VMG Health's Intellimarker Trends: Staffing Expenses and Efficiencies

The following article was written by Chance Sherer, manager with VMG Health.

For the past five years, VMG Health has published the Multi-Specialty ASC Intellimarker Financial & Operational Benchmarking Study (the "Intellimarker"), which provides detailed financial benchmarking information and analyses on ASCs around the United States. The Intellimarker is designed to help industry insiders better understand the relative financial and operating performance of ASCs. The Intellimarker's data also may help pinpoint issues and provide a basis for developing operational strategies to improve financial performance and creating value. By reviewing the Intellimarker data over time, we have been able to identify certain trends in the ASC industry.

Today, ASCs are facing increasing reimbursement pressure and compete with one another for patients and physicians. ASC owners and operators are focusing on expense management as a way to increase profitability and distributions, thereby making the ASC more attractive to current and potential physician investors.

On average, the largest expense for an ASC on a percentage of net revenue basis is clinical and administrative staff salaries and wages. According to the 2011 Intellimarker, employee salaries and wages averaged 22.7 percent of net revenue. Therefore, efficient staff utilization can have a material effect on the profitability of an ASC with any cost savings dropping directly to cash flows available for distribution to shareholders.

The chart below compares the trends of the average hourly wage per ASC employee as presented in the Intellimarker to the average hourly wage for all United States workers as published by the United States Department of Labor Bureau of Labor Statistics.

The average hourly wage per ASC employee increased 5.0 percent compounded annually from $23.20 in 2007 to $28.18 in 2011. During the same time period the average hourly wage for all United States occupations increased only 2.7 percent compounded annually from $19.56 to $21.74. Therefore, the growth in ASC employee hourly wages is higher than that of the average national wage.

The chart below illustrates the trend of average total staff hours per case over the last five years as presented in the Intellimarker. Staff hours per case give an indication of the efficacy of staff use by ASC owners/operators.

Total staff hours per case have decreased from an average of approximately 14.9 in 2007 to 10.0 in 2011, or 9.5 percent annually, indicating that staff hours are increasingly being managed at more efficient levels.

These trends indicate that in order to maximize profitability and maintain a high quality of surgical services, ASC owners/operators are 1) utilizing the more skilled and possibly more tenured staff members with which the physicians prefer to work and 2) managing the hours of clinical and administrative staff to more efficient levels. The trends presented in the Intellimarker are consistent with our discussions with both national ASC owner/operators and with individual ASC management.

By utilizing benchmarking data, such as the Intellimarker, ASC owner/operators can develop operational strategies to control the largest expense item: clinical and administrative staff salaries and wages. Benchmarking can provide opportunities for improvement such as ensuring wage increases are in line with the market or help facilitate the optimal combination of staff to reduce staff hours per case. Such improvement can increase operational efficiencies and create value which can help ASCs retain top physicians and attract potential investors, a necessity in the current landscape.

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