8 Keys to Keeping Surgery Centers a Profitable Business

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At the 11th Annual Orthopedic, Spine & Pain Management-Driven ASC Conference in Chicago, a panel of experts discussed core concepts for making ambulatory surgery centers profitable. The panel included Partner at Ambulatory Surgery Company David Shapiro, MD, CHC, CHCQM, CHPRM, LHRM, CASC; Senior Vice President of Medline Industries Doug Golwas; and President and CEO of Surgical Management Professionals Michael Lipomi.

1. Hospital partnership can bring cost savings. Hospital partners can add contracting power if you are able to leverage their size to negotiate higher rates. However, when forming a deal it's helpful to have a third party mediating the partnership or transaction between former competitors. Before signing on the dotted line, make sure the hospital partner is committed to the success of the ASC.

 “There are a lot of benefits of having the hospital partner — there are a lot of ancillary services they can provide at a lower cost and save you money — but having a hospital partner focused on the hospital and not on the surgery center is not an ideal situation,” said Mr. Lipomi.

2. Offload regulatory and compliance burdens with management company partners. There are outstanding management companies available across the country with a variety of services, including maintaining compliance. In today's healthcare environment, new regulations and legislation are making it tougher for independent centers to stay afloat and maintain compliance. Choose the right management company or hospital as a partner because you'll be making a lot of decisions together.

3. Make sure supply vendors are aligned with your goals. On the supply side, ASCs can realize cost savings by leveraging hospital partner contracts. However, many centers don't want to give up their independence to partner with hospitals.

"The good news for everyone is there are good choices and alternatives out there," said Mr. Golwas. "Make sure your distributors and key vendors are aligned with your key business issues. Set that expectation upfront and leverage what those companies can do with data. If you have a management company or GPO that’s a key part of the game; make sure they do what is successful for the ASC.”

Medline works with management companies and standalone centers on strategies for cutting supply costs. In addition to the usual bulk negotiations, ASC administrators can negotiate with key physician preference items where it makes sense. Be willing to consider reprocessing or purchasing on consignment to improve their cash flow.

4. Avoid risk with claims audits. Revenue cycle management is a key component of ASC profitability. Make sure your billing and collections team works efficiently and is up-to-date on industry issues.

"We do a lot of full service management agreements and full revenue cycle, and part of that are full-audits and we have people auditing us on the coding issues,” said Mr. Lipomi. Look to make sure you include the right things and charge the right amount. More importantly, make sure coders aren't unbundling or over-charging. If you don’t catch these issues early you are building risk and potential debt in penalties. Don't pile yourself in debt with coding mistakes. There can be huge federal penalties and adverse publicity for the ASC that could have been avoided.

5. Take advice from auditors if you are under-coding. ASCs can't afford to under-code and leave money on the table. Focus on training the physician to chart appropriately — what to include and not to include — to maximize returns. Closely monitor your revenue cycle and conduct regular audits. Audits almost always show that centers are leaving significant funds on the table by not coding properly, Mr. Shapiro said. It is absolutely imperative you do audits and pay attention to changes suggested by the auditors.

6. Discuss retirement issues with investors before signing the initial contract. It was traditionally uncommon for surgeons to contemplate retirement with the initial ASC contract, but as that issue becomes more apparent and there are several generations of physician participation in the ASC, those issues should be contemplated in the beginning so there is a clean, objective, non-confrontational way to address them in the future.

"If you are in the syndication stage, make sure those issues are contemplated and understood by physician owners. You’ll get into arguments on fair market value, but if everything is on the table you can avoid some of those legal battles," said Dr. Shapiro.

7. Don't compromise quality trying to cut costs. You may be able to realize a cost savings with less expensive surgical gloves, but they might break more easily. Cheaper device suppliers may also be attractive to ASCs from a cost perspective, but if the supply doesn't show up on time you'll have to cancel the case.

"Consider the reputation of the companies you are dealing with," said Mr. Lipomi. "We have a process of going through and identifying the value of things." You might be cutting expenses, but it won't help if you are incurring more costs as a result.

8. Bring in new surgeons. ASCs must bring in new, young surgeons for long-term survival and profitability, but this can be challenging. Shares must be sold at fair market value, and if the ASC is successful the value will be higher than many young physicians can afford.

"Sometimes profitable centers are a victim of their own success because the fair market value of the shares has gone up so high that its really pricing out a lot of young surgeons who don't have wealth accumulated," said Dr. Shapiro. "They might not have the ability to join at those prices."

There are strategies for working with these potential investors, said Mr. Lipomi, including stock splits or selling interest to a corporate entity and resyndicating. However, the transaction must meet regulatory compliance.

More Articles on Surgery Centers:
10 Key Thoughts for ASC Administrators Before Large Equipment Purchases
8 Statistics on ASC Operating Expenses per OR
12 Statistics on GI Revenue Per Case by Geographic Location

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