10 Metrics That Reveal a Surgery Center's Financial Performance

Nick Newsad of HealthCare Appraisers discusses 10 key indicators that can help ASC leaders analyze their centers' financial performance.

Revenue

1. Average revenue per case. Mr. Newsad says surgery center leaders should track how average revenue per case trends over several years. This can provide you with insight into how your reimbursement is changing over time, as well as how your costs affect the amount of money you make on a case. He says you can further "drill down" into this statistic by measuring average revenue per case by specialty. This will let you know which of your specialties are losing or gaining profitability.

2. Payor mix. Surgery centers should measure payor mix in two different ways: percent of charges and percent of revenue. Percent of charges — or the percentage of total charges billed to a single payor — will tell you how reliant you are on a particular insurer for case volume. Percent of revenue — or the percentage of total revenue received from a single payor — will tell you how reliant you are on a particular insurer for profit.

When you compare these two statistics, they can show one insurer is responsible for a high percentage of your charges but receive relatively low revenue, possibly due to non-payment issues or reimbursement changes. "Your percentage of charges could stay the same, meaning that you're seeing the same proportion of patients, but your percent of revenue could change," Mr. Newsad says.

3. Accounts receivable. Mr. Newsad also advises looking at accounts receivable, or the amount of money on the books that the surgery center still needs to collect. He says his company generally breaks down A/R by payor, dividing payors into groups such as commercial, Medicare, Medicaid and workers' compensation. He says you should then look for trends: Is A/R growing, shrinking or remaining the same relative to revenue? Has the proportion of A/R associated with any given payor changed over the last few years? What is your average number of days in A/R and distribution of A/R across aging buckets?  Pay particular attention to increases in the older A/R buckets (such as 90-120 days) which could indicate an increase in uncollectible accounts or payor issues.

He says increases in A/R can be linked to a number of issues, including problems with a payor, internal turnover, employee re-training or surgery center growth. If the center's total book of business is increasing and time to collect on accounts is staying the same, A/R would grow. Similarly, if the center's total business is shrinking and time to collect on accounts is stagnant, A/R would shrink.

4. Case volume. To determine where your case volumes come from, Mr. Newsad says you should look at case volume by physician. "How much case volume is coming from physicians and surgeons who are owners in the surgery center?" he says. "You can trend by physicians and try to determine whose practices are growing, whose are shrinking and perhaps even which physicians are performing surgeries at other facilities." If you see that a certain physician's volume has dropped consistently over the past year, you can follow up to determine the reason.

He says it's important to watch owner vs. non-owner volume because non-owner volume is usually more risky. "There's a higher likelihood that a non-owner could leave the center at any time," he says.

Expense

5. Medical supply costs per case. Keep track of average cost per case, which would include the cost of disposable supplies and implants. This is important because supplies are one of the two biggest costs for surgery centers, and high supply costs can easily eat away at case profitability. Mr. Newsad recommends drilling down and looking at average medical costs per specialty or per physician.

For example, you might look at medical supply costs per physician and discover one of your ophthalmologists is a significant outlier because he or she uses a particular type of cataract lens that the others don't use. "You would then need to determine if you can collect a little more from the patient on that [lens] if it's not [fully covered]," he says.

6. Inventory turnover. Mr. Newsad recommends tracking how many times inventory is turned over during the year. "It's just a ratio — what are the total supplies bought during the year divided by how much inventory is on the shelf," he says. He says if a surgery center orders supplies every week instead of every month, staff can avoid "leaving money on the shelf" and possibly tying up money in supplies that are not used. "If you order every week, you have smaller orders and carry less on the shelf," he says.

7. Clinical hours per case. Mr. Newsad says the most common benchmark in terms of staffing costs is clinical hours per case. This benchmark tells you how much time your clinical staff — nurses, pre-op and post-op staff, and clinical support staff — are spending on each patient. He says the rule of thumb for procedure focused centers (such as endoscopy centers) should be 3-4 clinical hours per case. These cases have faster turnover and can be moved through more quickly.

Surgical centers will average around 8-10 hours per case because the surgery and recovery takes longer. "That's really a measure of throughput and turnover and how long it takes the patient to get in and out," he says. This benchmark is important because the faster your cases, the more volume you can book in the center and the lower your staffing costs will be for each patient.

8. Number of operating rooms run per day. Mr. Newsad recommends also looking at how many operating rooms the center is running each day. He says there are two staffing models in the surgery center industry: horizontal staffing and vertical staffing. Vertical staffing means one OR is staffed for more hours during the day, so the same staff is working in one OR for a longer period of time. Horizontal staffing means multiple ORs are opened at the same time and the cases are finished sooner.

"It's more cost-effective to staff vertically, but the problem is that physicians all tend to want to start first thing in the morning," he says. He says ideally, a surgery center should run an operating room from 7 a.m. until 3 p.m., leaving enough time after the last case to recover the patients who finish at 3 p.m.. He says over the course of a year, the median benchmark is around 1,100 surgeries per operating room. Underutilization can lead to a reduction in profitability.

9. Number of days per week the center opens. Many surgery centers cut costs by closing the center on days when volume is low, which is effective because it eliminates an entire day of staffing costs while consolidating cases on other days. "It may make sense to do 10 cases on Friday instead of five on Thursday and five on Friday," he says. He says the center should track how many weekdays a year the center closes to determine whether staffing costs could be cut by closing an extra day per week.

10. Debt to total capital ratio. Mr. Newsad says HealthCare Appraisers always looks at how much debt a surgery center is carrying. In a new surgery center, he says a typical debt-to-total capital ratio should be no more than 80 percent. Once the surgery center is established, that ratio should go down over time.

"There's a lot of equipment that surgery centers have to buy in the beginning, and it's a little riskier when they go out and get loans for everything because then you have to make bigger payments every month," he says. He says while carrying debt is not necessarily bad, it does add some degree of risk relative to a center that purchases equipment with cash.

Learn more about HealthCare Appraisers.

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