Know your case counts — The essentials when developing an ASC

In the current ASC market, outpatient centers are performing more complicated types of procedures including total joint and spine. Medical professionals are adopting a minimally invasive mindset to mirror this trend.

During Becker’s 22nd Annual Meeting: The Business and Operations of ASCs, Kenneth Hancock, president and chief development officer of Meridian Surgical Partners, detailed the trends in developing an ASC in a presentation titled “Spine and Orthopedic ASC Development.”

"It is the physicians who take the lead and educate their peers and talk about minimally invasive procedures on a national standard,” says Mr. Hancock. "After that, comes the national acceptance."

The healthcare market is trending toward less costly alternatives, therefore driving the market for ambulatory surgery centers. In the ASC setting, spine is gaining traction.  From 2013 to 2018, spine surgeries are expected to increase by 22.9 percent and orthopedic services by 15.4 percent. Additionally, outpatient joint replacements are expected to increase by 157 percent from 2013 to 2018, with a projected volume of 169,000 cases, according to an Advisory Board Company study (2014). Mr. Hancock describes total joint replacement as "a very expansive  market."

He says, "It is coming and it is coming in a big wave. There is a lot of business to be had." By 2030, there will be an expected 3 million total knee replacements in the United States. With the influx of new procedures in the ASC arena, administrators and planners should consider devising a detailed business plan to develop a financially successful center that can not only survive, but thrive, in the competitive marketplace.

The first step Mr. Hancock addresses in developing a center is creating a detailed business analysis, which takes into account the project’s scope. The footprint of the building, including the number of operating rooms, must be considered when developing an ASC. "Your footprint is determined based upon case counts," says Mr. Hancock. "The case count depends on the number of physicians."

Without knowing the number of cases, planners cannot allot the correct amount of capital to construct the center.

To determine the investment, successful planners assess the surgical case volume and case mix. The volume can be determined through complete case data worksheets and discount case volumes. Developers will closely examine the data in the worksheets and can gain an understanding of case volume by subspecialty. Planners are then able to develop a case build analysis and tackle the next part of the development process.

Scope- Meridian
"The next piece of the puzzle is knowing net revenue by CPT," says Mr. Hancock. "Within your market, you want to know what type of reimbursement you can expect."

The analysis is pertinent and must be closely examined so developers do not overbuild the facility and lose a substantial amount of capital. The case analysis needs to support the number of operating rooms. In Mr. Hancock’s presentation, the data presented supported an ASC with 8,500 square feet and two operating rooms with a lease rate valued in the range of $24.00 to $27.00 per square foot. If a physician pitches a center with four operating rooms but the case analysis proves a center only needs three, planners should build the center with three operating rooms and leave room for expansion in the future.

"The worst thing a partnership can do is get off the ground and have to ask the partners for more cash," say Mr. Hancock. "It is devastating for everyone’s enthusiasm about the business." The business plan is a sequence and the most important part of the sequence is understanding the case volume and mix, which will determine the net transfer once the center opens.

Planners also have to consider what type of partnership they want to facilitate for the center. A planner can opt to enter into a real estate partnership or an ASC partnership. Both partnerships have their advantages and disadvantages and the returns are different from a real estate side than the operating side. A real estate partnership generally has 14 percent to 20 percent cash-on-cash returns while an ASC partnership, on average, has a 40 percent rate of cash-on-cash returns.

Planners cannot underestimate the significance of reimbursement when developing a center. This is what will determine the success of a center and reimbursement may be the most important part of the business plan. In 2015, Medicare approved nine spine codes, but the majority of spine procedures are not approved by Medicare. ASC administrators should ensure payers will cover different procedures and different implants. "Like reimbursement, if you can't get paid for implants, you can't do these cases," says Mr. Hancock.

Mr. Hancock also advises ASC owners to hire an experienced equipment planner as expenses can total $500,000 to $700,000 per operating room. Additionally, hiring the right staff is a critical element of a business plan.

Ultimately, orthopedic surgeons are considering more opportunities to develop ASCs. With the improvements in technology such as better anesthesia and pain control methods, surgeons are able to perform more complicated procedures in an ASC. However, planning is essential for the success of ASCs and planners may want to consider seeking assistance from seasoned professionals.

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