1. A Florida ASC (name withheld). The No. 1 lesson of ASC turnarounds is to have patience and persistence.
“We've experienced a few turnarounds where we closed the transaction and made our first profit distribution in month three,” says Chris Bishop, vice president of acquisitions for ASCOA. “However, the majority of them require patience on behalf of the developer and the surgeon partners. Many of these have multiple flaws that simply require time to reverse.”
This Florida-based center is a case-in-point: The center lost $300,000 from operations in the year prior to acquisition. ASCOA built a 10-surgeon group, eliminated the non-safe harbor- compliant surgeons and continued to recruit, adding three terrific surgeons after the first year. About 27 months after the acquisition closed, the center began setting monthly record distributions while financial trends continued to improve.
Case volumes increased by 11 percent in year two versus year one; profits increased more than 210 percent. With overhead costs being met by the first 250 cases each month, incremental cases were performed at a considerably higher profit margin.
The lesson learned: “Never stop recruiting, as the incremental cases — once you break even — drive the majority of your profits,” says Mr. Bishop.” And if you continue to make the right long-term decisions, your center will reach its fullest potential."
2. Fort Myers Ambulatory Surgery Center.
This small, multi-specialty Florida ASC was $2.5 million in debt when Ambulatory Surgical Centers of America was engaged to evaluate its operations. Among the center’s issues: an administrative staff with limited billing experience, poor scheduling, inadequate surgery fees, old equipment, bad debt and a negative reputation in the healthcare community.
To remedy the situation, ASCOA compressed the surgery schedule from five days to two, and had staff leave when they were not needed; recruited new physicians; expanded the case mix to include spine, orthopedic and ENT; canceled inadequate payor contracts and renegotiated others; revised the fee schedule; streamlined supplies; and trained staff in billing and collecting, especially in regards to the accounts receivables.
Fort Myers ASC has since been able to accomplish the following:
• Staffing costs went from 39 percent to 20 percent of revenue.
• Supply costs went from 27 percent to 14 percent of revenue.
• Rent went from 8.5 percent to 3 percent of revenue (the rent did not actually decrease but ended up representing a smaller portion of the increased revenue).
• A/R went from nine to 39 days outstanding — but almost no unpaid bills were being written off. • A/P went from $640,000 to being current (less than one month outstanding).
• Average revenue per case increased over 300 percent: from $807 to $2,600.
3. Jersey Shore Ambulatory Surgery Center. This multi-specialty center — which performs orthopedics, ophthalmology, general surgery, GI, pain, ENT and plastic procedures — engaged Woodrum/ASD when it was struggling. The company started with a comprehensive operational audit of all Jersey Shore’s business and clinical functions. Among the issues the audit turned up: accounts receivable went uncollected; no dividend had been paid out for five years under previous management; cost of staffing benefits was very high; cost per case was high due to high utilization of items (though GPO pricing level was acceptable); paper processing and other inefficient business office systems led to poor front-end collections; costs for professional liability were terrible; and there was no budget discipline with no benchmarking done nor accountability to make budget.
With the crucial help of Jersey Shore President Stephen Uretsky, MD, WASD then put a transition plan into place. This plan prioritized each item that needed to be changed; the active MD board signed off, and the turnaround got under way.
The board addressed specific issues, such as implant cost and selection, with the surgeons and helped recruit new physicians while WASD performed the legal and business tasks of making sure prospective owners understood the buy-in, and overhauled bylaws and the operating agreement so that shares could be sold. WASD reorganized the business office; improved billing and collections processes to vastly increase front-end collections; re-did out-ofnetwork processing; renegotiated proper payor contracts with carve outs; redid the fee schedule (which had not been updated in over three years under the prior management company); canceled bad payor contracts; and implemented an employee profitsharing plan based upon performance tied to the budget and reaching specific goals. Staff reduced wasteful supplies and inventory by over $80,000 in six months; reset the proper utilization of items on case carts using WASD’s best practice preference cards; and streamlined charting to reduce paper and processing time. Dr. Uretsky and the director of nursing led an effort to reorganize scheduling in order to increase productivity and allow surgeons to do more cases per week at Jersey Shore.
The center is now successfully humming along and performing 400 cases per month, compared with 315 pre-turnaround.
4. Melville Surgery Center. This Long Island, N.Y., multi-specialty ASC was on the brink of bankruptcy and destitute. It had not made money or any profit distributions in five years when ASCOA purchased it for $1.2 million and set to turn it around. By employing benchmarking and best practices in staffing, supplies, case costing and accounts receivables — as well as other strategies to remedy a high rent and lagging accounts payable — within seven months, ASCOA was able to turn the ASC around.
Some other accomplishments: Staffing costs went from 52 percent to 20 percent of revenue; supply costs went from 29 percent to 14 percent of revenue; rent went from 14 percent to 5 percent of revenue; A/R went 94 to 29 days outstanding; A/P went from three to less than one month outstanding; and average revenue per case increased threefold, from $846 to $2,586.
5. Palos Surgery Center. This multi-specialty center was averaging 3,500 cases per year and suffered from a distinct lack of utilization, says Regent Surgical Health, which spearheaded Palos Surgery Center’s Turnaround. Now, post-turnaround, the center has a volume of 4,400 cases annualized through July 2008 — a 28 percent increase. To help enhance utilization, Palos added GI — which now makes up 30 percent of the total case volume — to its mix of ophthalmology, orthopedics and pain cases. Orthopedic and pain volumes were also increased.
Finally, Regent renegotiated contracts to be more favorable to Palos Surgery Center and expanded the facility’s payor mix. As a result, collections per case have improved by 25 percent.
6. River Oaks Surgery Center. River Oaks, located in Houston, is a multi-specialty surgery center with five ORs currently serving orthopedic surgery, ophthalmology, pain, gynecology, ENT, podiatry, urology and general surgery. The center’s leadership ended a longstanding relationship with its management company in April 2007, leaving it without an administrator; soon after, the business office manager also departed. But the hard times were not over: A relationship with a new management company lasted fewer than 45 days, and a third management company’s interim administrator and business office manager did nothing to boost morale. Financials could not be tied to the beginning of the year due to gaps in information left by the revolving-management door, and the board did not have adequate financial information to make operational decisions. Efficiency, collections and case volumes slipped.
RMC Medstone stepped in and worked with all three management companies and River Oaks’ board to reconcile the financial reports and develop an accurate balance sheet and supporting detail reports. Immediately after a sale that brought in new owners and MedStone, MedStone hired an administrator who brought in a management team comprised of a new business office manager, nursing director and materials manager. A series of reports were developed to monitor financial activities and ensure the financial health of the organization; front office operations were reviewed; and new procedures were put in place to ensure scheduling was run efficiently and effectively for physicians’ offices.
Case volumes have since increased and A/R days were reduced over 20 percent in the first three months. Purchasing agreements were renegotiated and credits were taken, resulting in reduced inventory and dramatically lower cost of supplies per case. Staffing standards have reduced overtime and registry nursing, leading to reduced staff costs per case. The end result: “River Oaks is now operating at peak efficiency and is more profitable than any other time in its 13-year history,” says MedStone
7. Vincennes Surgery Center. In 2007, Vincennes Surgery Center did more than just exceed performance expectations in areas ranging from finance to employee morale. The Vincennes, Ind., facility carried out a turnaround that earned it Symbion's internal turnaround of the year award.
When several well-known area physicians retired, the center faced declining volumes and increased competition from the local hospital. Making matters worse were rising costs and the center’s dependency on Medicare and Medicaid for a large portion of its reimbursements. Administrator Mindy Vieck and her team swung into action, developing a multi-pronged strategy to retain and grow volumes while reducing costs and boosting employee satisfaction.
Ms. Vieck began calling on area physicians to encourage them to visit the facility. The center also negotiated contracts with new insurance providers, making it an option for a larger number of patients, and adopted a flexible staffing plan.
“Employees are now scheduled in accordance with our cases, which eliminates costly downtime and allows staff to enjoy more personal and family time,” says Ms. Vieck. “It’s a win-win situation for everyone.”
Today, volumes are up and so is morale. In fact, Vincennes exceeded its projections by 429 cases this year, proving it’s never too late for a turnaround.
“Mindy has a positive, can-do attitude and she rarely takes no for an answer,” says John Rutherford, regional vice president of operations for Symbion. “She and her team have done a fabulous job of managing revenue and expenses. They are the reason the center earned the award.”