, if necessary) with all team members can reinforce the process, and keep the plan alive.

Mr. Ortmann (This email address is being protected from spambots. You need JavaScript enabled to view it. ) is the president of Ortmann Healthcare Consultants based in Columbia, S.C.

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