While some surgery centers may cover their operating costs with 800 to 1,000 cases per year, it typically takes the revenue of 2,000 to 3,000 annual cases to turn a profit. To reach these goals, many practices diversify their services by joining forces with other surgical groups. Before you take on new surgeons or specialties, however, you must consider the volume capacity of the center, your case mix, payer mix, vendor contracts, equipment needs and the terms on which new surgeons or specialties may join your center. Here are some evaluation strategies.

Estimate and enhance case capacity
Traditional measures of OR capacity (800 to 1,000 annual cases per OR) are based on hospital-based outpatient and inpatient case mixes. In many purely outpatient settings, these figures significantly underestimate the capacity each OR can actually handle. An outpatient operating room can typically handle 10 cases per day with a mix of long and short cases. If you only do short cases, the number may be as high as 20 - or more - cases in a day.

With some adjustments, you can enhance your center's capacity. The first and most important step is analyzing your existing surgeon surgical schedule to minimize down time and the number of short days. Other solutions, such as adding a second shift or an additional day of operation increase overhead, but may be warranted if you're already running lean and mean.

What are realistic efficiency goals? Buffer time between surgeons should be kept to 30 minutes or less, and the turnaround time between cases should be kept to 10 minutes or less. Perhaps you can move some cases that you currently do in your ORs to a procedure room. This makes way for a higher-paying OR case.

You need to involve anesthesia personnel in your efficiency evaluation. Anesthesia can be either a great ally or a major hindrance in turning theoretical capacity into reality, depending on how quickly they turn over your rooms. Moreover, you optimize staff efficiency and profit potential when you concentrate cases in as few surgical days as possible. This way, your clinical staff makes highly productive use of their paid hours, and you reduce your costs on the other days. Fully staffing a center every day of the week is a common and costly mistake of many new centers.

Some centers try to have two or more ORs available to one surgeon to minimize his down time between cases. This may be trading off center efficiency for surgeon efficiency. A good rule of thumb to ensure that this practice benefits the center is providing two rooms only to surgeons who average less than 30 minutes per case.

Consider which specialties to add
Before you look to add any outside specialties, it's best to first pursue surgeons in your current specialty or specialties. This often enables you to avoid costly capital equipment investments but can be challenging when the other physician group is in direct competition with yours. Nevertheless, we've seen many instances where competitive practices have joined together in partnership to create more successful centers.

If you do look for outside specialties, the hottest targets include pain management, ENT, general surgery, ophthalmology, GI, orthopedics and podiatry. However, I find that an individual surgeon's volume of cases, productivity and efficiency are more important evaluation criteria than specialty.

We do tell our clients to try to avoid cosmetic plastic surgery because the center must typically negotiate its compensation with the surgeon, putting the two at odds. It often plays out that the center's loss is the surgeon's gain.

Locate favorable payer mixes and contracts
Volume isn't everything. Payer mixes can make or break the decision to add a specialty. Medicare and Medicaid tend to be the worst payers and can turn into significant money losers in specialties such as orthopedics. I recently learned of a situation where a center doubled its case volume by adding orthopedics but did not make any profit because the payers in its market did not adequately pay for orthopedic implants.

If government payers represent a significant portion of the payer mix, then it is important to ensure you also have some good third-party payers. In many states, worker's compensation is one of the best payers. Commonly, the best payers are those with smaller market shares. Do not be surprised if 70 to 80 percent of your profits derive from only 20 to 30 percent of your payers.

If you have an established facility, you'll know from your contracts exactly what your reimbursement rates will be on the cases that you are trying to recruit. If you started as a single-specialty center, your contracts may not be well suited for other specialties. For example, a Medicare-oriented contract may be fine for GI or ophthalmology but will likely lose money on orthopedics. In such a situation, I recommend carving out the orthopedic CPT range and seeking better reimbursement for those codes.

How do you negotiate optimal carve outs? Prepare by putting together information showing the most important cases and what they will actually cost you to perform. It's common for your top 10 cases to represent between half and 90 percent of your surgical volume. Success depends on getting favorable pricing for those cases. On the other hand, the payer's assessment of success may be driven by the general pricing level you accept, rather than by the short list of higher case pricing exceptions you negotiate.

When studying case costs for the negotiation, do not forget to include expensive surgical items such as anchor sutures, shavers, arthrowands, screws, plates, mesh and allograft tissue. Often, the cost of these single supply items exceeds the total case reimbursement. Therefore, when calculating case costs, make an appropriate allocation for the center's overhead. Hold out for contract provisions that will enable you to be separately reimbursed for implants and expensive supplies in these cases. Also, establish a mechanism in your contract that will enable you to renegotiate prices when adding new surgical services to your facility.

Control equipment costs
Equipment costs scare off some facilities from adding new specialties and procedures. Here are some ways you can keep the costs affordable:

The first is to have the physicians within a given specialty agree on a common set of equipment and instruments.

Pay for any add-on equipment out of your operating cash flow. If a center partnership must forego profit distributions in order to fund new equipment, the physician partners are much more likely to ensure the purchase will deliver real benefits.

Make realistic projections (see "Equipped for Success"). The cost of equipping an OR for add-on specialties varies tremendously.

If possible, demo the equipment before purchase. Does it meet surgeon needs and preferences? Additionally, sometimes you can get the equipment on a two- to three-month demo basis to determine whether the new cases are sufficiently profitable and numerous enough to justify the purchase.

Terms of recruitment
If your center is already up and running, recruit by emphasizing convenient block times in a proven surgical environment. Often this is all you need to do to get other physicians in your community to start using your center. Have one of your physician-owners extend the invitation directly; this approach seems to work best.

Before extending formal invitations, determine if you fit each other's needs. Ask potential recruits if they'll share their practice case data with your center. Request printouts showing the number of cases, CPT code breakdowns and the payout percentage breakdown by payer. Volume and payer mix estimates that are made in people's heads are often inaccurate, so request 12-month historical reports with hard data. Armed with this info, you can see what cases the surgeon could bring to your facility and determine whether you can meet the equipment and contract needs to make it mutually worthwhile.

Some physician recruits may want to become owners/partners in the facility. Ownership should only be sold at fair market value. To do anything else could be considered an inappropriate inducement for referral. The amount of ownership, the price and/or debt guarantees, and time frame for expanding the partnership should all be clearly described so that no misleading expectations are set.

Be sure to get physicians out to test drive your facility. If a physician insists on becoming a partner without taking the time to work at the facility, pass on his services. Such recruits rarely end up being good partners. Remember, growing a surgery center partnership is primarily about improving the quality of care given to patients, improving surgeon efficiency and lowering costs.