More surgery centers are struggling due to decreased reimbursement, saturated physician markets and increased regulations. Paul Skowron, senior vice president of operations for Regent Surgical Health, discusses eight ways to improve profits at a financially troubled surgery center.
1. Identify available physician leaders in the market. Surgery centers looking to improve profits should identify physicians in the market that can influence other physician partners to change their practices and bring more cases to the ASC, according to Mr. Skowron. “We need to have physician leaders who can sell other physicians on the value proposition,” he says. “We want them to understand there is a strategic value for their individual practice if they invest a material number of shares.” In order to profit significantly from ASC investment, physicians must commit a number of cases to one center, in part to avoid the inefficiencies that come from running between multiple centers in a community.
Mr. Skowron recommends first looking for physicians with no ASC affiliation. These physicians are most likely to commit a high percentage of case volume to your surgery center and will be easier to recruit. If the market is saturated, he recommends looking to physicians who seem dissatisfied with their current ASC investment. “Be warned: There may be non-competes and time has to pass so they can divest themselves of the other center,” he says. “But if they’re not achieving a return on investment and not having a good surgeon experience, then they will assist us in making that happen.”
2. Weed out shareholders with one or two shares and other ASC investments. In order to make room for committed ASC investors, Mr. Skowron says it’s important to “weed out” shareholders who don’t have a material number of shares. “There are too many small surgeon investors that have bought one or two shares and are also invested in other surgery centers,” he says. “It’s best to get them to sell out to make shares available for doctors who would truly be committed to the center.” He recommends sitting down with those investors to discuss whether they would like to buy additional shares or sell their shares to a new partner.
3. Accumulate reliable volume estimates for each physician. You won’t know how new physician investors will affect your surgery center until you conduct volume estimates for each new surgeon, Mr. Skowron says. Case volume estimates should take the number of cases the surgeon performs on a monthly basis and then isolate the cases that are appropriate for the surgery center. If the physician only has one ASC investment, all ASC-appropriate cases should come to your center. Case volume estimates can help you make decisions about buying equipment for a new physician; an expensive purchase can pay off if the physician will bring substantial volume in a profitable specialty.
4. Look to local hospitals as possible joint venture partners. Joint ventures are becoming increasingly common, as surgery centers look to gain contracting leverage and increase case volume through a hospital partner. Mr. Skowron recommends looking at the local payor landscape to determine whether a hospital joint venture would benefit your surgery center.
For example, if there are five large payors in a market, but one large payor is avoiding individual surgeon practices because they don’t have enough buying power, the ASC may struggle to achieve profitable rates. Some large payors are choosing to only contract with hospital partners, meaning a successful ASC will need a partner to accomplish net revenue goals and have influence in negotiating managed care contracts. “There are some payors who will not even communicate with smaller ASCs that do not have hospital partners with substantial ownership,” Mr. Skowron says.
He says if the ASC is partnered with a management company, company leaders should visit the hospital to assess how well the partnership would work. “The physicians may have the perception that the hospital is their competition because they have an outpatient surgery department and they’ve been hiring physicians,” he says. “It takes a management company sometimes to go to the hospital and present the value proposition to consolidate the remaining freestanding surgeons in the market.” He says the effectiveness of the partnership will depend in part on how much management the hospital will concede to the management company and physician partners.
5. Standardize hiring practices and cross-train employees. Spend more time hiring the right people, Mr. Skowron says. Hiring and training a new employee is expensive, and you will spend less retaining an existing employee than bringing on a new one. He says job descriptions should be revised so that they accurately describe the position you’re looking to fill.
If a certain skill is required for the position, make sure to list it to cut down the number of unqualified candidates who apply. He recommends cross-training employees so they can work in multiple areas of the surgery center; for example, a surgical tech might perform materials management functions to cut down on staffing costs. When you advertise for an open position, include cross-training expectations in the job description.
6. Look for variances among case costs. Mr. Skowron says one of the most effective ways to improve profits in a struggling ASC is to analyze variances among case costs. “Identify individual physician cost variances, especially for high cost cases such as orthopedic ACL repairs,” he says. He says this variance is driven by a few factors, including reluctance to change supplies on the part of the physician and the influence of individual manufacturer’s sales representatives.
“Reps will meet with physicians at the practice level and try to influence their behavior at the surgery center,” he says. “It’s our job as a management company to stress which practice patterns will reduce costs at the ASC level to increase distributions and increase the bottom line.” He recommends showing physicians data on case cost variances to demonstrate how their actions affect the profitability of the center.
7. Perform clinical reviews to ensure adherence to policy. Clinical reviews can impact a surgery center’s bottom line by minimizing risk, Mr. Skowron says. The lowered risk is demonstrated in fewer transfers from the ASC to the hospital and lower infection rates than the national benchmark. “Clinical reviews involving spending a day in the OR and shadowing the clinical staff to observe their adherence to clinical policies and procedures, as well as the clinical staff’s interaction with the medical staff,” he says. He says you can also present data on your clinical reviews to new shareholders to persuade them to invest in the ASC.
8. Consider new specialties that could be added to your physical plant. Adding new specialties to a struggling surgery center can be challenging if the physical plant was built to accommodate only the current specialties. “If you have a license for a two-OR surgery center, you already have a sense of how many specialties you can move through that particular surgery center,” he says. Mr. Skowron recommends recruiting within the specialties you already have and considering specialties that wouldn’t take up too much room in the surgery center. “Don’t spend the money on capital equipment until the volume is there,” he says.