Interview with Matt Lau, Director of Financial Analysis February 25, 2010 Below is a chart provided by Matt Lau, director of financial analysis for Regent Surgical Health, of 10 of the best paying ASC procedures (offering average ranges of reimbursements) from selected Regent Surgical Health ASCs for the 2009 calendar year.

Procedure

Average range of reimbursement

Neurosurgery
Diskectomies

$17,000-$34,000

Laminotomies

$9,000-$11,000

Vertebral corpectomies

$17,000-$20,000

Insertion/repair of neurostimulators

$11,000-$18,000

General Surgery
Hernias (Epigastric/incisional/inguinal)

$5,000-$9,000

Laparoscopic cholecystectomies

$5,000-$6,000

Laparoscopies – gastric banding

$12,000-$15,000

Urology
Sling operations

$5,000-$8,000

Cystourethroscopies with lithotripsy

$5,000-$7,000

Orthopedic surgery
Shoulder arthroscopies

$5,000-$10,000

However, high reimbursement rates do not always signal the highest profit potential, Mr. Lau cautions. When it comes to procedures that contribute the most to ASC margins, laparoscopies (gastric banding) are right at the top of the list along with diskectomies, although their average reimbursement is lower at $12,000-$15,000 per procedure. The profitability equation must include a look at cost, volume and a host of other variables that are often unique to the individual ASC, Mr. Lau says. For example, is the ASC’s payor mix heavily managed-care or do out-of-network payors make up much of the payor mix? Do one or two insurers dominate the local market or are several payors competing for the ASC’s contract? Does the ASC have a hospital partner to help leverage better reimbursement rates or is it a stand-alone facility with less negotiating clout? All of these factors and many more will affect the cost vs. reimbursement picture at the individual facility level, Mr. Lau says. Profit can even boil down to factors as unpredictable as the habits of an individual physician. “One physician may love to use a particular implant for a particular procedure, but another physician in the same ASC can prefer a different implant for the exact same procedure,” he says. “There can be a vast difference in cost between the two implants.” Operating an ASC that offers the best mix of high-margin procedures involves a close examination of many factors, but here are some ways ASC operators can make the most of the potential opportunities, according to Mr. Lau: Maximizing revenue:

  • Recruit the right physicians
  • Recruit the right physician specialties
  • Generate case volume
  • Understand the age, size and payor mix of the local population
  • Negotiate effective payor contracts and cancel bad ones
  • Consider partnering with a local hospital to improve negotiating clout
  • Make sure the chargemaster is updated to reflect the local market situation

Minimizing costs:

  • Choose a good group purchasing organization
  • Use a materials management information system to monitor purchases and contracts
  • Manage ancillary service and preventative maintenance contracts
  • Maintain flexibility in staffing levels

Other variables:

  • Know the direct costs of each procedure performed in the ASC
  • Know the profitability for each procedure performed for each payor
  • Be aware of the relative time each procedure takes and maximize use of the facility

“Knowing how much each case will cost you is vitally important to knowing the profitability of the case,” Mr. Lau says. Complicating the reimbursement picture further is a trend among private payors to shift their fee schedules to a Medicare-like model. For complex orthopedic cases in which an implant may be a key part of the surgery itself, for example, a payor might offer an overall reimbursement for the procedure that includes the payment for the implant, where the payor used to reimburse separately for the procedure and the implant. While the procedure reimbursement may be higher, the overall reimbursement might be lower, thereby lowering the profit margin for the ASC. “If that’s the trend,” Mr. Lau says, “it’s even more important to know what the procedure is going to cost you and to figure out if it’s worth doing or not.”