Break Free of Your Formal ASC Business Plan
Stay ahead of the pack with a flexible approach.
By Jerry Helzner, Senior Editor
Ray Mays, administrator for Eye Centers of Tennessee, in Crossville, is a skeptic when it comes to the true value of the formal, detailed business plans that almost always accompany the building of a new ambulatory surgery center. A former Marine officer, Mr. Mays knows that, much like a battle plan, a business plan often fails to accurately reflect the rapidly evolving challenges and opportunities that occur in real-world situations.
Mr. Mays concedes that business plans for new medical facilities can be initially impressive, with color charts, graphs, demographic analysis for each applicable zip code and revenue projections for target markets. But he says their primary purpose might be to provide a level of protection to bank officers who approve such loans.
“Banks like to look at business plans,” asserts Mr. Mays, “not so much to actually read them but to add them to a file so that if something goes wrong with the loan, an auditor can ask 'did you get a copy of the business plan?’”
Glenn deBrueys, CEO of American SurgiSite Centers, which is a part owner or manager, or both, of eight ophthalmic surgery centers in the Northeast, has almost a quarter-century of experience in the development and operation of ophthalmic ASCs. He generally agrees that developing highly detailed business plans for modest, single-specialty ASCs can be “overkill.”
He says these types of plans can be “a waste of the money you will need when you have opened up and are waiting for the first insurance payments.”
With experienced ophthalmic ASC operators, such as Mr. Mays and Mr. deBrueys, highly skeptical of the value of formal business plans, what concepts can ASC owners employ as alternative strategies that will actually enable them to gain a significant competitive edge? How can they ensure they are flexible in meeting the continuing challenges and opportunities that arise in everyday ASC operation?
As Mr. deBrueys points out, ophthalmic ASCs were initially created in the 1980s to be faster, better and more efficient than the paperwork-burdened and test-heavy hospital outpatient departments that were doing most ocular procedures back then.
“It's the ASC heritage to be nimble, efficient and innovative,” Mr. deBrueys says. “That is something that we should continue to build on.”
Focus on the Mission
For Mr. Mays, learning to deal with uncertainty and changing circumstances is what separates successful businesses from unsuccessful ones.
“I have seen too many instances where, in spite of the obvious, the owners insist upon sticking to the original plan,” he says. “I'm in no way suggesting that some planning is not important. In fact, cash flow forecasting is probably the most important skill a business owner can have. But in my own companies (Mr. Mays has varied business interests), and when reviewing the plans and ideas of would-be entrepreneurs, I stress the mission of the company over any kind of formal business plan.”
Most readers will be familiar with the concept of mission statements. These are usually broad, aspirational statements intended as constant reminders to express the primary purpose of an organization to its customers, employees, owners and other constituents.
Mission statements tend to focus on basic reasons why the organization exists and the intentions of its founders. For businesses, mission statements are a way to create a subtle, but positive, correlation between achieving optimal profitability and meeting the real needs of customers.
For example, the mission statement of Bristol Myers-Squib is “to discover, develop and deliver innovative medicines that help patients prevail over serious diseases.” For Becton, Dickinson, it's “to help all people live healthy lives.”
Realistic Mission Statements That Matter
Mr. Mays has no time for the high-flown, outwardly directed mission statements typical of Fortune 500 companies. He says simply that the overarching mission of all businesses is “to create and keep customers.”
Within that broad goal, he sees the mission of Eye Centers of Tennessee as “delivering world class eye care. How would the best practice in the world deliver this service?”
| Conducting a Strategic Review of Your ASC |
|---|
| Q. and A. With Stephen C. Sheppard After two or three years of running your ASC, the operating environment may have changed and you want to conduct a strategic review to determine if you can maximize opportunities and meet any challenges that have come up. Ophthalmology Management asked Stephen C. Sheppard, managing principal for real estate and operations of the Medical Consulting Group, Springfield, Mo., and a nationally recognized authority on ASC planning and operation, to answer questions that the owners of an ophthalmic ASC might ask in reviewing their business plan. Q. How can we best conduct this strategic review? What factors should we be looking at? A. We look at three major areas: financial, operational and regulatory. We evaluate the timing since the last rigorous review and identify material factors that have changed in each of these environments. Q. Have results met initial projections? A. This fits primarily into the financial area and we look specifically at case volumes by type of case and surgeon. If there are material differences, identify causes and evaluate potential solutions. On the expense side of the ledger, we look at surgical supplies expense and fully burdened labor costs. In the typical ophthalmic center, these two categories typically comprise 65% to 75% of the total operating expenses of the ASC. Additionally, they are usually the most “variable” and, thus, susceptible to control. Many of the other expense, such as rent, utilities, debt service, etc., are essentially fixed costs. Q. If results are not satisfactory, how can shortfalls be identified? Are they from less-than-expected reimbursement, inadequate patient volume, staffing costs, equipment, costs, new government regulations, other? A. All of these could be factors and must be reviewed separately. Q. Should we be doing more formal benchmarking to see how our results compare to similar facilities? A. We strongly believe in benchmarking and employ it extensively. We look at both external (industry) benchmarks and internal benchmarks. All of the factors above are among the most important categories for benchmarking: case volumes and type of cases, collections per surgical case, average cases per surgical day, etc. Surgical supplies expense as a percentage of total collections is the major benchmark number. With the advent of P-IOLs, cornea transplants in the ASC and toric IOLs, we suggest that these “pass through” expenses be isolated in the general ledger and their “revenue” and “cost” be netted in the collections portion of the income statement. If we don't do this — due to the high cost of these items — our ratios won't be comparable to industry averages or (internally) to prior years when we weren't performing these procedures. Benchmarks aren't necessarily very useful as point estimates, although the external benchmarks are somewhat useful in this way. The real power of benchmarking is the identification of trends over several months or several years, particularly the internal benchmarks. Review of the trend of the comparably prepared benchmarks identify adverse or beneficial trends that lead to detailed analysis of material items impacting profitability. Q. Should we be opening the facility to additional doctors or partners? A. Always, yes. However, there may be some barriers including lack of desirable OR time, lack of equipment that may be costly and physical plant concerns — are we prepared for general anesthesia? Is our center so closely identified with our clinic that we can't attract “competing” surgeons to the ASC? Q. Should we be adding retina or other procedures? A. First, add cataract if that would be a new option. If not, evaluate other ophthalmic procedures. Retina is desirable if the volumes are adequate and, most importantly, the surgeon or surgeons are “ASC friendly.” They should understand supplies and equipment costs and be efficient in these areas, as well as with case times. Retina also requires some additional staff training, particularly for the surgical technicians and the RN circulator. Q. Should we be changing our marketing program? A. Typically, ASCs don't advertise “direct to consumer.” The marketing program is usually directed at surgeons that may be recruited to the medical staff and/or referral sources. We have a couple of ASC clients in small towns where the local hospital is viewed as too expensive in which we do some limited “direct-to-patient” marketing. Q. Should we have a different staffing mix? A. Benchmarking is very helpful here. Look at fully burdened labor costs as a percent of total collections (22% to 27% desirable range). Also, look at the number of full-time-equivalent employees and the average labor hours expended per incisional surgery (six to eight hours per case is an acceptable range for ophthalmology). Q. Should we change hours of operation? A. You may consider Saturday hours in some locations. Saturday may be more desirable than Friday for some surgeons and patients. Evening hours are difficult as they may require split shifts or second shifts for non-surgeon personnel. Q. If results are meeting projections, what can we look at to see if we can do even better? A. As noted above, surgical supplies expense and labor costs are the likely expense areas. ASCs are clearly high fixed-cost businesses. Increasing revenues is obviously the most desirable approach, but in many markets and with many physical plants it is pretty heavy lifting to do so. Q. Are we reaching our target demographic? A. Most of the ASC-specific practice management systems allow you to mine for demographic data. As I said earlier, we are usually at the mercy of the referral sources for the bulk of our patients. Q. Can we measure the effectiveness of our marketing efforts? A. In my experience, external marketing is pretty limited. Q. What else can we add to our mix of services that would be profitable? A. We look at two expansion “tracks.” The high-cost, high-return path would be to recruit “endoscopic” specialties — orthopedics, gynecology, urology, general surgery, podiatry. The second is to approach ENT, pain management, GI (if a sub-sterile room is available). The difficulty here is that you have to equip the center for these new specialties and, should the recruited doctor leave, the center is stuck with a lot of now useless high-cost equipment. Attempt to have these surgeons supply the equipment and lease it from them at fair market value (FMV) for a time to insure that everyone is compatible. Mr. Sheppard can be reached via e-mail at ssheppard@medcgroup.com |
Mr. Mays notes that the practice has added inhouse subspecialists. “Patients are our biggest asset and we don't want them going elsewhere for a service that we can provide,” he says.
Mr. Mays says every employee of the practice has a specific mission but everyone must also carry out their mission in concert with the overall mission of creating and keeping customers.
“The head of our optical has a mission of running a profitable business, but that doesn't mean fighting a customer over $50 if a customer has a complaint,” he says. “You don't want to win the battle, but lose the war.”
It's important to set high standards for all staff members as they are tasked with carrying out their own missions while also being mindful of the overall mission of creating and keeping customers.
“I'm very tough during the 90-day probationary period for new employees,” Mr. Mays says. “We have a specific way to answer phone calls and if a new employee can't do that properly, it's a good sign that they are not going to measure up.”
Being Nimble Boosts Profits
Mr. Mays says he and practice founder Larry Patterson, MD, set out to create a business instead of just a “practice.” As a business, one primary mission is “to identify and maximize all the assets we can in a profitable manner.”
“We had a server with unused capacity, so we offered other medical practices space on our server and we have generated new revenue by providing them with off-site cloud computing,” he notes. “We started lab surfacing for our own optical and found that others were interested in this service. So, what began as internal initiatives have been turned into profit centers.”
Because Eye Centers of Tennessee offers multiple types of services at several locations, another guiding principle is “to never be reliant on any one line of business for success or failure.” Another principle Mr. Mays follows is to view the ASC's “client” as the surgeon, while the ASC “customer” is the surgeon's patient.
“Odds are that after the procedure is performed the patient will never step foot into your ASC again,” he notes. “The surgeon, hopefully, will be there for many years. If I were in an ASC setting with many non-owner surgeons, I would devote all of my advertising dollars on assisting those surgeons grow their own practices.”
As for ASC planning, Mr. Mays opts for it to be continuous and nimble as opposed to going strictly by a business plan.
When Medicare mandated a higher level of histories and physicals (H&Ps) for ophthalmic procedures in 2009, the practice was quick to get in touch with the physician at a nearby walk-in medical center and have him come over to handle the H&Ps.
“The idea came from an employee. It works for the walk-in center and it works for us,” Mr. Mays says. “They bill independently and it is a cost-effective solution for us. We do not have a top-down approach here. The focus for all of us is to accomplish the mission and not simply to follow orders.”
Questions for ASC Owners
Mr. deBrueys believes that a modestly sized ophthalmic ASC does not require a formal and lengthy business plan. However, he does suggest that having a reliable, detailed pro forma is essential for any ASC start-up project.
“We recommend our ASC clients to ask themselves a number of key questions when they are planning their projects,” Mr. deBrueys says. “And then we recommend that, later on, they use their answers to monitor the project's progress periodically.”
He says initial assumptions for a new ASC should be viewed as “semi-permanent, because you never know when market conditions will dictate change. Never create a business structure that cannot be altered should market conditions change.”
Some of the questions that Mr. deBrueys has new ASC owners ask themselves include:
► What is my market radius today? What will it be 10 years from now?
► How long do I plan to continue practicing ophthalmology?
► Is the ASC going to be used just by our practice, or will we invite other surgeons in as either co-owners or to utilize the facility?
► How many other ophthalmic surgeons are within my center's radius and which of them might be able to work with me if their involvement made financial sense to them?
► If we want other surgeons to use the facility, will providing transportation to patients on the day of surgery enlarge the geographic area from which we can draw surgeons and their patients?
► If we are planning to promote your own practice with aggressive signage and on-site marketing, will that tend to discourage other surgeons from wanting to send patients to our ASC?
For example, in Roanoke, Va., Frank Cotter, MD, offered space in his new ASC to his closest competitor. When the competitor balked at sending patients to the ASC of a competing practice, Dr. Cotter made all of his ASC signage neutral so that there was no way to identify the facility with any specific practice.
► Does what I am doing with my ASC make sense today? Will it also make sense five years from now or 10 years from now when the environment for these services we are providing may change? For example, while reimbursements for cataract surgery have been treading water, reimbursement for retinal procedures has been increasing.
“We have had retina in some of our centers for 20 years, even back when there was a myth that retina was unprofitable in an ASC,” Mr. deBrueys notes. “If you have the excess capacity and can perform a minimum of 100 or more cases a year you should consider adding retina.”
► How do I view my competition? Do I respect them? Do they respect me? Do they respect how I practice? Always remember that time changes things. An older competitor may one day sell his or her practice to a younger surgeon who might be more open to the value of using your ASC for surgery and be less concerned about the history between the practices.
► How much do I expect to make annually? If it is not about the money but rather about the convenience, is it practical for me to expect it to be cash-flow positive in five years? Ten years?
► If I do not meet these objectives, how would I expect to react? If you are an impatient, type A person, will heads roll if you run into adverse surprises?
Benchmarking to Measure Performance
Mr. deBrueys finds that benchmarking results can be a “very effective” method of measuring ASC performance. Benchmarking measures a number of items, including financial results, clinical results and practice and patient satisfaction matters. “Benchmarking gives us a range to measure each of our facilities against,” he says.
“Strictly looking at financial performance, if a particular entity suddenly drops out of the high-low range, we usually have a good idea of why this is happening. However, if we do not understand why it is happening, we will quickly delve deeper into the details from our financial ledgers for the particular line item outlier. We tend to focus on financial benchmarks within our network of surgery centers and we mostly measure clinical performance against available national benchmark information.”
Mr deBrueys' company, American SurgiSite, belongs to and supports the Ophthalmic Outpatient Surgery Society (www.ooss.org) and its benchmarking initiatives..
“When there are changes that seem either inconsistent with our expectations or changes to things we have not experienced heretofore, we have found their benchmarks to be a reasonable indicator of national trends and normal standards,” he notes.
Mr. deBrueys says raw numbers are not always an accurate representation of how an ophthalmic ASC is really performing. “If your model is to attract numerous surgeons by giving them medical supply products of their choice, of course that is going to reduce your profit margins,” he says.
“And if your facility is brand new and the other person's surgery center is 10 years old, perhaps their debt service is paid off, and there is little to no interest expense left for the entity,” he adds. “Comparing labor costs in New York City as compared to Shreveport, La., is not an apple-to-apples comparison. These are just a few of the possibilities to consider.”
Mr. deBrueys recommends that you should occasionally consider using an independent consultant to examine and analyze your results. In most cases, you should be able to pay the costs of their consulting fees in three to six months and on a go-forward basis. The changes you make will earn you money for a long, long time.
| Toward More Flexible ASC Strategies |
|---|
| Following are seven principles you can use so that your ASC can respond quickly and effectively to new challenges and opportunities as they arise in the rapidly changing environment for ASC operation. ► Be stringent in setting high standards for your staff. Developing the flexibility to quickly adapt to new situations requires staff members who are both smart and committed to the success of the ASC and the overall practice. ► Hold periodic “brainstorming” meetings at which all staff members can put forward their ideas for making the surgery center more responsive to evolving conditions. No serious suggestion should be out of bounds. Make it a fun event by ordering in pizza or a deli tray. ► When faced with a new challenge or opportunity, make a list of possible “action steps” to meet the situation and determine which steps could be realistically implemented in a reasonable timeframe. For example, what action steps could you take to offer more convenient parking for your ASC if parking is an issue? ► If your ASC has unused capacity, consider bringing in a new subspecialty such as retina or oculoplastics. ► If you are seeking more surgeons to use your facility, providing transportation to patients can expand the geographic area from which to attract new users of your ASC. ► When a nearby practice changes ownership, contact the new owner or owners to determine if becoming a user of your ASC makes financial sense to them. ► Get involved with benchmarking as a way to compare the performance of your ASC against similar facilities. The OOSS has an excellent benchmarking system with numerous participants. |
Going Back to the Roots of ASCs
If you understand the key factors that initially led to the stunning success of ophthalmic ASCs, you would almost certainly operate the facility in a responsive and flexible manner. This is especially true today when new obstacles and opportunities seem to arise at every turn.
“When we got into the ASC business, the hospitals were giving every cataract patient a chest X-ray. They were mandating that you fast for 24 hours prior to the procedure. The paperwork was monumental,” Mr. deBrueys recalls. “We had an anesthesiologist who said there was no reason why a cataract patient couldn't have toast and tea prior to surgery, so we were leaders in that area. That was a great help to people with diabetes facing cataract surgery.”
Mr. deBrueys asserts that the type of pioneering spirit that characterized the early ophthalmic ASCs is even more necessary today.
“The ASC should always be cutting waste, but never be cutting corners,” he says. “That is the foundation of our success.”OM
![]({"src":"/media/q3mgjdtp/102012.jpg","focalPoint":null,"crops":[{"alias":"thumbnail","width":1110,"height":700,"coordinates":null}]})