10 Signs of a Struggling Surgery Center
Financial trouble awaits those facilities suffering these symptoms.
By Thomas Mallon,
Regent Surgical Health Chief Executive Officer
Reprinted from Outpatient Surgery, March 2006
In today’s competitive and challenging market, it should come as no surprise that only one in three of the country’s 5,000 or so ambulatory surgery centers is thought to be profitable. What may surprise you are the reasons profitable surgical facilities are the exceptions rather than the rules. Here are the 10 leading culprits.
Flaw # 1: You set gross charges at two times Medicare rates
The fact is, Medicare reimburses surgery centers at 50 percent to 60 percent of costs. If you charge two times Medicare and get paid full charges, you’ll break even on operations, leaving nothing for debt repayment and distributions. That’s not good for shareholders or for attracting new physicians.
The solution: use a higher multiple to set your center’s charge master. Most markets should be charging five or six times Medicare. And even when you’re turning a profit, review every six months.
Flaw # 2: You sign every contract
Many center administrators never met a contract they didn’t like. And, unfortunately for our industry, insurance companies are better at not paying than we are at getting paid. Yet many centers sign every contract put in front of them, often without negotiation.
Remember that opening offers are often not the best offer, and that you need to negotiate and monitor many provisions, such as expiration dates, notice dates and fixed increases.
Solutions? Only contract with payers who represent more than 10 percent of your patients. And you should try to carve out high cost cases.
Flaw # 3: You let one highly respected but controversial physician run the business
There’s an old adage that your greatest strength is also your greatest weakness. This is true when a center has a “star” physician. Great clinicians often aren’t trusted in business dealings due to jealousy, style or business practices. These physicians are both the catalyst for ASC development and the reason the center doesn’t achieve its potential. And frequently, these physicians run off or scare away new physicians, who can bring stability and profit.
The solution: Work with important yet controversial physicians to serve the partnership in lower profile roles. It is important to give them the respect they’ve earned, but help them realize letting go can allow the business to reach its potential.
Flaw # 4: You encourage your productive surgeons to leave and build their own facility
In many centers that have been up and running for a while, it’s not uncommon for one group of physicians that contributes more than its ownership to become disenfranchised and leave to start its own center.
To prevent this, be certain you have an operating agreement that requires members to remain members at least five years. And keep marketing to lower utilizers to encourage their participation. Buy out those who are unable or unwilling to support the center. And most of all, reduce reliance on one physician, group or specialty by building the business with new physicians and new services.
Flaw # 5: You are ignoring the physician schedulers
Beware the power of those who hold the key. Schedulers, we have learned, hold the key, and the sooner you realize this, the easier it will be to run a smooth, efficient, profitable center. Visit schedulers often to develop and maintain good relationships. Listen to their concerns and make adjustments. In short, make a scheduler’s job easier, not harder.
Flaw # 6: You administrator is tied to the most important surgeon and runs the facility as a private fiefdom
The administrator is critical to any facility’s success. She must operate autonomously and in a business-like fashion to attract and keep high quality employees. But if the administrator is more concerned about providing jobs for friends, their kids and local vendors, the center will have a problem. Your facility should have a no-nepotism policy.
Flaw # 7: You screen cases to implant expensive non-reimbursed grafts, screws and implants in Medicare patients
In one center we took over, the physicians were doing penile implants at a cost of $6,000 per procedure. The reimbursement: $400. So while many Medicare and contracted cases pay the total cost of care, a few Medicare and contracted cases pay less than the cost of supplies and implants (shoulder arthroscopy, laparoscopic cases, stimulator trials and implants, for example).
To remedy this, give the scheduler a cheat sheet to notify you whenever these cases are scheduled. Talk with the physician to explain the issues, then let the board know the economics and frequency so they can make good business decisions.
Flaw # 8: You pay retail for all supplies and buy only new equipment
It’s easy for costs to get out of control, and it’s easy to not know what everything costs. Surgery centers purchase many different SKUs (stock keeping units) and equipment from many different vendors. Often, equipment is needed quickly, which doesn’t allow for adequate time to search for best deal.
Join a GPO and network with other centers to help make sound economic purchasing decisions. And buy used equipment whenever possible. Refurbished equipment comes with a warranty and costs 40 percent to 60 percent less than new.
Flaw #9: You let cash and checks go through as many hands as possible on the way to the bank
Here’s another simple one: Know who touches the money, and keep that lineup to a minimum. The average ASC collects $3 to $5 million each year. Most ASCs have a $10 per hour clerk open mail and create the deposit, which creates temptation and may invite error. And because some ASCs have a substantial cash business for cosmetic surgery, money sometimes disappears or is lost.
Simple solutions are in order. Use a lock box. Make sure the person who creates the deposit is not the person who opens the mail. And create an environment of reconciliation and controls that everyone understands.
Flaw #10: You guarantee 40 hours a week and open every room with a 7:30 a.m case
Surgery centers should offer the best possible care. They should also be models of efficiency. If you open early and end up with people sitting around idle between procedures, you’re going to run into financial problems. Why? Labor markets are very tight and staffing represents 60 percent of costs. Anesthesia providers are at a premium. Fully staffed empty rooms sap the economic viability of centers. Establish criteria for adding rooms, and we make sure your scheduler is on board with protocols and communicates issues with you.
One thing we’ve learned
If more than half of the flaws above apply to your center, seek help immediately. If only a few of them do, seek help even quicker. No matter how strong your clinical outcomes are, if you don’t run the surgery center as a profitable business, it won’t last long. Oh, and remember: Don’t do penile implants unless someone is paying out-of-pocket for the procedure.
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