ASC Survival in Tough Economic Times

It's all in the details, claims this long-time ASC owner.

BY RICHARD J. RUCKMAN, M.D., F.A.C.S.

I opened my own ambulatory surgery center (ASC) in 1993; even in today's economic environment, it remains my best business decision. My professional satisfaction of working within a surgical environment that I control, however, has been tempered over the years by the stress of dealing with stagnant reimbursements and escalating costs.

What makes 2008 particularly challenging is that the downturn in the economy has had a profound psychological impact on my patients. They are more cost-conscious than ever. In my rural practice, my patients see the economy not in terms of stock portfolios but in gas that costs more than four dollars a gallon. Now more than ever, their first response to a recommended service is, "What is it going to cost?"

In spite of this concern, we still see a demand for cataract surgery. Our geriatric patients know that Medicare is currently available to them and they are willing to budget their co-payments. In 2007, according to Market Scope, more than 3 million intraocular lens procedures were performed in the United States. Of those, 96.5% of the IOL procedures were for cataract, with the remainder representing refractive lensectomy and phakic IOLs. In spite of intense marketing, presbyopia-correcting IOLs (PCIOLs) have remained approximately 5% of the IOL market each year since 2005.¹ Standard cataract surgery may not be as glamorous or pricey as PCIOLs, but the volume of cataract surgery is what keeps the door to the ASC open. Given this constancy in the cataract surgery market, ASC owners can remain profitable following the steps I have outlined below.

Steps for Economic Survival

Survival in tough economic times goes back to the basics:

► efficiency in the ASC
► creative staffing
► attention to financial details
► focused marketing.

I have discussed our ideas for efficiency in a previous article, "Staffing Your ASC for Efficiency and Patient Safety,"² so I will move on to the topic of staffing. Staffing is not only the greatest expense for an ASC, but is also the most difficult to manage. Cataract surgery is labor intensive. According to a list of benchmark measures by Bruce S. Maller, founder, president and chief executive officer of healthcare business consulting firm The BSM Consulting Group, cataract surgery typically requires 9 to 12 man-hours per case.³ Depending on your certification requirements, your ASC requires a certain number of RNs. These are highly skilled and compensated individuals. The Institute for Quality Improvement found the following salary ranges for cataract surgery participants in their study, "Cataract Extraction with Lens Insertion, 2007":⁴

Given these ranges, it is imperative to staff your ASC as efficiently as possible. Our goal is to maintain a level of at least four cataract surgeries per hour. Although this goal has been easy to achieve and maintain for routine surgery, by the time we add all ocular procedures such as glaucoma or complex surgeries, we are actually closer to three per hour. Our personnel costs (salaries plus benefits) are approximately $1,370 per hour. At more than 13 man-hours per case, our ratio exceeds Maller's recommended range. I feel it is because we assign all of our ASC expenses (direct costs) and a portion of our billing and insurance office expenses (indirect costs) to our ratio. This gives me a more realistic number for the cost of doing business.

Our direct ASC costs per case are time related while our billing office staff cost is a fixed expense relatively independent of case volume or time. If efficiency drops, personnel costs per case eventually reach a point where the surgery is no longer profitable. One caveat: how people choose to assign costs can vary tremendously, making apples-to-apples comparison difficult. It is more important for you to establish a consistent method within your practice and use those numbers as your benchmark.

Even in a more stable economy, we still found our surgical volume could vary as much as 30%. This creates a problem of staff "needing to get their hours" versus the ASC paying for down time. We have approached this problem in two ways. First, we are fortunate to have several part-time RNs who can adjust their schedules to accommodate the workload and vacation schedules of co-workers. Secondly, our ASC and clinic are under one roof. Therefore, many of our staff are cross-trained to work in both areas. This balances the workload between the clinic and ASC, and we save time prior to surgery day by completing as much paperwork as possible. This is also a selling point to our patients, many of whom drive 50 miles or more to see us. They are pleased with the convenience of completing the preoerative workup on the same day as the initial visit.

One final comment on staffing — do not short-change yourself. For our ASC, which has two operating rooms, we will have 11 people for a caseload of 20 to 25 patients. Having enough personnel at the right time may actually improve efficiency, despite the salary costs involved. For us, that means using a wave schedule to have more patients early in the day coupled with a higher level of staffing during that time period by using part-time RNs.

We have been most fortunate in having RNs who want to work part time in order to spend more time with their families. An ASC environment is perfect for them: Our greatest demand for personnel is between 8 a.m. and 3 p.m. and there is no night or weekend call.

Financial Benchmarking

As surgical volumes fluctuate, knowledge of the cost of doing business is essential. "Successful ambulatory surgery centers are diligent in gathering, measuring and managing information," says Maller.³ We have a monthly income statement listing income and all expenses by category for each section of the office, including clinic, optical and ASC. Our controller can generate expense ratios for the ASC that can be compared to industry standards; one source has been the American Society of Ophthalmic Administrators.

In The ABCs of ASCs, by Paul N. Arnold, M.D., Maller summarizes the basic concepts of benchmarking, which I would recommend that you review.³ One example is payroll ratio; that is, the ratio of gross payroll divided by collections, which should have a healthy range of 15-20%. The next step is to determine the cost per case through a four-step process:

1. Case duration — the entire time a patient is in the ASC.
2. Staffing costs — not just in the OR but for the entire ASC.
3. Overhead costs — rent, utilities, depreciation, etc.
4. Supplies — all supplies, including not only IOLs, viscoelastics and packs but also anesthesia supplies, eye-drops, etc.

Your cost per case is an allocation of staff based on time, allocation of overhead and the actual cost of supplies per case. I find this number a useful benchmark of ASC efficiency. In most ASCs, personnel costs are the greatest expense, followed by overhead and supplies.

In our own ASC, if we look at expense ratios/total expenses, we find the following:

These ratios have remained fairly constant for us over the years. With a downturn in the economy, we have seen an 11.5% drop in our ASC revenues for the first half of 2008. However, we were able to maintain profitability by decreasing total expenses 11.2% during the same time period. The key is time management. Personnel, and to some extent overhead, are time dependent. This means that as the number of cases declines, the ASC supervisor must monitor the total number of hours worked, looking to reduce overtime as well as encouraging voluntary reduction of staff. Even if the surgical volume is down by half, you still need to complete the same number of cases per hour.

For more, see Dr. Ruckman's October 2006 article at www.ophthalmologymanagement.com.

Marketing

As the economy tightens, we focus on our core business. I do not feel that extensive television or newspaper advertisements are going to overcome the fears of the general public expecting economic gloom. Instead, we focus on our core market: individuals who need eye exams and maybe need surgery. We concentrate on internal marketing, including queries for patients with diagnosis of cataract, and we review surgery lists for potential second-eye surgeries.

Conclusion

Whether the economy is boom or bust, ASC margins are tight. We need to be flexible. With a prolonged slowdown, flexible part-time staff is essential. However, keep in mind that a slowdown may also be an opportunity. We do not want to lose experienced staff, and this may be a time to catch up on quality improvement activities, update in-service meetings, do maintenance and take vacations, getting the practice ready to grow as the economy improves. OM

References

1. Market Scope: The Surgeon's Quarterly Survey Report. 2007. Dec.; 1-20.
2. Ruckman, M.D., Richard J. Staffing Your ASC for Efficiency and Patient Safety. Ophthalmology Management. Oct. 2006:45-51.
3. Arnold, M.D., Paul N. The ABCs of ASCs. Fairfax, Va. American Society of Ophthalmic Administrators; 2004.
4. AAAHC Institute for Quality Improvement. Cataract Extraction with Lens Insertion, 2007. Wilmette, IL: AAAHC Institute for Quality Improvement, 2008.

Richard J. Ruckman, M.D., F.A.C.S., has been in practice since 1978, specializing in cataract surgery. He is medical director of The Center For Sight, located in Lufkin, Texas, and may be reached by e-mail at rruckman@thecenterforsight.com.