Calculating and analyzing per-case costs is critical to maintaining a surgery center’s financial health. Although every center’s primary goal is to provide excellent outcomes for patients in a safe environment, ASC owners must also be mindful of their bottom line. We spoke with several ophthalmic ASC owners and administrators to take a closer look at case-costing and how the data generated impacts operations.

The 30,000-Foot View

“The mark of any healthy organization is that it’s continually re-evaluating its processes—starting from the big picture, but also keeping an eye on small things,” says John A. Hovanesian, MD, Harvard Eye Associates/Alicia Surgery Center, Laguna Hills, CA. “Like any business, we’re facing the increasing costs of doing business, both in terms of personnel and just keeping the lights on. Although Medicare reimbursement has historically climbed, margins remain thin enough that we have to be very conscious of them.”

According to Thomas Harvey, MD, Independent Vision Group, Eau Claire, WI, “Most people believe we’re already in a double-digit inflation environment in which we’ve seen costs of many consumable and reusable items in the surgery center increase more than 10%. Considering the fixed reimbursement on the professional side and the slightly less fixed reimbursement on the facility side, costs matter.”

While calculating case costs may be an annual event in some surgery centers, the surgeons and administrators we interviewed say once a year isn’t enough.

“Annually, we do a deep dive into everything, looking at what has changed in the landscape that we might be able to simplify or create more efficiency,” Dr. Hovanesian says. “Quarterly, we look at what’s new in product offerings that might be more efficient for us and better for our patients. And on a constant basis, we continue to look at new products and review pricing.”

Dr. Harvey’s approach is similar. “Our materials manager does our case-costing analysis annually, but we continually assess what we’re being charged in the interim,” he says. “In a year like this, when we’ve had massive inflation in the overall economy, it seems like suppliers have taken advantage of that and raised prices even part way through the year. That can be completely blindsiding if we’re not following each receipt and each invoice.”

Master the Basics

A case-cost analysis begins with data-gathering, and this task is all-encompassing. Breaking it down into manageable components helps.

“We do three-tier case costing—supplies, overhead, and labor and benefits,” says Steven Foote, administrator for Alicia Surgery Center. “Supplies and overhead are fairly stable, and we can meet expectations about increases year over year. Labor costs can fluctuate, depending on case volume and overtime hours. We consider all three tiers to calculate total case costs, and then, we compare that against each payer’s reimbursement.”

Amy Shaffer, administrator for Eyes of York Surgical Center, York, PA, breaks down the details. “We look at everything involved for each type of case,” she says. “In addition to overhead, we calculate staff time, nursing time, both pre-op and post-op, anesthesia costs, and the consumables used in the operating room.

“We are an all-cataract surgery center, and we have case costs on several different surgeries, depending on the lens and the procedure,” Shaffer says. “Costs also vary depending on each surgeon’s time in the OR, which we break out in 10-minute increments to get a good average.”

Both Foote and Shaffer have tried using practice management software to facilitate calculating and analyzing case costs, but both prefer the simplicity of Microsoft Excel. “You just can’t go wrong with an Excel spreadsheet,” Foote says. “It’s quick and easy to interface with, and the numbers adjust automatically when you make a change. It’s old school, but it works well.”

Being able to update case costs quickly and accurately is a necessity, Foote says. “While we do annual and quarterly reviews, we’ll look at our costs monthly, if needed. We have to be prepared to react quickly if something changes. It’s a dynamic environment.”

Watch Out for Signs to Recalculate

Any number of factors can trigger a need to recalculate case costs. The most obvious is a price increase.

“We’re always doing a price biopsy on medications,” Dr. Harvey says. “The moment we sleep on one, the price will be increased, and suddenly we’re in a difficult position. It’s good practice to stay vigilant and to follow everything that’s being ordered because our margins are so slim.”

Reduced reimbursement will also have a major impact on case costs. With Medicare issuing updates to its fee schedules quarterly, and with commercial insurers likely to follow suit, the potential for more frequent and costly changes increases exponentially.

“You have to watch those numbers carefully,” Shaffer says. “Know what your allowables are versus your costs. You certainly don’t want to get yourself upside down, which is easy to do with all of the different options surgeons have now.”

Sometimes case costs need to be recalculated in response to advances in eye surgery.

“New procedures may require new equipment or perhaps a new disposable device,” Dr. Hovanesian says. “Let’s say there’s a new MIGS device. We look first at the efficacy, then we look at implications for our staff, and then costs and reimbursement.

“In today’s landscape, there’s a meaningful difference between some of the different MIGS approaches, and we share this information with the surgeons,” Dr. Hovanesian continues. “We’re not going to dictate what devices they use, but we want them to be aware of the financial implications and weigh that against the efficacy and safety of the product. The decision to use such a device has to be based on reasonable criteria, such as the clinical efficacy and economics.”

Dr. Harvey notes, “The devices that are used in some glaucoma procedures can be amazingly pricey. That’s critical, because some payers are reluctant to cover newer devices. Then, all of a sudden, the surgery center is holding the bag for an expensive cutting-edge implant. We’re always looking for the best marriage of good new technology that has established coverage.”

Be Prepared to Act

When the cost of a particular item rises to an unacceptable level, a surgery center has several options: tap a different vendor for better pricing, evaluate a competing brand of the same item, or look at an entirely new product that performs the same function. Before any major decision is made, however, its impact must pass an important litmus test.

“We ask three questions in priority order,” Dr. Hovanesian says. “Is it good for our patients? Is it good for our staff? Is it good for our business? What’s good for the surgeon as an individual usually falls into one of these categories. Products that are commoditized, such as eye drops, drapes, and the like, assuming they’re relatively equal, can be moved to priority three. A lesser-priced item in this category may make no difference for the patient or the staff, but it will make a difference for the business. We’re seeking a balance. We might spend more on something else that more effectively enhances the patient’s experience or safety.”

Opting for custom surgical packs, while bumping up per-case costs somewhat, is enhancing efficiency at Eyes of York Surgical Center, Shaffer says. “It costs a little more, but it’s worth it, because we know we’ll receive the supplies that we need for each individual surgeon. We avoid having to order multiple items in bulk that our staff then has to sort and pack, and we also avoid having items sit on a shelf for a long period because only one surgeon uses it.”

An increase in staffing expense that impacts per-case costs may signal a need to revisit how cases are scheduled.

At Alicia Surgery Center, for example, accommodating longer oculoplastics cases while minimizing downtime for nursing staff required some creative scheduling.

“Our oculoplastics surgeon now works in concert with a cataract surgeon, so that they both can use the same pre-op and post-op nurses,” Foote explains. “Otherwise, if the oculoplastics surgeon were here alone, a pre-op nurse would be waiting an hour to see the next patient. This way, they’re caring for three or four cataract patients in between. It’s a great efficiency that helps keep case costs down.”

Collaborate & Communicate

“Costs are the one factor that we can control to some degree,” Dr. Harvey says, “especially if surgeons are open to trying new products from competing vendors, and maybe thinking outside of the dogmatic box.”

To facilitate this open-minded approach, the surgeons who operate at Independent Surgery Center review case costs regularly. “We do an anonymous comparison, and later, we identify surgeon A, B, C, and D,” explains Dr. Harvey. “In a nonjudgmental fashion, we look at what factors might put a surgeon’s cases in a higher cost category, and we suggest lower-cost options of the same, or perhaps even better, quality in terms of surgical performance.

“When we refine our surgeries to eliminate unneeded instruments, and even medications, we often gain better outcomes,” Dr. Harvey says. “But we don’t know this unless we’re communicating and examining these important issues.”

Shaffer, too, stresses the importance of communication in all aspects of the surgery center. When comparing the features and functions of instruments and devices, for example, her goal is to reach a consensus among the surgeons. “Not only do you simplify your ordering process, but you also strengthen your negotiating position with vendors,” she says.

Developing relationships with vendors and communicating regularly can be mutually beneficial, Shaffer adds. “Not only do they know what you need, but often they’ll notify you when new products become available that might represent a cost savings.”

Talking to other surgeon-owners and keeping abreast of industry developments through organizations such as the Outpatient Ophthalmic Surgery Society (OOSS) spurs innovation along with cost savings.

“Our doctors frequently communicate with other doctors,” says Shaffer. “Dr. Denise Visco, who owns Eyes of York Surgical Center, often returns from meetings excited about new products, which she asks us to research. If it’s beneficial for patients and also for the center, 99% of the time we can make it work.”

According to Dr. Harvey, the OOSS benchmarking survey helps him determine whether his surgery center is performing well. “It’s really the only benchmarking service that’s specific to what matters to us as an ophthalmic surgery center,” he says. “We get a lot of valuable information.”

An Invisible, But Vital Process

“Typically, the type of cost containment and analysis work we’re discussing here is done by a capable business manager or administrator,” says Dr. Hovanesian. “For most surgeon-owners, it’s a relatively invisible process. But that’s why you need capable staff members who understand the principles that the surgeons would use if they could weigh in on every decision.” ■