Interview with Tom Mallon, CEO View the Full Article Here The healthcare sector is not immune to the weak economy and, as such, some ASCs may be finding themselves increasingly in financial trouble. This was the subject of a McGuire Woods teleconference entitled “10 Keys to Turning Around Financially Troubled Ambulatory Surgery Centers: A Case Study Approach.” Brent Lambert, MD, FACS, one of the founders of Ambulatory Surgical Centers of America, and Tom Mallon, the CEO of Regent Surgical Health, presented examples of some solutions for ASCs that are struggling financially.
- Focus on the charge master. When ASCs were working off the Medicare groupers, it was common for gross charges to commercial payors to be 200 or 300 percent of Medicare. However, when you consider that those grouper rates were 50 to 60 percent of costs, getting two to three times those figures barely covered operational costs, let alone paying down debt, says Mr. Mallon. He advises trying to uncover the charges of area hospitals to help you in negotiating rates with commercial payors. Once you do that, he advises, you should bring in high-reimbursement procedures.
- Add high-reimbursement procedures. More complicated but higher-paying procedures such as orthopedics and general surgery can open up new avenues of reimbursement for ASCs.
“We do spine in half our centers and gastric banding in three or four, which gives us flexibility,” says Mr. Mallon. “The bottom end of our business, such as pain management, we’re letting go to the doctors’ offices. You have to treat more acute patients if you want to remain competitive.” Such complex procedures, which can be done in the ASC at a lower cost to insurers than in the hospital setting, can help an ASC improve its payor mix by drawing in more commercial payors, which are always looking for savings; orthopedics cases in particular can mean drawing in worker’s compensation business. In some cases, you may need to look at performing the cases on an out-of-network basis, a tricky area to navigate. “We’ve seen centers being paid all over the map on an out-of-network basis,” says Mr. Mallon. To avoid such a scenario, have a thorough understanding of each payors’ requirements for billing out-of-network (such as obtaining pre-certification), and have a system to check the status of claims payment regularly and to follow up for reimbursement, especially if the payor sends the check to the patients and not the ASC.
- Market the center. The example center had an older surgeon who was able to get the center built financed and opened.
“Clinically, he was excellent,” says Mr. Mallon. But he had a “decades-long reputation” of “being a loner, not having partners. What often has to happen in the turnaround is that the person who is the founder needs to take a bit of a back seat” so the ASC can be better marketed to new and existing physicians. “The marketing side is really key; [ASCs] do not spend enough time and effort on it,” he says. “We look like McDonald’s in terms of profit margins, except McDonald’s is spending 15 percent of revenues on marketing.” The most efficient way to market, he says, is to go directly to physicians’ schedulers. “Partners act like they work for their schedulers – they’re going where they’re told to go, they’re too busy to think about directing office staff,” says Mr. Mallon. “Schedulers may have been working for the physician for decades, scheduling with hospital; they know what they can do and can’t do. Quite often in our model, 20 to 40 percent of patients are out-of-network, so it’s more problematic to get them scheduled. It requires a better relationship with schedulers. “Our centers’ administrators take off with food under their arms at least quarterly to meet with schedulers. They have cell phones; if there’s a concern, schedulers can call them for quick decisions on self-pay patients or other issues.”
- Take financial control. “It’s amazing how many physicians we see whose ASCs or practices have had embezzlement,” says Mr. Mallon. So, the first thing Regent does when it goes into a center is get control of the cash. “You have a clerk who makes $8 to $12 an hour making deposits of $3 million to $5 million a year; a materials manager purchasing $1 million to $1.5 million a year in supplies. There are opportunities to embezzle.”
The solution, he says, is a lock box system that lets the bank handle all cash (“It’s not expensive when you consider the costs of cash being lost, stolen or not handled properly,” says Mr. Mallon.). In addition, the person who posts the payment should not be the same as the person who makes the deposit or opens the mail. “Create an environment where everyone knows you will reconcile every month down to the penny; let them know we’re going to look at details and not get sloppy with them,” says Mr. Mallon. In Mr. Mallon’s case study, “the center became very successful; it went from doing 2,100 cases to 4,200 annually. The EBIDTA was breaking even when we came in, and went to $3.7 million a year. The debt, crushing at first, was all paid off, and it is now a debt-free facility.”
- Look at the ownership structure. In some cases, the facility can help itself to heal by looking within and finding ways to motivate the physicians.
Here, Mr. Mallon cites a hospital-owned ASC which, due to its ownership, did not incentivize physicians to improve the quality of its services. In this case, the hospital wanted to retain control of the ASC and was thus resistant to selling off any ownership shares. To provide everyone control and profitability (and motivation to make the venture work) they desired, the ASC’s real estate and operations were separated into two distinct entities. The hospital retained 100 percent ownership of the real estate, and the operations entity became a joint-venture between the hospital (39 percent), the physicians (51 percent) and Regent (10 percent). This let the hospital enjoy two revenue streams: as the owner of the real estate and, therefore, landlord to the facility, and profit distributions from the operations entity. Further, the physicians had a vested interest in the facility’s success, and it became more profitable.