OASC | BUSINESS

How to Turn Around an Underperforming ASC

LEARN HOW TO RECOGNIZE THE EARLY WARNING SIGNS AND MAKE IMPACTFUL CHANGES BEFORE YOUR FACILITY DIPS INTO THE RED.

By Virginia Pickles, Contributing Editor

Can you recognize the signs that your ASC is headed for a downturn? And if your surgery center IS underperforming, do you know how to remedy the situation? We asked two business consultants for guidance on these issues. First and foremost, they say it’s crucial to take your ASC’s vital signs regularly.

Key Performance Indicators

“The one metric that never lies is your financial statement,” says Louis I. Sheffler, co-founder and COO of American SurgiSite Centers, based in Somerset, N.J. “Having a good set of financial records is a powerful tool that will enable you to look at all of the metrics related to whether or not you’re making money,” he says. “The better your financial picture is, the easier it is to spot a problem and direct your attention to it. As with any business, if you start to see red ink, you know it’s time to do something.”

Bruce Maller, president and CEO of BSM Consulting Group (bsmconsulting.com), concurs. “To assess the overall health of an ASC, I examine key performance indicators over time,” he says. “In addition to getting a snapshot of the business at the present time, I want some perspective on whether performance is improving or relatively stable, or if the margins are eroding.”

One key performance indicator is case volume. “Specifically, you want to know how many cataract surgeries were performed in your ASC this year compared with last year, as well as how many premium lens implants, YAG and SLT procedures and so on,” Sheffler says. “This should tell you if case volume has decreased in a specific category.”

When examining case volume by procedure, you can differentiate economy-driven factors, such as a decrease in elective procedures during an economic downturn, versus factors specific to your facility. “For example, a non-owner surgeon may have left to become a partner in a new ASC in the area, or one surgeon may have left a group practice that uses your ASC,” Sheffler says. Both situations mean patients may “follow” the surgeon to a different center.

You should also examine the current roster of participating surgeons. “I’d want to see if that roster has changed and to what degree,” Maller says, noting the departure of a surgeon — because of retirement, death, disability or dissatisfaction with the facility — can have a significant impact on a center’s overall performance. “I’d also want to know trends in terms of each surgeon’s volume and mix of cases to detect any subtle or not-so-subtle changes that might be impacting the center’s financial performance,” Maller says. “I would also look at the payer mix, because an ASC might have a high concentration of cases from a particular payer and that payer may have revised its fee schedule to the detriment of your bottom line.”

EXAMINE YOUR PAYER MIX AND CONTRACTS

Another important area to scrutinize is the profile of your payer mix, specifically the case mix from Medicare, Medicaid and commercial payers, according to Maller. “Everything else may be great at your center, except for the fact that Blue Cross decided to terminate its contract with you,” he says. “That may be what’s hurting the center.”

What about your remaining contracts? “If you conclude that a particular contract isn’t working for you — maybe a payer has reduced its reimbursement rates — it may be time to renegotiate that contract,” Maller says. “Be aware, however, that those negotiations can take a year or more to conclude.”

All of these data will help shed light on why your ASC may be missing the mark, so you can institute corrective measures. Be prepared to put the business under a microscope, because as Maller notes, “In a turnaround situation, my general feeling is, all bets are off, and everything is on the table.”

Strategy #1: Increase Volume

“With surgery centers, there are really only two things you can do to improve profitability,” Sheffler says. “One, you can raise topline revenue by bringing in more cases, or two, you can lower overhead. I really believe in the topline revenue approach.” Consider the following revenue boosters:

> Recruit more surgeons. “Physician/owners of ASCs may be reluctant to approach others whom they view as competitors in the community,” says Sheffler. “However, we encourage our clients to change their philosophy and open up their doors. By bringing in as many doctors as possible, you’ll keep your center as busy as possible, 5 days a week. Add a robust, well-trained staff and the best equipment, and you’ll have a successful model.”

> Expand your surgical offerings. Another way to increase volume is to offer additional types of eye surgery, such as oculoplastic and retina procedures. “If you have open slots in your OR schedule, consider expanding the breadth of work performed in your facility,” Sheffler says. “For example, in the last couple of years, many of our centers have expanded into retina surgery. While reimbursement for cataract surgery has declined, reimbursement for retina procedures has increased, and the latest equipment enables retina specialists to complete their cases more quickly than in the past.”

Strategy #2: Lower Costs

Next, you’ll want to take a hard look at spending on administration, personnel, equipment and supplies. Although savings realized in some categories may not be dramatic, the overall impact will contribute to a healthier bottom line. Consider the following:

> Examine your personnel needs. “Staffing probably accounts for half of an ASC’s overhead costs,” Maller says. “If you factor in benefits and taxes, every full-time equivalent staff member represents between $50,000 and $70,000 per year. So, you have to ask: ‘Are there opportunities for us to get by with fewer staff members? Even though we’ve become accustomed to having all of these people at our disposal, do we really need them?’ If you’re considering reducing staff, however, you must consider how doing so will affect the quality and integrity of the care you’re providing.”

Another method to reduce staffing is to condense your surgery schedule, perhaps from 5 days a week to 2 or 3 days a week. “One of the real strengths of ophthalmic ASCs is that our doctors have learned how to be much more efficient,” Maller says. “Problems may arise, however, when you’re trying to accommodate numerous doctors who want block time. How do you give surgeon number three a half day of surgery time when he’s only doing three cases? You can’t let that tail wag the dog. Certainly, you want to accommodate your surgeons but not to the detriment of the center. If you condense the surgery schedule in a smart and effective way, you may be able to reduce your labor costs by 40%.”

> Comparison shop for services. Most of your administrative expenses warrant periodic review. An increase in your insurance premium, for example, should trigger a fresh look at your current policy: first, to confirm that your coverage is appropriate; and second, to determine if a different carrier can offer cost savings.

“If you’re not paying attention, you could have thousands of dollars’ worth of supplies on your shelves, because staff members are afraid you’ll run out of something during an operation. In our facilities, we have computerized inventory systems. Everything is barcoded, so we know exactly how much inventory we have at any given time. The computer alerts us when inventory is getting low and needs to be reordered.”

— Louis I. Sheffler

> Revisit supply costs. “In the ASC environment, supplies can be expensive, so it’s important to look at those items periodically to see if less costly alternatives exist,” Sheffler says. “Some physicians may have used a particular item during residency and fellowship and continue to use it because they’re comfortable with it, when, in fact, other companies may make comparable items at a lower cost.”

According to Maller, “By looking at each surgeon’s utilization of supplies, as well as vendor choices, you may find ways to reduce costs per case.”

> Control your inventory. “If you’re not paying attention, you could have thousands of dollars’ worth of supplies on your shelves, because staff members are afraid you’ll run out of something during an operation,” Sheffler says. “In our facilities, we have computerized inventory systems. Everything is barcoded, so we know exactly how much inventory we have at any given time. The computer alerts us when inventory is getting low and needs to be reordered.”

> Put your EHR system to work. “Not only will an EHR system save personnel time — people don’t realize how expensive it is to open mail, photocopy, collate and change toner cartridges — but it also tracks which supplies are being used by specific doctors, and it calculates your cost per case, which is another metric you should be watching,” Sheffler says.

Manage Accounts Receivable

Although not strictly a profit-and-loss issue, don’t overlook what’s happening in your back office. “A common problem in many healthcare businesses, not only in ASCs, is poorly managed accounts receivable,” Sheffler says. “When a patient is covered by Medicare, for example, you may collect your Medicare money but leave the 20% co-pay on the table. Very few doctors have enough personnel to follow up and collect that 20% from every patient who owes it. Soon, you have a significant sum of money outstanding.” Sheffler advises collecting co-pay funds before the surgery. “This has become a more common practice because of high-deductible insurance policies,” he says.

Look Beyond the Balance Sheet

If the cause of your malaise is not apparent in your financial statements, you may need to look at what Maller calls quality-of-life issues.

“Surgeons are the engines that drive the economic performance of an ASC,” he says. “By and large, they enjoy their days in the OR, and often it’s the support team that makes those days wonderful. If the center loses a key staff member — a nurse administrator who had a great working relationship with some of the surgeons, for example — the environment in the ASC could change and those surgeons may decide not to perform their cases there.”

What You Need to Bring to the Table

Among the intangibles that factor into a successful turnaround is the attitude of everyone involved. “To me, the key is making sure everyone is focused on what needs to be done to turn the business around, and what each individual can contribute to that end,” Maller says. “Many tough choices will be required, and my job as a consultant is often helping everyone understand the variables and bringing all parties to the table. It requires compromise and being open to ideas that maybe historically you hadn’t thought about. Once you get that attitude, then the options usually abound, and it’s just a matter of choices.”

Diagnosis to Treatment to Resolution

If your ASC isn’t performing to historical levels or to expectations, a thorough assessment will help you better understand what’s at play and your restorative options. “You need to be thoughtful and deliberate, and you really need to identify to the causal factors,” Maller says. “Once you’ve completed that diagnostic assessment and have a good sense of the issues, you’ll need to carefully vet your corrective measures to make sure you do the right thing to turn your center around while protecting its integrity.”

Also key to a successful turnaround is educating and building consensus among the stakeholders. Not only will they want to know their options, but they’ll also want to know the associated costs. “By clearly, laying out the options, you make it easier for them to get on board and support whatever needs to be done,” Maller says.

According to Sheffler, “A well-run, profitable ASC can be achieved only if clinical, administrative and financial issues are monitored and issues are quickly addressed.” ■