5 Initiatives for Higher Operating Margins at ASCs

Central Maine Orthopaedics in Auburn, Maine is a large orthopedics practice with an adjoined ambulatory surgery center. Last year, the group reported its highest operating margins in the center's more than 15-year history, largely due to key initiatives implemented over the past few years.

"We're very fortunate here because we have a strong surgery center in terms of quality and financials, but in the past year we've experienced the strongest operating margins we've ever seen," says Michael Cox, CEO of Central Maine Orthopaedics. "We've been remodeling our systems approach and it paid huge dividends for us last year. The only general rule we live by is that we wouldn't cut anything if it impacted quality and/or superior patient outcomes. We have really interfaced our business on both the clinic and ASC side, and that synergy has paid off for us."

Here are the five key initiatives that lead Central Maine Orthopaedics to report its highest operating margins ever last year.

1. Staff engagement and accountability.
CMO requires a high level of commitment from their all members of their staff. The leaders engage clinical and administrative staff members alike to improve operations at the practice and surgery center.

"Our center is unusual in that our staff members have a voice in daily operations and performance improvement measures," says Anne Marie Kayashima, director of clinical and surgical services at Central Maine Orthopaedics. "Our staff members play a role in developing our strategic plan through ongoing initiatives and committees. If there is a problem we identify, such as volume changes, we can work with our staff members to identify the challenge, develop a solution and move the system forward."

Staff members are also encouraged to brainstorm ideas for improved efficiency at the practice and surgery center. Staff ideas have been implemented in the past for considerable cost-savings for CMO.

2. Cross train staff members.
Central Maine Orthopaedics has cross trained staff members from both the clinic and surgery center to address issues on both sides. This increased flexibility allows the practice to respond quickly to staffing changes in a cost-effective way.

"Over the course of the last few years we have been able to address costs and other strategic issues by cross training staff," says Jeffrey Wigton, director of operations at Central Maine Orthopaedics. "Through cross training we have been able to add clinical programs (and providers) while minimizing the increase in support staff costs."

Cross-trained staff can also help CMO maintain its position as the low cost, high quality provider in the marketplace. "That will keep us sustainable in the future," says Ms. Kayashima. "We've been a low cost leader for some time, but trying to maintain that position is a challenge."

3. Standardize implants.
Over the past few years, CMO has implemented an aggressive value analysis program to cut fat from their budget. Much of the extra expense lied within implant purchases, and the group has undertaken aggressive vendor price negotiations for gains in their bottom line.

"We worked with surgeons in the practice to organize a program where before bringing anything into the practice, it's vetted by the surgeons in the group until we have a consensus on what equipment and supplies we purchase," says Mr. Wigton. "This has allowed us to standardize our supplies and implants, minimize our inventory and bring new technology into the center in a responsible way."

Gaining consensus can be challenging among a large group of surgeons, but many are cooperative because they know in the future there will be supplies they'll want to introduce as well.

"It's a gradual process to develop a space where the surgeons feel comfortable to discuss supply options because nobody wants to tell another surgeon what they can and can't use," says Mr. Wigton. "However, we lay out very clearly the cost/benefit of any item and the surgeons are very sensitive to costs. When they sit around the room in an advisory committee meeting, they have their business hats on and they know how to make good decisions."

The trick often is making sure they can put their business hats back on when they are in the operating room when a vendor is showing them new devices. "They have to remember they are business owners," says Mr. Wigton. "It's one thing for them to agree to the consensus, but it's another to actually practice it."

4. Develop interdepartmental pre-operative case review.
In 2012, CMO implemented a program aimed at developing a 'circle of accountability' across multiple departments.  Each case is reviewed by the purchasing department and the billing department. This gives the purchasing department an opportunity to cross-check the current case against historical information, and at this time costs are studied and supplies volumes are check.  If there are considerable cost increases, the purchasing department has a conversation with the surgeon to determine if the case can be done cost effectively without sacrificing a good outcome for the patient.

The purchasing department hands the information gathered to the billing department.  The surgery authorization specialist cross-checks the costs with what insurance will cover. Generating this information prior to the case allows the billing department to educate the patient prior to surgery.  

“We don't want the patient to be surprised after the fact. We want our patients to know what they can expect to pay out of pocket in advance of their surgery," says Jan Fournier, Chief Financial Officer. "Educating our patients upfront, whether uninsured, underinsured or adequately insured involves them in the process and together we have the conversation about what makes the most sense for them and for CMO. In rare cases, that may mean moving a case to the hospital."

Other benefits CMO has experienced include that equipment needs are known early on in the process so the purchasing clerk can make necessary arrangements in a timely fashion avoiding unnecessary scheduling delays. Surgeons also become more aware of the costs associated with their equipment and implant choices leading to more informed decision making.

5. Cost compare capital purchases.
Over the next year, CMO plans to purchase new arthroscopy towers. Capital purchases add significant expense to the bottom line for surgery centers, but also present an opportunity to reduce operating expenses if the capital purchase can be used to leverage lower pricing on implants and disposables.

"We started working with one vendors and had all the big players come to the table," says Mr. Wigton. "This approach has significantly disrupted the market. We have arthroscopy vendors that do not have an implantable line team up with other vendors that do to pull together very creative proposals. This has taken on a life of its own. We now have several initiatives to decrease our costs for the both the capital equipment as well as disposables. What it will take from the surgeons is a commitment to a single vendor for a substantial portion of our business."

The practice may be able to save a significant amount of money on implantables in addition to savings on the arthroscopy towers.

"The market is consolidating and these large companies can sell you the whole package from capital equipment to implantables," says Mr. Wigton. "They can put together some pretty creative packages if you are willing to consolidate and contract with them. In the past we tried to beat up on vendors for better prices and we made some progress there, but I think this year we've found a new opportunity."

More Articles on Surgery Centers:

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Future Surgery Center Transaction & Acquisition Expectations: Q&A With Todd Mello of HealthCare Appraisers

5 Key Technologies for Efficiency & Profitability at Surgery Centers

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