Here are seven tips for financial success at ambulatory surgery centers.
1. Beware large debt. When surgery centers have a high level of debt, they are under intense pressure to make debt service payments — this could mean financial distress, much like we saw in the housing market during the recent debt crisis for homeowners. "If an ASC is carrying a lot of debt, chances are they will have trouble making investments in the center going forward," says Rajiv Chopra of The C/N Group. "Existing centers often need a fresh coat of paint, new OR lights or replacement of aging equipment. If there is a lot of debt on the balance sheet, it becomes a challenge for an ASC to invest in its future."
Some centers have a fair amount of debt because they have borrowed money for strategic purposes in recent years due to generationally low interest rates. In this case, having a big cash balance on the books is good because when they hit a rough spot down the road — such as a wave of capital investment or physicians retirements — they'll be able to weather the storm. One key metric to consider is "Net Cash," which is defined by cash minus long-term debt.
"One reason Ford survived the recent financial crisis better than General Motors is because it made a strategic move to establish a huge cash balance by drawing on its credit lines well before the crisis hit," says Mr. Chopra. "GM didn't have that option or didn't make that strategic move and ultimately filed for bankruptcy."
2. Ensure that payor contracts allow the center to profit on targeted specialties. A center that is considering adding a new specialty should first examine its payor contracts to ensure that its current rates do not present a roadblock to profitability, says Chris Bishop, senior vice president of acquisitions and business development with Blue Chip Surgical Center Partners. Surgery centers' initial payor contracts may neglect specialties that the center does not currently focus on, and unless those rates are renegotiated to secure greater reimbursements, they can prevent the center from recruiting physicians for new specialties.
"We're very focused on the spine community, for example," says Mr. Bishop. "Since most centers don't perform spine, they might have an insurance contract that focused the majority of their negotiating efforts on endoscopy and ENT. In that case, you have to be mindful of going back to payors and redoing these contracts, because the current contract rate for spine may be so low, it doesn't make sense to recruit spine doctors."
3. Align physicians with payors and the center. Physician alignment with the payor is important because when physicians aren't aligned with the payor, they aren't aligned with the center and their procedures won't be paid. Physicians who aren't aligned with the center often have up to a 20 percent denial rate. They tend to perform surgeries without achieving prior authorization or use materials not covered in their contract.
"Surgeons must understand their contracts and perform procedures based on coverage," says Steve Arnold, MD, chief medical officer at Access MediQuip. "We want to show payors that our physicians are aligned with them and us on quality, utilization and administration."
While medical director pay is limited by certain regulatory restraints, compensation for staff should be guided by how much you want to keep each staff member. "At the end of the day, the market tells you what you have to pay," he said. "If the person you want to keep needs another $5,000 [or will leave for another position], that's the market for that person. You can either pay that or not."
6. Build a strong foundation for daily processes. Growth in the future is dependent on the strength of your company's foundation. "You have to have very strong processes that are standardized and repeatable, which allows you to do business," says Nader Samii, CEO of National Medical Billing Services. "The key is to focus on standardized processes so quality doesn't suffer as you continue to grow."
National Medical Billing Services has grown five-fold over the past year and a half, which Mr. Samii attributes to giving a great business culture and customer-focused mindset. He says the company is constantly focused on how it can continue to grow and innovate by anticipating the market.
"We are trying to figure out how to use technology to grow our company in a scalable way," he says. "Companies need to get away from the old mindsets and use technology to their advantage."
7. Establish an employee wellness plan in the benefits program. Wellness plans promote behavior that will help employees become or stay healthy. "Wellness plans have been effective in avoiding upward spiraling healthcare costs for companies," says Tom Jacobs, CEO of MedHQ. "They put the decision-making into the hands of the employee."
One basic component of a wellness plan is a health risk assessment, a widely-used and confidential screening tool to assess an employee's health status and target behaviors that minimize risk, such as frequent exercise. Employees who agree to take the HRA may receive discounts to their health insurance plans, such as a $10 per month reduction on their monthly premium or a deductible reduced to $1,000 from $1,500, says Mr. Jacobs.
An effective benefits plan should also consist of a consumer-directed health plan, which includes two components: a high-deductible plan funded partially by the employer that is intended to cover emergency medical care, and a health savings account to cover routine medical costs. These plans are beneficial because they give employees a choice about where and how they receive care. "Employees can practice due diligence in deciding where the best treatment is, and they will be incentivized to take better care of themselves," says Mr. Jacobs.
More Articles on Ambulatory Surgery Centers:
7 Ways for Surgery Centers to Make More Money Now
Attracting New Talent in Small Markets: Q&A With Saint Luke's Surgicenter Administrator Janet Gordon
25 Surgery Centers With 5-Plus Operating Rooms
1. Beware large debt. When surgery centers have a high level of debt, they are under intense pressure to make debt service payments — this could mean financial distress, much like we saw in the housing market during the recent debt crisis for homeowners. "If an ASC is carrying a lot of debt, chances are they will have trouble making investments in the center going forward," says Rajiv Chopra of The C/N Group. "Existing centers often need a fresh coat of paint, new OR lights or replacement of aging equipment. If there is a lot of debt on the balance sheet, it becomes a challenge for an ASC to invest in its future."
Some centers have a fair amount of debt because they have borrowed money for strategic purposes in recent years due to generationally low interest rates. In this case, having a big cash balance on the books is good because when they hit a rough spot down the road — such as a wave of capital investment or physicians retirements — they'll be able to weather the storm. One key metric to consider is "Net Cash," which is defined by cash minus long-term debt.
"One reason Ford survived the recent financial crisis better than General Motors is because it made a strategic move to establish a huge cash balance by drawing on its credit lines well before the crisis hit," says Mr. Chopra. "GM didn't have that option or didn't make that strategic move and ultimately filed for bankruptcy."
2. Ensure that payor contracts allow the center to profit on targeted specialties. A center that is considering adding a new specialty should first examine its payor contracts to ensure that its current rates do not present a roadblock to profitability, says Chris Bishop, senior vice president of acquisitions and business development with Blue Chip Surgical Center Partners. Surgery centers' initial payor contracts may neglect specialties that the center does not currently focus on, and unless those rates are renegotiated to secure greater reimbursements, they can prevent the center from recruiting physicians for new specialties.
"We're very focused on the spine community, for example," says Mr. Bishop. "Since most centers don't perform spine, they might have an insurance contract that focused the majority of their negotiating efforts on endoscopy and ENT. In that case, you have to be mindful of going back to payors and redoing these contracts, because the current contract rate for spine may be so low, it doesn't make sense to recruit spine doctors."
3. Align physicians with payors and the center. Physician alignment with the payor is important because when physicians aren't aligned with the payor, they aren't aligned with the center and their procedures won't be paid. Physicians who aren't aligned with the center often have up to a 20 percent denial rate. They tend to perform surgeries without achieving prior authorization or use materials not covered in their contract.
"Surgeons must understand their contracts and perform procedures based on coverage," says Steve Arnold, MD, chief medical officer at Access MediQuip. "We want to show payors that our physicians are aligned with them and us on quality, utilization and administration."
4. Treat commodities as commodities. When it comes to materials management, be aware of what implants are commodities and pay the appropriate price for them. "We all have to think about the huge cost-price difference across the instrument, implant and device markets once you leave the United States," says Chris Zorn of Spine Surgical Innovation. "Cost pressure is rapidly mounting. The question is how long can these huge cost-price differences be acceptable to the consumers of surgery service and the payors?"
5. Compensate medical directors appropriately. According to Danny Bundren, CDA, JD, vice president of development and operations, Symbion Healthcare, ASCs pay medical directors, on average, $1,000 per month for 5 to 6 hours of work. He cautioned though that this compensation must be closely monitored to ensure real work is done to warrant the payment. "It's important you have the right documentation in return for payment," he said. He recommended medical directors keep a time log of every activity they do as a medical director and how much time was spent on it.
While medical director pay is limited by certain regulatory restraints, compensation for staff should be guided by how much you want to keep each staff member. "At the end of the day, the market tells you what you have to pay," he said. "If the person you want to keep needs another $5,000 [or will leave for another position], that's the market for that person. You can either pay that or not."
6. Build a strong foundation for daily processes. Growth in the future is dependent on the strength of your company's foundation. "You have to have very strong processes that are standardized and repeatable, which allows you to do business," says Nader Samii, CEO of National Medical Billing Services. "The key is to focus on standardized processes so quality doesn't suffer as you continue to grow."
National Medical Billing Services has grown five-fold over the past year and a half, which Mr. Samii attributes to giving a great business culture and customer-focused mindset. He says the company is constantly focused on how it can continue to grow and innovate by anticipating the market.
"We are trying to figure out how to use technology to grow our company in a scalable way," he says. "Companies need to get away from the old mindsets and use technology to their advantage."
7. Establish an employee wellness plan in the benefits program. Wellness plans promote behavior that will help employees become or stay healthy. "Wellness plans have been effective in avoiding upward spiraling healthcare costs for companies," says Tom Jacobs, CEO of MedHQ. "They put the decision-making into the hands of the employee."
One basic component of a wellness plan is a health risk assessment, a widely-used and confidential screening tool to assess an employee's health status and target behaviors that minimize risk, such as frequent exercise. Employees who agree to take the HRA may receive discounts to their health insurance plans, such as a $10 per month reduction on their monthly premium or a deductible reduced to $1,000 from $1,500, says Mr. Jacobs.
An effective benefits plan should also consist of a consumer-directed health plan, which includes two components: a high-deductible plan funded partially by the employer that is intended to cover emergency medical care, and a health savings account to cover routine medical costs. These plans are beneficial because they give employees a choice about where and how they receive care. "Employees can practice due diligence in deciding where the best treatment is, and they will be incentivized to take better care of themselves," says Mr. Jacobs.
More Articles on Ambulatory Surgery Centers:
7 Ways for Surgery Centers to Make More Money Now
Attracting New Talent in Small Markets: Q&A With Saint Luke's Surgicenter Administrator Janet Gordon
25 Surgery Centers With 5-Plus Operating Rooms