How Ideas From Other Industries Can Improve Surgery Centers

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At the 9th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago, W. Michael Karnes, CFO of Regent Surgical Health, and Michael Rucker, EVP and COO of Surgical Care Affiliates, gave a presentation on leveraging ideas from other industries to improve ASC profits.

Lessons from the dialysis industry

Mr. Karnes and Mr. Rucker began the presentation by talking about the dialysis industry, which, 10 years ago, was in a similar position as the surgery center industry today. They said that 10 years ago, players in the dialysis industry were finding it harder to get increases from payors, seeing a growing physician shortage and focusing more effort on cost optimization.

Today, dialysis industry providers are heavily disciplined around cost, the presenters said. They understand that deep operating reviews are essential for profitability. The industry has also seen a massive amount of consolidation, with larger companies investing heavily in HR and IT to attract smaller organizations.

They said the dialysis industry has also learned to focus on the source of profits by asking where the money comes from and how those avenues can be optimized to increase revenue. By focusing on revenue, industry players realized that a small cohort of high-pay patients, termed "hippers," could account for a large percent of profits while remaining a small percent of the patient population. The industry also focused on engaging patients before they needed dialysis so that the patients would return when they needed treatment.

The presenters said surgery centers can learn from the experiences of the dialysis industry by analyzing sources of revenue and true case profitability. For every case, surgery centers should know what they will be paid and what they will spend. Profit depends on understanding the profit source and then taking action to maximize the profit from that source.

Lessons from the real estate industry
The presents said surgery centers can also take lessons from the real estate industry, where every building development follows months of market analysis. Before building a new surgery center, the developers should know where every hospital and ASC is in the market, what the patient and payor population looks like, the growth and age of the population and the major employers in the area. Most importantly, the developers should know the location and specialties of the local physicians.

The presenters added that ASCs should focus on planning labor carefully based on historical labor projections. For every week, the ASC administrator should look at the past week and examine hours worked per case. Each department should have a target "hours per case" benchmark, and the administrator or department heads should analyze labor numbers every week to watch department progress.

The presenters said ASCs should also pay close attention to each case's contribution margin by examining where money comes from and how money is spent. If ASC leaders analyze supply costs and labor costs, they can see how cases lose money and determine which procedures are profitable for the center.

The presenters also recommended that surgery centers practice "same store sales," where they compare an ASC's performance for a certain period to the prior period. Comparing unit volume for the same measured set can give leaders an idea of market trends, surgery center performance and the movement of the center's profitability. They say "same store sales" should be based on case volume, not profitability, as profitability is more variable depending on payor reimbursement.

Related Articles on Surgery Center Profitability:
How to Deal With Difficult Physicians
Co-Management Arrangements: Key Tips for Success
ASC Profitability Relies on Effective Cost Management

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