This article highlights 47 concepts each ASC owner and operator should consider. It provides insight into general management issues, specialty issues, regulatory issues and several other issues.
General management issues
1. Great management is critical; good business fundamentals will be necessary for ASCs to remain successful. ASCs more than ever run on their profits and distributions. It is critical that ASCs have "A" level employees at every single level. Whether the scheduler, the administrator, the director of nursing or anyone else — an ASC must aim to have "A" players at every level.
An administrator must block and tackle and make sure that the trains runs on time. However, this alone can make somebody a B to B+ administrator. To truly be an A administrator, someone must also do an outstanding job of marketing and recruiting doctors and cases to the center. The movement to A player status requires adding cases and marketing as well.
ASCs must have the right number of employees and be open the right number of days. They also must be able to understand what it costs to perform a case. The business is a much more challenging business than it was 5-10 years ago. In a great reimbursement climate, everybody looks smart. In contrast, in a challenging reimbursement environment, the difference between great managers and greatly run centers versus poorly run centers is very clear and distinct.
ASCs remain profitable, but unlike in the early days of the industry, it is becoming more and more necessary for ASCs to make sure they are operating using good business fundamentals, according to Rajiv Chopra, principal and CFO of The C/N Group.
"In the past, centers would say, 'We're still profitable; let's just go with it,' but that era is coming to a close due to competition and other market pressures," says Mr. Chopra. He notes that it is becoming more important for surgery centers to maintain their profitability by managing expenses, understanding case costs and watching their reimbursements, so they can adjust their business practices accordingly.
Joseph Zasa, co-founder and managing partner of Woodrum/ASD, agrees that ASCs are a "fundamentals-driven business." "ASCs will continue to find effective and proper practices to make sure that their centers are successful," he says.
2. Turnarounds are more prevalent than ever. Over the last few years, as more surgery centers have been built and fewer independent physicians are available, there has been greater growth and attention paid to turning around surgery centers rather than building new facilities.
Mr. Zasa notes that this trend has remained popular. "Most of our business is turnaround-oriented since we are focused as a management/operations firm," he says. "Turnarounds require deft management expertise and a team effort between the surgeons, management, the staff and anesthesia."
Luke Lambert, CEO of Ambulatory Surgical Centers of America, says, "Three years ago, 80 percent or more of our business was startups. Now, 80 percent or more are turnarounds."
"Turnarounds are definitely less expensive and less time-consuming than a pure startup," says Todd Mello, ASA, AVA, MBA, principal of HealthCare Appraisers. "ASCs typically have heavy investment in fixed costs (equipment and leaseholds), so obtaining sufficient volume is critical in maximizing staff efficiency and covering heavy fixed cost burdens. Once fixed costs are covered, and assuming staff is sufficient to cover the volume (i.e., staff is not purely variable and behaves in a step-wise function in that there is a certain level of minimum staffing required regardless of volume, and at various case levels, new, incremental staff may be required), incremental costs are limited predominantly to supplies (and perhaps billing if outsourced), which causes the margins on incremental cases to be significantly higher.
"New physicians added to an existing ASC is a win-win for all parties in that existing owners, while diluted, share a smaller percentage of a larger pie, and new investors are allowed the opportunity to forego a very risky start-up and expeditiously begin doing cases," he says.
3. Always be recruiting. A surgery center should always be recruiting. It is not the big offering every couple years that leads to ongoing success, rather the constant addition of individual physicians whether as owners or as users of the surgery center. In essence, one should constantly be adding physicians one at a time as owners or non-owners. Further, it is impossible to match up the selling of shares with the buying out of physicians. Thus, do not make the two events conditioned upon another.
New surgeons can add capital and provide a transition from old or retiring surgeons to keep the ASC viable. While it is important that new recruits be productive physicians and that they meet the safe harbor tests, it is equally important that they be high-quality people and team players. One difficult physician (or staff member) can often ruin a great center.
4. RNs often make superior administrators. Experienced registered nurses often make great ASC administrators. However, the RN must study and be interested in the business side of ASCs. RNs are generally trained to be disciplined and dedicated workers, a work ethic that carries over to the administrator position.
Dawn Q. McLane, RN, MSA, CASC, CNOR, chief development officer of Nikitis Resource Group, notes that having an administrator with a strong clinical and financial background and ASC experience, particularly at a multi-specialty center, is even more crucial at this time as ASC face a growing number of regulatory issues.
"An RN or a business-trained person, like a CPA, can each make a great administrator," says Ms. McLane. "However, an RN with a business background or training makes a superior administrator. An RN with experience in the surgical clinical area, particularly the OR and especially an ASC setting, possesses an unparalleled knowledge about how the center functions should function from a clinical perspective and how it should be managed from a business perspective. A qualified and proven OR RN with clinical leadership and business training and experience would always be my first choice when recruiting for an ASC administrator."
According to the ASC Association's ASC Employee Salary and Benefits Survey 2009, the median salary of a CASC-certified administrator with a clinical background is approximately $105,000.
5. Hire staff members with ASC experience or who understand the ASC mindset. A good staff is crucial to the success of an ASC; however, developing a staff whose members all understand how the ASC setting works can require extra patience and time on the behalf of the administrator.
For this reason, it is important to hire, when possible, qualified staff who have prior experience in the ASC setting.
"ASCs require a different mindset than the hospital," says Melodee Moncrief, administrator of Big Creek Surgery Center in Middleburg Heights, Ohio. "It takes time to convert new staff to the new mindset, and it can require you to constantly, but gently, remind them that they are not at the hospital."
Ms. Moncrief notes that some areas may be affected as the new staff acquiesces to the ASC environment, so extra monitoring may be required. "One problem I've encountered [with staff coming from the hospital to the ASC] is their tendency to overmedicate patients, resulting in a longer recovery time," she says. "You just need to reiterate that the purpose of ambulatory surgery is to make sure patients can be treated and released so they can recover at home."
Mary Sturm, senior vice president of Surgical Management Professionals, agrees that simply knowing how to perform procedures may not be the only indication that a staff member is a good fit at an ASC. "Surgeons only care about whether a staff person knows how to do a great job assisting with a procedure or knowing his/her routines for patient care," she says. "While competence certainly needs to be one aspect of performance measures, a competent individual with unacceptable behaviors is not a good hire."
6. Include the entire staff in ASC processes. A good staff is essential to running a successful ASC. Therefore, once you build a good team at your ASCs, it is important to keep turnaround low and staff members engaged in the ASC.
"If [your staff members] don't feel like partners, you won't be successful," Marcus Williamson, president of the NeoSpine division of Symbion, says. "Support for your staff should come not from the bottom up, but from the top down. Administrators and managers should remove obstacles and distractions that get in the way of their staff members from doing a good job."
By having staff members feel like they are part of a team, they can focus on patient care, which leads to a successful ASC experience.
7. Negotiation with vendors. Shopping around vendors to establish the best deals in medical/surgical equipment pricing is critical to managing costs at ASCs. Some vendors are interested in getting the "foot in the door" when it comes to ASCs, so it is important for surgery centers to explain the differences between ASCs and the hospitals.
"You want to get the best you can using the least amount of money, and often the vendor of choice is not necessarily the best fit or the least expensive," says Ms. Moncrief. She suggests bringing vendors into the ASC and explaining to them how the center works, including areas like reimbursements and types of patients, as they compare with hospitals. If you're interested in a product, don't hesitate to ask if vendors will let you trial their products in the center.
"You can use vendors to play against each other to get the best deal," Ms. Moncrief says. "Most of the time vendors want to work together with you to discover what will be most profitable for both [parties]."
Some vendors, however, are not interested in the ASC market, and occasionally vendors hands are tied as far what they can negotiate, Ms. Moncrief notes. She also suggests limiting the amount of trials use do in the center. Once you find a vendor that works well for physicians, you should work to settle on a deal rather than constantly trialing new products as this may frustrate and potentially turn away a good vendor.
8. Reimbursement depends on more than just billing and collections. Keeping a watch over reimbursements is crucial to ASC profitability, and receiving the correct reimbursements in a timely manner is becoming more and more difficult. However, the responsibility for getting these payments should not fall solely on the shoulders of billing and collections.
"In order to generate cash collection, all other business office staff should be involved as well," says Caryl Serbin, RN, president and founder of Serbin Surgery Center Billing. Ms. Serbin suggests the following responsibilities for members of an ASC's business office:
- Schedulers — Need to request accurate and up-to-date patient demographics and insurance information.
- Management — Plan ahead and provide advance notification to patients about your financial practices (brochure, Web site, flyer, etc.), perhaps through the physician's office handouts.
- Insurance verification specialist — Request in- and out-of-network coverage, if applicable. Use a form so nothing is forgotten. "Full verification of insurance coverage is a must (not just computer-generated eligibility information)," Ms. Serbin says.
- Patient financial counselors — Call the patient and explain the patient's financial responsibility. Try to do this at least three days prior to procedure. Describe different payment options and get commitment from the patient. Advise admitting desk of patient's financial responsibility.
- Receptionist — Collect agreed-upon payment amount from the patient at time of registration. Verify insurance for accuracy. Copy/scan both sides of insurance card.
- Medical records specialist — provide coders with a copy of the operative note in a timely manner. Also provide coders with pathology and other related reports for accurate and optimal coding.
9. Make sure that documentation and coding are accurate so that your ASC is properly reimbursed. Undercoding, or not coding for procedures performed during a patient's surgery, can cause ASCs to miss significant dollars in reimbursements. Laura Gilbert, senior director of communications for ProVation Medical, says the most money can be lost in highly complex specialties, such as orthopedics.
Other specialties also depend on accurate coding to optimize reimbursements. "Specialties like pain management and GI, which make up a high percent of ASC procedure volume, are seeing some the highest percentages of reimbursement declines," Ms. Gilbert says. "What this means is that ASCs are essentially having to do more with less — perform a higher volume of procedures (i.e., turn over rooms faster) and make sure that every detail affecting coding is included in documentation. Otherwise, [ASCs] are at real risk for simply not getting completely paid for the procedures they've completely performed."
10. Schedulers at surgeons' offices can be an ASC's best friend or worst enemy. Good, efficient schedulers help ASCs see more patients and keep physicians happy. Likewise, schedulers who make the process difficult for surgeons and their staffs can be affecting the case volume and flow at the center.
"Way too often, we hear surgeon investors admit that where they end up performing procedures is a function of where their surgery schedulers can get a case booked with the least amount of effort," says Ms. Sturm. "Surgeons need to be engaged in their role in where surgeries are performed."
Ms. Moncrief agrees. "You want to make it easier on the physician and his or her staff so they will continue to be a part of your center," she says.
Ms. Sturm offers several suggestions on how ASCs can make their scheduling the most efficient for surgeons and their staff:
- Ensure that surgery schedulers are an important focus of your marketing efforts. Whenever possible, get together with office schedulers with the surgeon present in the conversation, Ms. Sturm suggests. "We all know that patients do and should have choice in where procedures are scheduled. However, ensure that surgeons and their schedulers have information ready for patients that demonstrate why the ASC is a great place to have surgery," she says.
- Ensure that your ASC's scheduling processes are streamlined and customer friendly.
- "'No' should be an almost absent word from scheduler's vocabulary when it comes to getting cases on the schedule," Ms. Sturm says. ASC schedulers should not be turning cases away without first involving a manager.
11. Surgery centers should not be run like convenience stores. The most profitable surgery centers are open those days and hours that they need to be open. In contrast, it makes little sense to operate a surgery center five or six days per week when case volume only supports operation on two days per week. Several surgery centers have failed due to this policy of trying to be open at all times rather than operating on days that are most profitable.
12. Paying fees plus equity to a management company is often the norm. In addition to a management fee, increasingly, the leading management companies are requiring a small portion of equity in the surgery center. Before writing off such an arrangement, evaluate how that management company compares to other management companies.
13. Market your services and expertise, not just the ASC. As with any corporation, marketing to the community is essential for an ASC's success. However, simply informing the public that your ASC is available is an ineffective way of spending marketing dollars.
"It's much more effective to market services your ASC offers rather than the ASC itself," says Mr. Williamson. He also suggests placing more focus on the expertise of the physicians who handle cases at the ASCs. "If people in the community are aware of the physicians [that use your ASC], they will see more patients in their offices, which therefore, could lead to more cases coming to the ASC," he says.
One key to this strategy is maintaining a solid Web presence for the ASC, which can provide testimonials, outcome information and benchmarking information on specific procedures and the ASC's overall performance.
"Patients and their families will have questions, and the Web site can help to educate them on their procedure and what to expect prior to and after surgery," Mr. Williamson says. Other information to include can be anatomy, the difference in procedures and definition for different medical conditions.
"A Web site provides 24/7 information that is easy to access for patients," Mr. Williamson adds.
14. Target marketing efforts to different areas in the community. Patients are just one sector of the community on which ASCs should focus their marketing efforts. Raising awareness about your ASCs and what it offers to the community should extend beyond basic market awareness and include physicians and their offices, legislators, payors and large employers, according to William Southwick, president and CEO of Healthmark Partners.
ASCs should adjust their marketing strategies to highlight the areas of most concern to each of these sectors. Mr. Southwick offers his suggestions for each of these groups:
- Physicians — According to Mr. Southwick, ASCs should focus on touting the center. "Explain the efficiency, convenience, patient satisfaction and benefits of a partnership to physicians," he says.
- Legislators — "Advocacy is key, as it helps to educate and raise awareness about ASCs and protect the interests of your business," Mr. Southwick says. "The ASC Association does a good job of setting up events like open house days and creating awareness. Even if you can't get your legislator to your center, you can always set up a meeting and tell your story."
- Large employers and payors — For this sector, transparency is key. "You want to explain your costs to patients, rates to payors, cases you perform and efficiency and patient satisfaction you achieve," Mr. Southwick says.
Managed care contracting and related issues
1. ASCs are facing increased pressure to go in-network. Working out of network had been a profitable strategy for ASCs in the past, but, recently, insurers in some states have made the use of out-of-network facilities less appealing to their customers. Some ways ASCs have responded to these measures are by offering discounted rates and placing a greater emphasis on collecting up-front payments.
In some cases, ASCs have approached the payor to renegotiate their rates to move in-network. Mr. Lambert suggests that ASCs should go into these conversations prepared and armed with comparative information.
"Prepare for a dollars and cents discussion. It is important to know what you are willing to accept in terms of reimbursement," Mr. Lambert says. Entering into a bad contract for some patients could be far more detrimental than continuing out of network.
"The best bargaining chip to bring to the table is a possible change of surgical venue in order to bring down cost," Mr. Lambert adds. "If you or your center's owners control where the cases are done, then providing [the payor] with a list of cases that can be moved to your center from some other high-cost venue can be a powerful lever in your negotiations.
"It is important to demonstrate the savings for the payor," he says. "If you've historically accepted reimbursement that is too low but you're doing the cases anyway at your facility, then you won't have any leverage with the payor."
2. Educating patients on financial responsibility is a necessity to maintain profitability. The recent economic downturn has made it necessary for ASCs to remain diligent in their collection practices. At the same time, the reimbursement squeeze by payors also results in added burden and out-of-pocket payments for patients. In order to help ease these difficulties, ASCs need to provide a complete and accurate picture of financial responsibility for patients so they collect more payments prior to surgery.
Mr. Chopra notes that some patients are participating in high deductible plans. "Where their deductibles were once $500, they are now $1,000," he says. "ASCs need to drive innovation throughout the revenue cycle to ensure that they can educate patients and accommodate this dramatic shift in patient responsibility.
Mr. Williamson agrees that educating patients on billing practices and their deductibles is crucial and can help them determine where to have their surgery. "We let patients and referring physicians know on our Web site our processes so they can compare," he says. "For example, the hospital typically sends a minimum of five bills: one for radiology, laboratory services, physician fees, the hospital, anesthesia, etc. The ASC will send a maximum or three: one for the provider, one for the ASC and possibly one for anesthesia. Copays are typically 20 percent of the total, so patients are able to calculate their out-of-pocket costs. For example, a lumbar procedure may cost $3,300-$7,000 at the ASC, which means the patient will be responsible for $990-$1,500."
3. Setting a bad contract for a small number of patients is not smart. In an increasing number of situations, surgery centers may sign a bad contract for a very small percentage of their patients. This contract might not be heavily negotiated and it may be at a low price. A surgery center may reason that this will have little impact because these patients represent a small percentage of its patients. However, increasingly, one preferred provider organization or insurance company sells their contract rates and leases out the network to another party. Thus, when an ASC thought they were contracting for 1-2 percent of the patients, the surgery center finds over the course of time that it is actually contracting for a great number of its patients. Therefore, surgery centers have to be increasingly vigilant about walking away from contracts that are not at profitable rates.
4. Use data to determine if it is necessary to renegotiate your ASCs managed care contracts. Once contracts are set, ASCs may get complacent regarding their reimbursements. Other times, ASCs may think they need to renegotiate their contracts when they are actually receiving a reasonable reimbursement rate. Gathering market information, as well as case costing data from your ASC, can serve as an important benchmark for determining proper reimbursement rates.
Mr. Southwick notes that gathering this information is especially crucial when going into contract negotiations. "ASCs need to know more data than the insurance companies," he says. "You should know your center inside and out: know what cases you do, the costs, the variety of cases you perform for a particular payor, etc. Share cost information." By having this type of information, ASCs will have better leverage when coming to the table.
In addition to in-house data, Mr. Southwick suggests gathering price differential information on reimbursements. "Surgery centers should look at what the market offers in all locations and look at reimbursement in different markets and different locations within their markets. You may not know the exact reimbursements, but you can get general levels and find out if your reimbursements are on par with the market," he says.
5. Negotiating excellent implant contracts is essential for profitable spine surgery. Implants are essential to spine and orthopedic surgeries, but they can cost a surgery center any profit made on the procedure if contracts are not negotiated properly.
According to Ms. Moncrief, spinal fusion implants can range form $7,000-$15,000. Medicare does not reimburse for spinal implants, she adds, so it is important to select cases carefully.
"It is imperative to get a reimbursement or carve out for your implant costs or you will lose all of your profit," Ms. Moncrief says. "Spine can be very lucrative with the proper contract, but debilitating without one."
ASCs may want to consider outsourcing implant management services to ensure they are receiving proper reimbursement on implants, not only for spine, but for many other specialties. By investigating whether this type of arrangement is a good fit for an ASC, facilities may be able to expand their services to include more complex procedures.
"Implant management solutions offer prior authorization, acquisition, verification, billing and reimbursement services that remove the device specific financial risk of expanding an ASC's procedure portfolio. Expansion of the procedure portfolio increases the ASC's ability to attract and retain physicians and should be a fundamental component of an ASC's growth strategy." says Bill Cramer, founder and vice chairman of Access MediQuip.
Single-specialty vs. multi-specialty
1. Single-specialty centers can be profitable if groups are aligned. Single-specialty ASCs can be viable options for larger groups if the mix is right.
Larry Taylor, president and CEO of Practice Partners, says that his group has seen an increase in these kinds of development ventures. "These [large single-specialty] groups are usually aligned by similar practice goals, understand each other's strengths and weaknesses, practice patterns, financial goals and have relationships that can become leveraged in the marketplace. The group can be more easily focused and guided through the process, thus making decisions in a short time frame," he says.
Another benefit of these arrangements is that determining a no-go situation usually occurs quickly, according to Mr. Taylor.
"Single-specialty centers are both efficient and economical to operate," says Barry Tanner, president and CEO of Physicians Endoscopy, which specializes in the development of single-specialty GI centers. "In the GI space, ownership in an endoscopic ASC is becoming increasingly important. As professional fees continue to get squeezed, participation in a portion of the technical revenue from ASC ownership is one of the few remaining ways to compensate. For GI physicians, technical revenue is becoming a larger percentage of overall medical practice income. It is getting increasingly difficult for small GI practices to survive and prosper. Increasingly we see practice coalitions being formed and even mergers of smaller GI practices partially in an effort to support/justify the development of a GI single-specialty endoscopy center."
2. Single-specialty ASCs may also consider reaching out to other specialties. Single-specialty ASCs can struggle, especially if reimbursement rates for their specialty decline, such as the case with GI procedures and their Medicare rates. According to Mr. Lambert, many single-specialty ASCs are looking to add more service lines to help counteract these possible issues.
"We haven't seen a lot of single-specialty startups," he says. "When we do see de novo ventures, they are usually multi-specialty partnerships. This could or could not mean that the group was forced to reach out."
Mr. Lambert notes that if single-specialty ASCs choose to reach out to other groups, they should make sure that the additions will improve the structure of the center and are compatible with what the center is trying to accomplish.
Mr. Tanner says that physicians' needs to participate in technical revenue have been driving single-specialty startups. "With GI centers, it is all about patient volume and efficiency. With reimbursement declines such as they are, GI centers are forced to operate in the most efficient manner possible. Staffing, purchasing, room utilization, payor contracting, etc., are all key to survival and to success. We have looked at expanding service lines in certain circumstances; however, the real key is to right-size the ASC to fit the current and expected case volume of the physician partners," he says.
3. Critical mass in a specialty surgery center should not be built around a single physician in an area. When adding specialties it is critical to take advantage of economies of scale. Thus, it is far better to have to have three of a certain type of physician than one of various different types. It makes equipment purchasing easier, supply purchasing easier and makes staff expertise much easier to obtain. In general, it is hard to be successful with one of anything.
Mr. Tanner says, "It is definitely not a one-size-fits all sort of process. In the GI space, we believe that in order to have the right risk profile and to secure financing in today's credit climate, four GI physicians with a historical case volume of around 4,000 is the minimum. We do not advise developing a one-room ASC, and, therefore, with two rooms we would like to see case volume of closer to 5,000 or more. What we have found is that once the physicians actually have an endoscopy center, additional physician recruitment becomes a higher probability."
1. Spine is becoming more important to ASCs. New technology and innovations have generated continued interest in outpatient spine surgery.
"Spine and arthroscopic hip cases have continued opportunity in the ASC environment and more surgeons are utilizing the environment," says Mr. Taylor.
Mr. Lambert agrees that a greater push has been towards adding spine in ASCs. However, he notes that there are some barriers to moving these procedures to the ambulatory surgery setting.
"We are fighting against traditional care," he says. "Some surgeons are not excited to change, and there is some inertia from hospitals not to move some procedures to the outpatient department from hospitals."
Mr. Williamson also notes the trend of spine cases leaving the hospital. However, he says that it is important for centers who are considering adding spine to consider the scope of the specialized training required for some of these procedures.
"Anesthesia and microinstruments are the drives of this move [of spine procedures to ASCs]," he says. "With these innovations, special training is needed, such as with XLIF and spinal fusion."
2. Spine procedures and orthopedic procedures can sometimes not mix well in a surgery center. Spine and orthopedics are specialties that continue to grow and to be integrated into centers. However, just because a center performs orthopedics cases does not mean spine will be a logical addition.
This is often the case when spine procedures cannot receive reasonable contracts from managed care payors. When this occurs in an ASC that has added spine, the surgery center is faced with the situation where both the spine and orthopedic procedures have to be out-of-network or both have to be in-network. This can cause great problems because the spine reimbursement may be horribly inadequate, a forced scenario if the center wants to be in-network for its orthopedic reimbursable cases.
ASCs should take some elements into consideration before making the decision to add orthopedics or spine to the organization.
"The focus should be integrating the appropriate specialties into a center allowing for the flow of cases, equipment and scheduling to foster greater volume and diversity in centers without orthopedics," Mr. Taylor says. "Of course, the managed care environment and contracting must be addressed and negotiations to cover implants or thresholds."
3. GI/endoscopy can be profitable if volumes are high. GI, if volumes are high enough, remains profitable for ASCs, in spite of decreasing reimbursements from third-party payors and Medicare.
"There is no question that a GI-focused single-specialty ASC can be very successful," says Mr. Tanner. "GI physicians experience an increase in their productivity due to the efficiency of the facility and the dedication and experience of the staff. With facility reimbursements where they are, ASC management is key to success. Every detail must be monitored carefully, and there is little room for error."
Mr. Tanner also notes that the use of anesthesia is becoming rapidly more common in GI procedures. "Physicians generally believe that they are more efficient and in many cases can provide an even higher quality of service," he says. "Patient satisfaction is very high [in procedures performed with anesthesia], and everyone likes having an anesthesiologist present during the procedure for added safety."
Increasingly, gastroenterologists may be required to be competent at providing anesthesia in connection with GI procedures as some payors will not pay physicians separately for theses services.
Richard Jacques, president and CEO of Covenant Surgical Partners, notes that this trend may have payors reconsidering their stance. "In my opinion, the standard of care is changing, and more payors are forced to pay for anesthesia for GI procedures," he says.
4. ENT, general surgery, gynecology and podiatry continue to grow in ASCs. Many specialties can be good additions for surgery centers, although they may be seen less frequently in the market. Four specialties that are seen more frequently in multi-specialty centers are ENT, general surgery, gynecology and podiatry.
"Although these specialties have less of a presence in the market [than some other specialties], they continue to grow," says Mr. Lambert.
5. Ophthalmology, particularly cataract surgery, remains a terrific specialty for ASCs. It is critical like gastroenterology and endoscopy that volumes be substantial and the surgery center handle a good deal of volume to make it make sense. That stated, it remains an important specialty. It is also not heavily reliant on managed care contracts because it is so heavily dependent upon Medicare. Even thought it is Medicare dependent, with proper case volumes, it can be quite successful.
6. Bariatrics can be profitable, but it does not constitute a majority of ASC business. As the obese population of the country continues to grow, many ASCs may consider adding bariatrics to their centers. This can be beneficial as the patient pool will continue to grow, and recent studies have demonstrated the safety of bariatric procedures performed in the outpatient setting.
"Bariatrics can make money, but I have not typically seen it constitute a large percentage of service in ASCs," Mr. Lambert adds.
Tom Michaud, chairman and CEO of Foundation Surgery Affiliates, notes that some advances in surgical procedures have made bariatric procedures feasible in the ASC setting. "We have both ASC and physician-owned hospitals performing band procedures with most of the procedures being performed at our hospitals. Some (lower BMIs, no/minor co-morbidities) are performed in some of our ASCs," he says. "In some cases, a procedure known as the 'gastric sleeve' has supplanted the band; it is a less expensive, 'simpler' procedure that has had good outcomes.
"It is our understanding the both Johnson & Johnson and Allergan (the major band companies) are mounting significant marketing campaigns in an effort to bolster market share. I think you will see some growth in the number of bands performed in ASCs, mostly on the healthier patients. Don't forget, most of these patients come from 'weight programs' and these programs will not just hand the surgical intervention phase of the program to an ASC (or surgical hospital for that matter) without some involvement."
However, bariatrics, like many other cosmetic specialties, has suffered due to the recession. In any specialty where patients pay a great percentage of the bills directly, there has been a significant down turn in total business. For example, it was reported that the LASIK industry saw a down turn from 1.4 million procedures in 2007 to approximately 700,000 in 2008. Bariatrics and other cosmetic specialties that depend on patient pay face similar challenges.
7. Cosmetics/plastics are often problems for ASCs; bundling arrangements with surgeons for cash patients can be very difficult. Plastics, at least cosmetics-driven plastics, are often problematic for ASCs. In many situations where the physician bills globally, the ASC and physician can be adverse to each other and the ASC must negotiate its own rates with the surgeon.
"It is critical to use a time-based fee schedule in increments of 15 minutes with discounts built so that a case taking one hour is relatively more expensive than a three-hour case," says Mr. Zasa. "Also, if a surgeon starts late and the center incurs overtime, the overtime should be built into the fee unless the start time is not the fault of the surgeon. Finally, consistent cost tracking by physician is mandatory if a center performs plastics.
"The idea is to effectively reward faster, more efficient surgeons and penalize slower surgeons," he says.
According to Ms. Sturm, it is common for some surgeons (for example, plastic surgeons) to approach a surgical center with a suggestion to bundle fees for cash patients.
"The surgeons suggest that the patient pay the cash to the surgeon, and then the money will be allocated out to the ASC, anesthesia, etc. More often than not, the surgeon will ensure that his/her fees are covered first, and any deficits end up being borne by the other parties," she says. "The ASC needs to protect its interests with payment from the patient as a separate transaction."
1. An ASC can have too many physician investors. An ASC can have too many physician partners. With too many physician investors, there is often a dilution of individual physician responsibility and ownership interests. Without sufficient ownership, physician investors often lose their commitment to the ASC and look for other alternatives.
2. Loss of a few physicians is not fine. Surgery centers are increasingly becoming businesses that may profit when they hit a critical mass and perform more than a threshold number of cases. In the past, a few lost physicians could be easily replaced by other free physicians. However, there seem to be fewer and fewer independent and free surgeons available. Thus, each surgeon is starting to have more impact than each used to have.
"Many ASCs operate in mature markets where the majority of surgeons are committed to their operating facility," says Rick DeHart, CEO of Pinnacle III. "Therefore, losing a surgeon and easily replacing him is a difficult task. I believe that ASCs need to continue to work hard on customer relations to maintain their physician bases. There are too many choices in today's environment."
3. Physician buy-in is crucial. In order for an ASC to be successful, physicians need to be on board with the organization's mission and goals so that operations run smoothly.
"Physicians have to buy in, and administrators need to keep them informed," says Ms. Moncrief. "Provide them with updates on things they may not want to hear, but need to know to stay in the loop."
Communication is critical to an ASC's success, and Ms. Moncrief advises ASCs to make sure physicians understand the actual operations of the ASC compared with what may be a different view of them held by physicians. "You need show them where you are, but also understand where they are coming from," she says.
Mr. Williamson agrees that a good physician-ASC relationship is crucial. "Physician-client respect is part of the five point circle of excellence I stress at all of our centers," he says. "We try to have a daily focus on the physician as a customer and to address their needs."
One way to keep physician relationships strong is by maintaining a good, consistent staff. "Don't let a physician get familiar with just one team," Ms. Moncrief suggests. "Let them use all the teams so that they are comfortable no matter who is in the OR." She notes that by keeping turnover low, physicians will stay happy because they will cut down on the time needed to train new staff members.
4. Surgeons must commit. When a surgeon is party to multiple different surgery centers or when surgeons do a great deal of their cases in their offices, it is a sure sign of problems for a surgery center. Surgery centers built around and planned for a small number of committed physicians are better than surgery centers built around many physicians with little commitment. Where a surgery center is built around a handful of physicians who are heavily committed to the surgery center, it is easier to standardize costs, set schedules and build an efficient surgery center. In contrast, where a surgery center has 40 different physicians each performing 20-50 cases annually, it is incredibly hard to manage costs and schedules or otherwise keep a staff in sync with the surgeons.
Establishing an ASC
1. Developing a solid business plan is more essential than ever. In the past, ASCs could be developed without a solid end goal in sight prior to looking for financing. The credit crunch and other factors, such as new state regulations, have made accessing capital more difficult for de novo centers. As a result, parties interested in developing new centers should craft a solid plan before looking for financing.
Mr. Southwick suggests working from the endpoint back, meaning developers should consider what their ultimate goal is for the center prior to creating any plans. "Write your goals down," he says. "Do you want to be a community asset? Are you looking to create more competition in the market? Are you open to partnering with other physician groups or competitors, such as the hospital or other centers? Establishing your end goal will help guide development. If you work from the front end back, you run the risk of having a pipe dream full of ambitions and run the risk of making bad decisions."
By establishing your end goals, Mr. Southwick says it will be easier to create next steps, such as assessing risk and how day-to-day operations will work. Additionally, you can gather a team of experienced developers, consultants and managers prior to looking for financing.
"[De novo ASCs at the planning stage] are vulnerable, and you can face disappointment because you may not get financing with an undeveloped plan," Mr. Southwick says. "By working from the endpoint, you avoid making some mistakes since you are forced to think things through. Through the extra work and diligence, you can have a successful center and avoid becoming a turnaround or less than successful ASC."
2. Do not overbuild. ASCs should only build to the size they need to meet expected volume and specialty needs. Overbuilding can result in a center's demise. A center with substantial fixed building and equipment costs will likely face long-term cost problems. There are not many things that can predict the long-term death of a center more than over-expenditure on fixed building costs and fixed equipment costs. These are costs that almost never go away. Where appropriate and fiscally viable, an ASC may consider building to accommodate future growth but this should be done with caution.
"The best way to make sure you do not overbuild is to let data drive the process of determining the scale of the facility," says Kenneth Hancock, president and chief development officer of Meridian Surgical Partners. "Determine the net transfer of cases from the physicians to the new center by analyzing billing reports and conducting in-depth interviews with the physicians to validate the information and gain additional intelligence."
3. Hospital partners can be beneficial. A hospital partner can make it easier to obtain contracts and recruit physicians, and offer several other benefits.
"In some cases, a hospital can contribute to securing better payor contracting," says Mr. DeHart. "This depends on the hospital's experience with ASC contracting and the amount of leverage it is willing to apply based on its other agreements. The other benefits could include supply purchase agreements and shared service agreements (i.e., bio-med service, housekeeping, maintenance, etc.). Also a hospital partner can add benefit to efforts such as physician recruitment, physician referrals and community support.
However, it is important to note that the extent of the benefit that a hospital can provide to an ASC on managed care contracting is quickly declining.
It is also important for surgery centers when entering into partnerships with hospitals to be seen as a separate entity, not just another department in the hospital, according to Ms. Sturm. "Physician shareholders, board members and managers must protect the ASC as a separate and distinct entity. The most important reasons to be protective of this distinction are culture and efficiency," she says.
4. Many ASCs still fail. Despite their growth throughout the country (nearly 6,000 total ASCs in 2009; more than 5,300 Medicare-certified ASCs currently), a number of ASCs still fail. The failures occur mostly due to bad management, overstaffing, low volume, poor reimbursement or overbuilding. Knowing the risks involved in developing an ASC can help to ensure that your ASC will prosper and not fail. Working with experienced managers in developing a center can also help prevent failures.
5. Long-term debt and high expenses can be crippling. We use two words to describe long-term debt and high real estate costs: cautious and crippling. Centers must be extremely cautious about taking on significant long-term debt.
When somebody on your team says, "Let's relocate a profitable center and spend $4 million to do so," it is important to become very cautious. It is a time to be careful on fixed expenses that cannot be varied up and down with the revenues of the facility.
Legal and regulatory
1. Anti-kickback statute issues. Surgery centers must continue to be very careful with respect to anti-kickback issues. There continues to be great caution as to how ASCs use the anti-kickback safe harbors for potential redemptions. Generally, all surgeons should be treated the same way. The surgeons should be offered the non-adverse price, and they should be offered reasonable time to cure potential lack of compliance with the safe harbor. A great deal more thoughts can be placed on this issue; this is a very simple overview of some of the concerns.
2. Review anesthesia relationships with care. Increasingly, surgery centers attempt to profit from the delivery of anesthesia services. These agreements raise several legal and regulatory issues. These relationships should be reviewed carefully for compliance with the anti-kickback statute.
3. Leasing equipment from physician investors is often a bad idea. While it can look attractive, leasing equipment from entities owned by ASC physicians is often a legally risky business. These arrangements can be viewed as thinly veiled disguises to incentivize physicians to use the centers, arrangements generally viewed by the government as illegal. As such, these arrangements, as a rule, should be supported by a fair market value (FMV) analysis, make business sense regardless of referrals and preferably be set as a fixed annual fee and not "per-click."
But it's important to note that the use of a fixed fee can create a new set of problems, says Mr. Mello.
"For example, let's assume that the fixed fee assumes a particular level of volume/ activity (e.g. 100 procedures per year) and the FMV per click fee is determined to be $250," Mr. Mello says. "Using these numbers would result in a flat fee of $25,000 per year. However, what happens if actual volume is only 50 (i.e., as opposed to 100)? Then assuming a fixed fee of $25,000, the equivalent 'per click' fee is now $500, which is greater than FMV. Accordingly, in the context of non-exclusive equipment/tech use arrangements, we favor a per-click fee and have performed dozens and dozens of these types of FMV analysis for lithotripsy, green light and holmium laser arrangements throughout the country.
"If, however, the equipment is exclusive use to the ASC and is not moved in and out as needed, then a flat fee reasonably consistent with what the ASC's annual lease expense would be if it were to lease it directly from a third-party equipment vendor (i.e., as opposed to an MD-owned venture) would be appropriate," he says.
4. CMS's new Conditions for Coverage will add responsibilities. CMS's new Conditions for Coverage for ASCs went into effect on May 18 and the new regulations may present some additional challenges for ASCs who wish to treat Medicare beneficiaries.
"Medicare's Conditions for Coverage present many issues that we are still working hard to understand and find reasonable ways to comply," says Ms. McLane.
"Compliance with the requirements will be more complex than it was previously," says Mr. Chopra. "The new Conditions for Coverage certainly raise the bar on collaboration with physicians to ensure timely and accurate patient communications."
The impact of the Medicare payment change on specialties such as GI and pain are just becoming as we move into the next phase of bundled rates.
5. RAC audits and Red Flags Rule. ASCs will be required to meet increasing compliance requirements from government agencies such as the RAC audits from the OIG and the FTC's Red Flags Rule, which ensures further HIPAA protection for breaches of electronic information.
In order to meet these demands and to respond to decreasing caseloads or streams of revenue, Ms. Serbin says an internal audit of an ASC's billing processes is necessary. She suggests performing audits at least on a monthly basis can help determine negative trends preventing an efficient collection process for ASCs.
"First, be sure you have clear and concise billing process guidelines (policies/procedures) and make sure employees have copies and are following these. Address each area of the process with separate audits. Randomly choose at least 5 percent of your caseload (minimum of 10 cases) each month," Ms. Serbin says.
Ms. Serbin notes the following areas which should also be addressed in internal audits:
- Check for accuracy and need for additional CPTs, diagnosis codes and/or modifiers in coding. This auditing process may have to be outsourced to certified coding experts.
- Audit your biller for accuracy of posting CPTs, diagnosis codes and modifiers and determine how long after receiving from coder the claim was submitted. Audit to make sure up-front adjustments are done correctly.
- Audits to determine the accuracy of payment and adjustment posting, transferring of balance and sending secondary insurance claims and/or patient statements. Timeliness of refund requests and request to payers for correction of underpayments or overpayments should also be audited.
- Check to see how long the first follow-up from collections takes. Check on accuracy and timeliness of appeals. Check on appropriate pre-collection efforts.
1. Leveraging Internet-based tools can help ASCs improve service and business operations. Many stakeholders are involved in a patient's care at ASCs and other healthcare facilities. As a result, many lines of communication are open and constantly transmitting information. According to Ron Pelletier, vice president of market strategy for SourceMedical, the healthcare industry, including ASCs, has not fully leveraged Internet tools available to them to streamline the extensive communications and transactions that go into patient care.
"Take, for example, the process in which an ASC must obtain insurance eligibility and benefit information for a pending case. Many facilities are still spending countless hours phoning in to insurers or manually retrieving data from a multitude of Web sites when they should be using available technology to automate that process," Mr. Pelletier says. "Similarly, high performing centers know that they must continually monitor and react to feedback from their patients, surgeons and staff members, yet the process for obtaining these data can be costly and cumbersome if a facility does so using outdated methods. Instead, smart centers are leveraging available Internet-based tools to gather actionable feedback in a very low-cost fashion."
Mr. Pelletier says that ASCs are moving rapidly to deploy the Web-based tools that are available to them, including e-billing patient portals, clinical assessment tools and surgeon portals.
2. Online patient surveys can help efficiently collect data for ASC improvements. Surgery centers have increased their use of patient survey feedback to drive quality- and process-improvement initiatives. Most ASCs use some sort of survey to gage the performance of the center's staff and the patient's perceptions of the center. In turn, ASCs can use this information to make improvements.
Historically an in-house practice, patient surveying is rapidly being outsourced to increase efficiency of staff time and improve feedback, according to Paul Faraclas, president and CEO of CTQ Solutions.
"Many of our clients had nurse executives spend significant time entering survey data in Excel," Mr. Faraclas says. "Developing reports was time consuming, and the presence of industry benchmarks was absent. The ASC's ability to reallocate this time to core leadership activities while receiving more patient feedback quickly made the transition to third-party surveying a no-brainer."
Mr. Faraclas has noted a trend in ASCs using online surveying to also assist in efficient collection of patient survey data. "Surveying online provides the advantage of immediately taking action. This contributes to the ASC's ability to mitigate risk and improve the patient experience concurrently."
3. EHR can help streamline an ASC's processes. Although implementation of an electronic health records system can be expensive, many ASCs have experienced cost savings as a result of streamlined billing processes and reduced need for paper and storage the EHR can provide.
Ms. Gilbert notes some other benefits ASCs can experience from implementing an EHR system can include streamlining documentation workflow, increasing patient throughput and eliminating the need for data re-entry and chart pulls. "One of our clients has gone completely paperless through the use of an EHR," she says. "They've eliminated two hours a day in FTE time that was previously spent just on chart pulls and three hours a day they used to spend on data re-entry, manually keying procedure information into their electronic record system."
Mr. Pelletier says EHR systems can help to reduce errors and improve quality of care overall in additions to the benefits mentioned above. "I am often asked by clients about what steps they should take in order to successfully implement an EHR. This topic warrants a book in and of itself, so I often tell users that perhaps the most common trend I see in successful projects is that the facility did a remarkable job managing change," he says.
4. Not all information technology systems are equal. Whether implementing an EHR, a scheduling program, a billing system or a fully integrated IT system, ASCs should put due diligence into determining which IT system works best for them. Although many companies offer similar products, you should be willing to research companies to learn what they offer and how their services can best benefit your ASCs.
"You have to get out there and kick the tires," Ms. Gilbert says. "Ask for references. Visit other sites that are using the software and watch it in action. Have a very clear idea going into a purchase of what your objectives are. An EHR isn't going to solve the world, but if you've identified key measures for improvement — such as compliance with AAAHC regulations, improving room turnover by a certain percent or tracking key quality indicators — you'll be able to evaluate software solutions based on how they meet your specific objectives."
Ms. Gilbert also suggests bringing clinician users in on the front end. "If physicians will be using the software, let them evaluate it and weigh in. If nurses will be using a charting solution, make sure they're satisfied with the solution you've selected. Without high clinician end-user satisfaction and adoption levels, you won't see a fast, solid return on your investment," she says.
5. Technology and familiarity drive the ASC model. The ASC model is not yet mature, as surgeries continue to move to less invasive procedures suitable for the ASC setting. According to Mr. Chopra, new technologies and innovations drive growth and prosperity for ASCs.
Additionally, more common procedures are moving from the hospital to ASCs, providing patients with a more cost-effective option for a familiar procedure, Mr. Chopra says. "As these technologies improve, ASCs will be the natural progression for more and more procedures," he says. "This makes ASCs a good place to be for the next three to five years."