ASC Management
Determining the Magic Number
Figure out your break-even point using this example as your guide.

BY MYRIAM ASSOULINE, B.SC.N., M.H.A.
ILLUSTRATION: JT MORROW 

Whether you already own an ASC or are thinking of investing in one, it's imperative for you to know your break-even point. Simply put, the break-even (B/E) point is when the total amount of revenue equals the total amount of all costs for a given volume or capacity. If the monies generated from your ASC's activities surpass the B/E point, you're in a profit-making position. If they're below the B/E point, you're in a deficit situation.

CREATING YOUR OPERATING INCOME STATEMENT

In this installment of ASC Management, I'll show you what information you need to compile so that you can create an operating income statement, which is the basis for determining your B/E point. Refer to the sample statement on the next page, which represents one month, as we walk through the key points of figuring out your B/E point:

Determine your revenue. The first step in determining the revenue generated from the main activities of your ASC is to establish what you will charge for your surgical procedure or procedures (P). The second step is to predict the demand and/or the expected volume or capacity (D). The final step is to obtain forecasted monthly revenue (R) by multiplying the price per procedure by the monthly demand (P x D = R).

Determine your total expenses. You have two types of expenses:

• fixed expenses, which remain constant regardless of fluctuations in the demand or volume of procedures. Your monthly rent is an example of a fixed expense.
• variable expenses, which are costs that vary congruently with changes in the volume of procedures. The amount of medical supplies is an example of a variable expense. When the volume increases, the requirement for medical supplies increases.

Your operating income statement will contain different categories of expenses. In each category, you'll have fixed and variable costs.

Determine the number of procedures required to break even. This important calculation is the one that determines the number of procedures required to break even. To do this, you must divide your expenses by the patient's fee per procedure. Using the figures from the example at left, you'd divide $165,700 by $1,000 to determine that your break-even point is 165.7 procedures.

In our sample operating income statement, the ASC turned a profit because its revenue surpassed its expenses by $34,300. For that to happen, it's of the utmost importance to accurately predict your required consumption of goods. The more precise your prediction, the higher your chances of being within budgetary limits and realizing a profit.

A TOOL FOR THE PRESENT AND FUTURE

Your operating income statement and B/E analysis are necessities as you're deciding whether it's feasible to invest in an ASC. As you see from our sample, they also tell you your expenses per procedure and your net income per procedure.

But you should also review and update both of them periodically because they're a useful tool for spotting your areas of productivity and/or inefficiency.

Myriam Assouline, B.Sc.N., M.H.A., is a healthcare consultant. You can reach her at massouline@aol.com, or (514) 685-0188.