Q: What are the biggest potential impacts of healthcare reform on ASCs?
Jon Vick: The overall goal of current healthcare reform legislation is to expand coverage while improving quality and reducing costs. Currently, there are between 40 and 47 million uninsured in the United States, and the goal of the proposed reform is to find a way to insure a large portion of those people. Under current proposals, an estimated 30 million additional people will end up with some type of coverage after legislation is passed, and most of those people will likely end up with insurance that resembles Medicare or Medicaid. This coverage might be in the form of a “public option” or low-cost private plan, but regardless of whether or not the government oversees these plans, the coverage that is offered to the uninsured is likely to reimburse ASCs at rates similar to Medicare.
As a result, a substantially larger patient population is going to be covered by insurance along the lines of Medicare, and the percentage of ASC payor mix with Medicare-level reimbursement rates will increase. For example, an ASC today with a payor mix of 25 percent Medicare might have a payor mix of 40-50 percent government-related patients after reform. This will mean a reduction in revenue and profitability for ASCs. To retain their profitability (and value) ASCs will have to find a way to make up for the lower average reimbursement per patient.
Q: To what extent will this actually impact ASC profitability?
JV: An ASC that currently has a 25 percent Medicare payor mix and an average reimbursement of $1,500 per patient could see its average reimbursement rate drop to $1,200 to $1,300 per patient if its Medicare payor component increased to 40-50 percent. In this example the ASC would have to increase revenues by approximately 20 percent to maintain its current profitability.
Q: What can ASCs do to help increase volume and reimbursement in light of healthcare reform?
JV: The most important thing to do is to increase volume and average revenue per case. Recruiting new physicians to the center and working with your current physicians to bring more of their cases — they often aren’t bringing all that they can — are two basic ways to do this. ASCs may also want to look into adding new procedures such as spine, if they don’t already have it, and bariatrics. Both reimburse at relatively high rates.
Centers should also take a close look at their case mix and consider replacing cases that take up a lot of time with cases that are quicker and generate more revenue. For example, some plastics cases take up to four hours and are only reimbursed at around $4,000-$5,000. An ASC could do 12-16 cataracts at about $1,000 each during that same amount of time. Being open on Saturdays increases OR capacity by 20 percent, and Saturday surgeries are often very attractive to patients who work.
Renegotiating payor contracts can significantly increase reimbursements, and doing so can offset the lower payments from government payors. Many self-managed centers don’t have a professional contractor on staff, and often administrators aren’t experienced in negotiating payor contracts. There are a lot of ASCs operating with lower than average reimbursements because of this. ASCS may also consider going out-of-network if they can’t get a reasonable reimbursement from a payor. Even though out-of-network is in decline, there are certain situations where going out-of-network is the only way a center can make money on the cases they’re doing.
Q: With increased pressure to reduce costs in order to remain profitable, what are some of the steps ASCs are taking to cut costs?
JV: Case costing, coding, billing and collections are additional areas where centers that operate independently often leave a lot on the table. Know exactly what each case costs and then compare one surgeon to another. Benchmark with other centers, and look for ways to cut costs. In almost every case, there is something that can be done to lower costs. Controlling the efficiency of center is also very important. You want your scheduling and throughput of cases to be as efficient of possible. Because of the increasing complexity of managing an ASC, I advise ASC owners to affiliate with a corporate partner that has a good track record of helping ASCs grow in profitability. ASC management companies (there are currently over 40) provide services such as contract negotiations, case costing, physician recruitment and syndication, billing and collections and do these better than independent centers because they specialize in them. This results in greater efficiency, higher quality business operations and larger distributions for the physician-partners.
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