10 Biggest Factors in Negative Cash Flow at ASCs & How to Turn Them Around

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Patrick McCarthy on surgery centersHaving cash on hand is important for any business, especially healthcare providers in today's uncertain economic environment.

"The more cash that's in the pocket, the more time you can think strategically instead of reacting to the happenings of the day," says Patrick McCarthy, chief network development officer for Access MediQuip. "Forge relationships with major players in the business community and get inside their narrow networks. Keep the care local and serve your neighbors to increase quality."

Here are 10 big contributing factors to negative cash flow at ASCs and how you can turn these situations around.

1. Reimbursements drop. All providers are preparing for the trend of declining reimbursements to continue. Government payors and insurance companies will be looking for the highest quality providers at the lowest cost, which means aligning incentives could maximize cash flow even as reimbursement rates tumble.

"Physicians and staff must align their incentives with payors so everyone is focused on pay for performance," says Mr. McCarthy. "It's always important to pay attention to what the government is doing because commercial payors are piggy backing government programs within 12 to 36 months. Watch how those reimbursements change and keep a close eye on how physicians are reimbursed."

Reed Martin on surgery centersReview managed care contracts on an annual basis to see where there are opportunities for increase. "Understand your costs for procedures so you can compare reimbursement to your costs," says Reed Martin, COO of Surgical Management Professionals. "Any time its close you want to target that procedure as an area for increase. Similarly, negotiate to get reimbursed for multiple procedures and implants whenever possible."

If the surgery center negotiates a multi-year contract, include escalators to adjust for inflation. Meet payor concerns about reimbursement rates with the other possibility: performing these procedures in the hospital at hospital rates.

"You need to provide information to the insurance company about why patients benefit from surgery at the ASC," says Mr. Martin. "Share your patient satisfaction statistics, clinical outcomes and reimbursement versus the hospital. If some of these cases are done on an outpatient basis, they are more cost-effective. At ASCs, there is also a lower complication rate, higher quality and higher patient satisfaction."

2. Overhead costs are too high.
Beyond materials management, surgery centers may find that their expenses are too high. This includes contracts with service providers, facility rentals, equipment expenses and staff salary. Surgery centers should be flexing up when case volume is up and flexing down when it's low; try to avoid overtime hours and downtime for the staff.

"Labor and facility expenses are higher in an urban area, so anything they can do to increase case or throughput will assist with respect to cash flow for an urban facility," says Mr. Martin.

Controlling inventory is another tactic to keep overhead costs low. "Any supply items where you have an excess of one month inventory on hand is excessive," says Mr. Martin. "They can be returned to the vendor or utilized at another facility within your ASC management company's network. We can replenish stock far quicker than a month, so anything extra is actually money on the shelf that could improve cash flow."

Conduct an annual analysis of contracts for services such as housekeeping, equipment management, laundry services and anesthesia. "There are alternatives for all these services, so evaluate your contracts on an annual basis and make sure you are getting the best value as a combination of service and cost," says Mr. Martin. "Benchmark costs by physician and specialty to identify opportunities for value improvement."

Provide benchmark information for surgeons both from within the surgery center and from other facilities as well. When you present the information, blind the physicians so they can see where they stand without knowing who the other individuals surgeons are.

3. Patient volume is under projected levels.
Over estimating patient volume leaves surgery centers over-built and under-collecting. Investors should rely on conservative estimations on the number of cases they will bring into the facility and plan for a few less than projected.

Joe Zasa on surgery centers"You have to have reasonable volume assumptions," says Joseph Zasa, co-founder and managing partner of ASD Management. "If you think you can bring in 100 cases per month, you will probably safely reach 70. To increase patient volume, make sure patients have a good experience at the center. Patient quality and care, physician and patient satisfaction, managed care contracts and business office functions all ensure a steady patient flow in the surgery center."

Examine each key area associated with patient volume and make sure your center is reaching critical benchmarks to ensure quality, safety, satisfaction and efficiency. "Use established benchmarks and obtain objective analysis," says Mr. Zasa. "Not what managers say, but what the objective facts say. You have to measure and verify what is going on, and bring in someone from the outside to help you take care of these issues."

Surgery centers can consider bringing in new specialties or services, such as 23 hour stays, to capture more of the patient population. "Anything that increases the revenue line helps cash flow in the long run," says Mr. Martin. "The first thing to look at is case volume, which relates to adding surgeons and specialties."

However, just bringing in more patients may not solve the issue. If the payor mix is bad and your center is bringing in less profitable procedures than projected, you'll still be in a negative cash flow situation.

"The major causes of negative cash flow are unpredictability for patient and payor mix when surgery centers don't control who is coming in because they get under water with less profitable procedures," says Mr. McCarthy. "They might need to be more choosey about which procedures and payors come into the ASC."

4. Overbuilt surgical facilities.
Over the past several years many surgery centers over built their facilities and are now struggling to create positive cash flow. Some investors may have over-estimated the number of cases they could bring into the center on a monthly basis while others lost productive surgeons to retirement or employment over the past few years.

"When surgery centers are not successful, 90 percent of the time they are over built," says Mr. Zasa. "They might have had poor planning in the initial development, poor management over the years, lack of volume or no access to contracts that create cash crunches; undercapitalization is a problem. They need to hire an experienced developer and manager, and create a very detailed business plan with conservative assumptions for the future."

After overbuilding, the ASC has a few options. They can convert or close an operating room, but they are still paying for that space. A more profitable option would be to increase patient volume by brining on new surgeons or merging with another local ASC to fill the extra space and generate a new revenue.

5. Unexpected issues prove costly.
Good businesses should prepare for the unexpected, and for surgery centers that might mean an economic downturn or the retirement of a senior partner. While the situation may be unknown, ASC administrators can prepare for the unknown consequences of these events by increasing cash.

"They need to raise enough cash to hedge against unexpected issues," says Mr. Zasa. "However, one thing you don't want to do is over leverage the facility by taking on too much debt. You want to inject real equity into the venture."

Surgery centers can also bring new revenue and cases into the center by adding new physicians and investors. Consider including a third party investor if your center doesn't already have one. Otherwise, you can recruit surgeon investors but make sure they fit within the center's existing structure.

"Know who you are and what you are good at to make a name for yourself so you can do physician recruitment for the procedures where there is most benefit for the patients and physicians," says Mr. McCarthy.

6. Implant costs go up.
Supplies costs are one of the biggest expenses for surgery centers, and implant costs are constantly a concern. There are several tactics for surgery centers to lower implant costs, including streamlining devices, negotiating new vendor contracts and purchasing from wholesale suppliers.

"Costs of implants can be detrimental to cash flow for ASCs, so it's wise to keep costs low whenever possible," says Mr. McCarthy. "Use an outsourced implant device provider to purchase implants on your behalf.  This will help you free up cash to use in more advantageous areas."

Surgery centers can also use group purchasing organizations to keep costs low. "Utilize GPOs and compare physicians with respect to what their costs are of a specific case," says Mr. Martin. "You can benchmark physicians against others within the facility as well as national benchmarks. Sometimes that provides other ideas to physicians about what supplies are appropriate and cost effective. You don't want to dictate clinical decisions, but sometimes their peers can show them lower cost supplies still have high quality."

7. Too many — or too few — accounts payable days.
Accounts Payable is a delicate process and surgery centers can get in trouble if they take too long to pay their bills or if they pay them too quickly. Shoot for 25 A/P days to optimize cash flow.

"You don't want to pay the bills as soon as you receive them because that utilizes the cash too quickly," says Mr. Martin. "Pay at 25 days to avoid the penalties and shipment delays. If you pay at 10 days, increasing that to 25 days will produce 15 days’ worth of cash."

8. High rate of claim denials. ASCs are losing money when they don't go after denied claims and spending extra resources when they do. Coding should be accurate from the beginning to receive the highest reimbursement as quickly as possible. If the surgery center doesn't have the resources to manage denied claims, consider outsourcing that function.

Surgery centers should also receive prior authorization for procedures to protect against denials in the future.

"One of the areas we are growing is by doing pre-authorizations to free up the front office staff to for other patient responsibilities," says Mr. McCarthy. "This also gives patients one point of contact to work with throughout the process to align them with the insurance company, which can reduce claim rejections or denials on the back end."

9. Poor patient collections.
Patients are more likely to have high deductible insurance plans today than ever before, which means surgery centers must go after patient responsibility payments at a higher rate. While the patient's portion of the bill may be small, over time missing these payments from several patients will have a huge impact on the center's revenue. Patients should know your center's payment policy and pay upfront if possible.

"Your surgery center should have a written set of policies and procedures about handling an account from cradle to death," says Jim Devitt, an expert in healthcare revenue cycle management. "Define an acceptable payment arrangement focusing on patient responsibility because that's going to be a big issue going forward. They should know how many written notices they will receive and how return mail is handled."

The actual billing statement ASCs send out may also deter prompt payment among some patients. When statements include the break down of an aging budget, patients think they can skip the first payments as long as they have everything in by the last. Similarly, when statements say payment is due upon receipt, patients think they can pay whenever they want.

"List a specific due date for the payment on each statement and only include the next payment due," says Mr. Devitt. If all else fails, consider bringing in a third party to collect this debt. Some people know their credit won't be hit until the third party collectors are involved, and they'll hold payments as long as possible.

Additionally, notify patients of their deductible and copay upfront and expect payment on the day of surgery, says Mr. Martin.

10. Turnover time is too long.
Efficiency is key in any surgery center, and more difficult in multispecialty ASCs than single specialty. Devise processes to streamline room turnover as much as possible to cut the time between cases to increase throughput.
"Also consider appropriately reducing the time per procedure," says Mr. Martin. "Benchmarking assists in this regard.

ASCs can also improve patient satisfaction developing scripts so the nurses are able to describe the procedures and processes to patients.

"They should do it in the same way every time so the patient doesn't feel rushed," says Mr. Martin. "It's important to have high patient satisfaction. You could implement scripting to describe the goals of privacy, infection control and quality control and how the clinical team and facility achieve these goals. It is important for the nurse to describe what he or she will be doing to the patient and why. Patients remember that and it does impact patient satisfaction."

Higher patient satisfaction has a trickle down effect that could make it easier to drive patient volume and recruit new physicians to the ASC. This will be important to surviving new healthcare delivery models in the future.

"Physician relations and recruitment are important, and those things are made easier if patients have a good experience at the ASC," says Mr. McCarthy. "Additionally, the evolution of accountable care organizations will mean something different in every market. Managed ASCs are affiliating with hospitals to leverage physicians and many ASCs have better specialization for surgery than hospitals do. They can bring value to the healthcare system."

More Articles on Surgery Centers:

9 Tactics for Hospitals to Build Effective Surgery Center Joint Ventures

8 Inexpensive Ways for ASCs to Boost Patient Volume

36 Statistics on Surgery Center Accounts Receivable

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