10 Ways to Cut Surgery Center Costs Before 2012 Ends

Surgery centers can improve profitability in two basic ways: cut costs or increase volume. With payors cutting off referrals to out-of-network surgery centers and hospitals employing physicians, the task of increasing physician volume is becoming more challenging. Ten surgery center industry experts share their ideas to cut costs at your ASC before the end of the year.

1. Form a list of cost-effective implants. Dale Holmes, administrator of Warner Park Surgery Center in Chandler, Ariz., says his surgery center has a formulary committee headed by a member of the medical executive committee. The committee has approved a list of cost-effective implants, and if a physician wants to bring a case with high-priced implants to the center, it has to be approved by the committee chairperson. "Even if it's a contracted insurer, we can deny it and have it taken to the hospital if the implant is not approved," he says. "Many insurers don't want to cover implants, so it ends up costing them more as it's done in a hospital."

2. Hold a "relationship meeting" with your bank.
Joan Shearer, administrator of Lawrence (Kan.) Surgery Center, says she schedules a "relationship meeting" with her bank annually to identify new cost savings programs, reduce bank fees and explore investment opportunities and refinancing opportunities. "Every year, I am able to find some saving," she says.

3. Review your packs. Jennifer Hunara, administrator of the Surgery Center of Allentown in Allentown, Pa., says her biggest cost-savings initiative this year was performing a review of the surgery center's packs. "After four years in business, we hadn't done research to see if we could not only get them cheaper from another vendor, but also look at the contents of each pack to see if any items could be added or deleted." She says the surgery center managed to save $56,000 through this initiative.

4. Engage in a fresh RFP process to reduce office supply and utility costs. "In our experience, indirect overhead costs are an area that is frequently overlooked by a center, but can have dramatic effects on the profitability of the center," says Jason Smith, vice president of marketing for Alliance Cost Containment, a financial efficiency company providing cost management solutions. These can include office supplies, janitorial supplies, insurance and utilities, to name a few. "Typically an ambulatory surgical center will spend up to 15 percent of their expenditure on these overhead costs, so reducing them can have a dramatic effect on the profitability of the center," he says.

When reviewing janitorial supply expenses for an ASC, for example, Alliance Cost Containment totaled the yearly expenses allocated to supplies such as toilet tissue, paper towels, cleaners and waste liners with the center's current vendor. They documented hundreds of recent common purchases in this category alone from the current vendor. With this purchase history at hand, they created an RFP that was sent out to the current vendor and two competing vendors. In this case, Alliance Cost Containment was able to negotiate a reduced price with the current vendor through the RFP process, and the center was able to save approximately 34 percent on janitorial supplies per year.  

5. Educate physicians on medical supply costs and present alternative products. John Brock, administrator at NorthStar Surgical Center in Lubbock, Texas, an ASC's two greatest expense line items are salaries and medical supplies. "We absolutely do not standardize medical supplies because our physician owners should be able use their preferred products," Mr. Brock says. "However, we educate the physicians as to cost and let them decide whether a less expensive product will be acceptable. We are also very careful as to waste and are constantly looking at new vendors, the possibility of price renegotiation when contracts expire and whether things such as reprocessing are applicable."

Along those lines, at Physicians Day Surgery Center in Naples, Fla., employees are trained to avoid unnecessary financial burdens for the center by paying close attention to supply costs and reimbursement, particularly when working with physicians during surgery.

"Our staff is very much aware of the fact that you can make an otherwise profitable case in the OR unprofitable by opening too many surgical trays if you're not sure that you need them," says Karen Cannizzaro, CASC, administrator at Physicians Day. "They may suggest an alternative product to physicians, or wait to open something so that 12 trays of instruments and implants aren't opened unnecessarily for one procedure."

6. Use a pre-certification tool. Laurie Simon, administrator of Western Reserve Surgery Center in Kent, Ohio, has brought her center's revenue cycle under control by purchasing a pre-certification tool, Encircle, and processing patient payments through e-PAY. "Encircle helps us know what the patient responsibility is before they come in," she says. "e-PAY allows patients to pay online and set up payment plans under the parameters that we set up for automatic payment withdrawal from a credit card or checking account, with notification if they default on a payment," she says.

7. Pre-screen patients for co-payments. Stuart Katz, director of TMC Orthopaedic Outpatient Surgery in Tucson, Ariz., says pre-screening patients for co-payments and contacting them ahead of surgery to discuss financial responsibility has saved money for his ASC.

"[We contact them] ahead of surgery, both via telephone and mail, to discuss their expected out-of-pocket expenses and make arrangements to collect them before or on the day of surgery," he says. "This has saved us a ton of money, as we are not chasing them for their portion after being paid by the insurance company." He says if the actual payment is within $25 of what the surgery center estimated, they do not pursue the extra dollars due from the patient.

8. Implement online registration. Becky Ziegler-Otis, administrator of the Ambulatory Surgical Center of Stevens Point (Wis.), says her surgery center implemented online registration for patients this year. "This helped with the efficiency of registration and reduced the workload for the RNs," she says. "We were able to not replace a 0.8 FTE for nursing as a result of the efficiency with this product."

9. Request a reduction of or exemption from property taxes. "If you own the building that you're in or even if you rent and are responsible for property taxes, you may want to consider a tax abatement," says Randy Hagen, CEO of Precision Surgical Partners, an ASC management company. Tax abatement requests are increasing due to the state of the economy and the fact that the commercial real estate market is rebounding, he says, and many are being granted. "More municipalities understand this and are willing to grant these types of abatements to help businesses stay in business," Mr. Hagen adds.

To begin the process, a surgery center administrator should speak to the tax assessor at the local municipality and ask for the appropriate paperwork to file a tax abatement. "In a situation where you're looking to squeeze and save any way you can, an extra $2,000 to $3,000 per month can make a big difference to someone in terms of breaking even versus being profitable, especially to those smaller centers" Mr. Hagen says. "Municipalities would rather have a performing ASC paying taxes going forward than have an empty space where they've got nothing."

10. Find a good purchasing agent. According to Tona Savoie, administrator of Bayou Region Surgical Center in Thibodaux, La., her biggest cost-efficiency strategy is a good purchasing agent. "I cannot stress enough how important it is to have a single person designated for purchasing that is organized, aware and aggressive," she says. "Vendors will change pricing with no notice, and physicians will use items twice the price of other items without knowing. A good purchasing agent constantly keeps a watchful eye on daily activities with supplies and vendors."

She says keeping vendors competitive also helps surgery centers achieve the best possible price. "It's amazing how prices can change overnight with the use or non-use of a product," she says. Surgery centers looking to trim their budgets should assess all aspects of the center's operations — including office supplies, property taxes, staff efficiency and surgical supply costs — in order to pinpoint where and how to effectively cut costs. Here are four key financial points to consider.

Related Articles on ASC Turnarounds:
4 Ways to Maximize the Cost and Space Efficiency in Your ASC
10 Great ASC Industry Leaders to Know
Hospitals Lose Millions Annually on Canceled Elective Outpatient Surgery

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