case profitability

This content was written by Regent RCM’s Vice President of Revenue Cycle Erin Petrie and was published in ASC Focus’s August 2020 issue. Please see the original content here.

As the cost of delivering healthcare continues to rise, ASC reimbursement is getting tighter, necessitating even closer cost monitoring and a proactive stance on payer contracts and collection.

While ASCs might have been able to balance a few cases that did not make money within their total case load in the past, today’s healthcare environment puts profitability pressure on every single case. For example, given the nursing shortage, centers now pay nurses as much or more than they would be paid at a hospital, yet the hospital’s reimbursement is 50 percent higher. And that’s just one element driving a need to carefully manage all the factors that impact ASC profitability.

So, where should you start?

Maximizing case profitability comes down to proactively managing two key activities: understanding payers and reimbursement and, of course, controlling costs.

Understanding Payers and Reimbursement

In our practice, we have found a three-step process helps ASCs tackle payers and reimbursement on a case-by-case basis:

  1. Review the case to be scheduled: identify the applicable codes and pin down the overall cost of the procedure, including implant costs.
  2. Verify patient insurance: confirm if the patient’s insurer is a contracted payer and whether the insurance reimburses for the applicable codes. Do they reimburse on the implants? Based on this information, determine potential profitability of the case.
  3. Verify patient eligibility and coverage: review benefits and deductible accumulations to determine the patient’s financial liability and counsel the patient upfront.

Following this process can help ASCs understand case profitability in advance and avoid taking on cases that are likely to result in a net loss. Let’s look at two examples.

The first is a pain management case involving a permanent neuro stimulator implant. The procedure spans three applicable CPT codes, plus implant costs. The ASC administrative team identifies costs to perform the case at $27,000 including the implant, plus staff and supply costs of $2,300 for a total cost of $29,300. The patient has a contracted insurer that reimburses $4,000 plus implants paid at 110 percent for this type of case, with reimbursement expected to be $33,700. The positive variance of $4,400 between the ASC’s cost and the reimbursement make it profitable to proceed with the procedure.

The second example is a bit less straightforward. In this case, the patient needs a total hip procedure and is insured by Medicare. Costs are $6,250 including the implant plus $2,500 for staff and supply costs for a total of $8,750. Contract reimbursement is $8,900, which at first glance looks like a positive variance of $150. However, the recommendation is not to proceed with the case. Why?

With Medicare, the patient would normally be required to pay 20 percent of the $8,900 as co-insurance but in this case, the patient also has Medicaid as a secondary insurer, so they don’t have to pay the co-insurance. Here’s the problem that faces the ASC: as it turns out, Medicaid won’t pay the 20 percent either because the 80 percent paid by the primary insurance is still more than Medicaid would have paid for the procedure. Scenarios like this underscore the need to really understand your payers. In this case, the dynamic between Medicare and Medicaid as a secondary insurer means actual reimbursement to the ASC is 20 percent lower—just $7,120 toward the ASC’s costs of $8,750—creating a loss of $1,630.

“Maximizing case profitability comes down to proactively managing two key activities: understanding payers and reimbursement and, of course, controlling costs,” said Vice President of Revenue Cycle, Erin Petrie.

If an ASC doesn’t have the bandwidth to dig into the profitability of every single case, a good place to start is with high-dollar cases or anything with an implant. In many instances, payer contracts will not provide separate reimbursement for an implant, bundling it instead within one price. Knowing which payer contracts allow separate reimbursement for implants helps manage profitability, especially on cases where a more expensive implant is needed.

One final point to understand about payers and reimbursement is the trend toward higher deductibles and patient responsibility. Studies from Kaiser PermanenteTransUnion and Advisory Board show that within the next few years, as much as 50 percent of total ASC reimbursements will come directly from patients. As the percentage of the bill to be paid by the patient continues to increase, ASC profitability can be at risk. Centers that are used to collecting primarily from insurers need a different strategy for patient collections and should begin to think about collecting up front and focusing on financial counseling with the patient to avoid bad debt.

Controlling Costs

When it comes to case profitability, the other side of the coin from reimbursement is managing costs such as staffing, supplies and inventory management.

Most ASCs are adept at managing variable staffing by controlling schedules and sending people home when case volume is low. Centers also need to think about optimizing their fixed staffing equation, like the business office staff doing insurance verification, scheduling, calling patients and doing check-ins. An ASC-specific benchmark is 1.5 full-time equivalents (FTEs) per 1,000 cases for business office staff, based on the number of cases a center does in a year, according to the Regent Gold Standard.

To manage profitability well, it is vitally important that ASCs stay on top of the business side of the operation and do all the work to ensure they are not leaving money uncollected. For example, staff should not be so lean that there is not time to confirm that payer authorizations are on file, because more and more codes are moving to requiring pre-authorization and cases will be denied. On the flip side, if there is too much administrative staff, chances are good that it will impact the ASC’s profit margin.

Another important factor in controlling costs is supplies and inventory management and working to get as close to just-in-time inventory on commodity items as possible. Ideally, an ASC should be forecasting needs and putting in supply orders every day to avoid having too much sitting on the shelf, but also to ensure needed supplies are available so every case can be performed on schedule. Every inch of space needs to be productive in an ASC, especially for supplies that are required to be stored in a sterile space. Centers pay a premium to lease space, so ASC leaders really need to make sure they are not overbuying inventory and storing too much.

In terms of implants, it is critical to have a standardized process for handling physician requests. Centers want to do due diligence before honoring a request for a new higher cost item, to make sure there is not a reasonable alternative in inventory or a more cost-effective alternative. Having a process moves the conversation away from personal, directing questions to the practical: “Are there ways that this will save OR time?” or “Are there ways that this could replace other supplies we would normally have to use in tandem with the implant?” These questions go beyond just looking at the bottom line to help uncover different ways a new implant might be more cost-effective.

Getting Started at Managing Case Profitability

Any center already doing any advance modeling of case profitability is ahead of the game. Many ASCs look only at profits in arrears, comparing case profitability to the last quarter or the last month. A good first step might be looking at these numbers on a weekly basis and looking ahead to review the high-dollar cases coming up. With case-by-case analysis, ASCs can identify trends and see if there is opportunity on the cost side. If a center is already tightly managed on the cost side, the next step is improving reimbursements and contracts and, in the meantime, becoming diligent about not taking on cases that will not be profitable.

Contact Erin Petrie at epetrie@regentsurgicalhealth.com or click here.