Where's Your Money Going?

I have spent the last 15 years of my career in the surgery center industry focused on ambulatory surgery center (ASC) operations. During that time, I’ve seen surgery center operations from many perspectives — working for a publicly-traded surgery center company, managing and overseeing operations of multiple surgery centers, single centers managed by a local administrator, and running my own ASC business office support company. Now, my role is to perform operational assessments, due diligence and provide oversight and mentoring to staff as a consultant.

In all of these roles, there has been one consistent theme, one thing I hear myself say over and over. The administrators, board members and investors I have worked with are, for the most part, great people and very well intentioned, but often, they don’t know what they don’t know when it comes to operating a surgery center.

The focus is on the end result of quality, profitability, efficiency and satisfaction, but no one is looking behind the financial statements at the real costs involved in operating a business. Running a profitable, efficient and competitive surgery center has its challenges, but they usually can be met with good staff, strong surgeons and cooperative payors.

Many centers are doing a great job providing excellent patient care, producing profit margins that make many CEOs in other industries envious and have investors clamoring to get in the sector. But often the ASC management teams I encounter assume if the lockbox is full every week and distributions are made once a quarter, then operations must be on track and life is good. Once again, they don’t know what they don’t know.

When we are called in to assess a center or hospital outpatient department, the first place we look (and often the most consistent place we see the biggest disconnect) is the identification of — or even an interest in — the true cost of operating the business. I am continually amazed at the number of staff members I speak to during an assessment visit who, when asked, assume that their charges and costs are one in the same. Those were the “good old days” of the cost-plus based healthcare mentality!

This lack of interest in cost determination is something that is unheard of and would not be tolerated in other industries. Almost all the surgery centers we step into for the first time to perform an assessment or due diligence have no idea what their cost per case is. They have never priced out their preference cards or calculated their overhead. The staff was so busy getting open, going through the required surveys and then servicing patients and satisfying the surgeons, that setting up any form of regular case costing always got bumped to the bottom of the “to do” list — if it ever even made it there in the first place. No one took ownership of this critical piece of managing the business.

Identifying costs is often not a priority of even some of the most profitable centers out there. They continue to make money despite their lack of information. Often, out-of-network reimbursements, growth in case volumes or other factors keep revenue high and distract investors from being concerned about what their real profitability per case is. But once they start to see a downturn in revenue, an upswing in expenses, or a quarter without a distribution check, the concern starts.

Often, that is when we are called in to track down the cause of the problem. We find cases that are routinely performed despite the fact that each time the center has actually lost money by performing the case for a particular payor.

We uncover contracts where someone neglected to include reimbursement for implants. We have reviewed multi-year service agreements whose scope (and fee) is far greater than needed to get the job done.

The most important lesson I try to pass on to administrators, department directors, vice presidents of ambulatory services or members of the governing board is to take the time and resources to know what it costs you to perform even your highest reimbursing cases.

It seems so basic, but is so often ignored. We have heard thousands of excuses as to why it isn’t done, but I have never heard one that justifies the oversight. It is a big job and it will take resources. There are ways to make it more manageable; for example, there are excellent information technology (IT) tools available. There are companies such as ours that will take on the project for you. There is really no reason that can justify not taking a clear and consistent look at your costs on a regular basis. It will give staff and surgeons the objective information they need when making decisions on what cases to do, what supplies to buy and when you can afford to hire more staff.

Once you get through the initial pains of setting up the case costing information correctly, and everyone is educated on its importance and everyone is held accountable for making it a priority, you will have the confidence of always knowing what you didn’t know.

Jessica Nantz is principal of ASC Strategies, LLC. She can be reached at jnantz@ascstrategies.com.