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Sell it or close it. That's what I said to the hospital CFO who came to find out why my facility, Metro Surgery Center in Phoenix, Ariz., was hemorrhaging money. The hospital wasn't interested in syndicating the surgery center and within a matter of months, it took my advice, selling us to an ASC management firm specializing in turning around troubled centers.
Today, our four-OR, multi-specialty surgery center is thriving. December 2004 was our best month: We performed 361 cases, more than double the 150 cases a month the center was averaging two years ago.
Call them management firms, corporate partners or turnaround specialists. Call them raiders or crusaders. Whatever name you give them, know that the men and women in suits aren't miracle workers. But the right turnaround team can rescue facilities with the potential for success. At least that's what our experience has been. I knew what Metro needed to be saved, but felt powerless until I had the backing and resources of a corporate partner to lead me down the road of recovery.
Beginning of the end
Metro's 9,000 square feet of clinical space was dated (we opened in 1986), but it included seven pre-op bays, eight PACU beds and a footprint conducive to efficient patient flow. The center also had a loyal corps of surgeons and a devoted clinical staff. A good indicator of a center with the potential for success is a lack of staff turnover, and we had that.
Unfortunately, the Metro coin had a flip side. The group of loyal surgeons was disenchanted with previous promises of syndication from the hospital owners. So much so that two ophthalmologists who accounted for nearly half of the facility's case volume left for another opportunity after tiring of empty promises.
What little life Metro had left was sucked out the door with the departing eye MDs. Small monthly profits immediately turned into operating losses, problems with payer contracts became magnified, and the hospital owners were suddenly interested enough in the center to sell it. I realized nothing attracts attention like red numbers. Surgis, Inc., purchased our facility and set out to resyndicate the shares to surgeons.
Bringing Metro back to life began with an attempt to rally the surgeons who wanted ownership shares in the center. Remember, we were hospital-owned before Surgis came along. A group of 12 physicians were already using the facility; the key was to corral them before they moved on to other ownership opportunities. The frustrated surgeons weren't investors and therefore had no motivation to bring more cases to the center. But they had a strong interest in acquiring ownership shares - an interest the hospital's broken promises had dampened.
We engaged the surgeons with an offering document; it stipulated that up to 49 percent of the center's ownership would be syndicated to surgeon-investors (see "Selling ASC Equity to Utilizing Physicians," June 2003). It also outlined the establishment of two facility boards. The governing board was developed to give the physician-owners a say in the overall direction of the center while the medical advisory board focused on the clinical performance of our center and reported its findings to the governing board.
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Turnaround Tips |
Hold Ground with Payers Don't be afraid to ask for more from third-party payers, and consider canceling their policies - sometimes that's the only way they know you're serious. We took on a facility that was getting reimbursed $750 for cases that cost them $950. We cancelled every contract and renegotiated with a handful of the payers, increasing reimbursements to more than $1,200 a case. Thomas Mallon Grain of Salt Don't build your center's expected revenue on what a surgeon says. Surgeons almost always overestimate the number of cases they'll bring to your facility. We usually cut the number in half, but you can expect a surgeon's actual caseload to be 70 percent to 80 percent of the number they give. Gregg Stanley Analyze Your Case Costs Look at the types of cases you're scheduling, measure procedure times, payer reimbursements and supply costs. Most administrators don't know which cases are profitable. A corporate partner can determine which cases are profitable, which surgeons are using most of your OR time and which are producing profits. A surgeon may be using 20 percent of your block time while making no money for your facility. You have to tell him to increase his fees or take his cases elsewhere. That's a hard conversation to have, one best left for an impartial partner who looks at a facility from purely a business perspective. Jon Vick Compress Staff, Schedule Facilities interested in turning around their fortunes should schedule more cases on fewer days of the week instead of fewer cases on several days. Part-time staff will let you send employees home when ORs aren't in use. We did that at one facility and dropped payroll as a percentage of receipts from 50 percent to 20 percent. The use of part-time staff also eliminates the expense of employee benefits. Brent Lambert A Monthly Financial Checkup Take financial reports from your billing module and analyze your average case costs and your average reimbursements. A major fluctuation in back-to-back months is a red flag. Is it your case mix? Have you taken on more Medicare cases? Be on top of everything on a month-to-month basis to avoid problems that will threaten the livelihood of your facility. Caryl Serbin, RN, BSN, LHRM Start with Billing, Collecting Doing the work on the front end of the date of service such as verifying benefits and assuring the case is a profitable one is key. Once the case has been performed, require that the transcription is completed, the coding completed and the bill dropped to the payer (or carrier) within 48 hours of the date of service. Once billed, start working the accounts at three weeks and no later than 30 days. The older the account gets, the less likely you'll see money. Dawn McLane-Kinzie |
The offering document solidified the surgeons' faith in the potential of the center, and the resulting momentum spurred an effort to pound the pavement in search of more surgeons.
We needed to secure additional owners, and therefore more cases, for the facility. I believe corporate partners are essential in recruiting surgeons to join rebounding facilities. Not only do they have a ready-made network of potential partners to target, but they also bring a certain presence and credibility to the recruitment meetings. It's hard to convince a surgeon to join a struggling center on your own; having a corporate partner present helps to validate the future of the project.
Our conversations focused not only on what Metro could offer the surgeon, but also on the surgeons' net revenue per case, expense rate and break-even volume. We wanted to know how those factors fit our needs. The original group of 12 surgeons soon grew and now accounts for about 28 percent of the center's ownership.
Spending money to make money
Our corporate partner's equipment specialist said he wanted to shake the hand of the museum's curator after he inventoried Metro. He was joking. Sort of. It was clear we were in desperate need of a capital equipment upgrade. Our physician-owners weren't thrilled with the idea of plunging an unprofitable center into debt, but the impartial - and experienced - voice of our corporate partner convinced them otherwise. We pumped an initial investment of $525,000 into new equipment and watched as that figure grew to $1.3 million over the first 24 months.
We put ourselves in debt with the knowledge that the investment would increase revenue. The center started turning a profit six months into our new ownership, and the $525,000 is the only loan we've ever taken out. We paid off the rest of the $1.3 million as we went.
Here's what I learned from our corporate partner with respect to capital upgrades: Focus on growing what you're already invested in and develop the services for which you have the equipment and expertise. To save our center, we invested heavily in orthopedics, a specialty that made up half of our caseload then and 70 percent of the caseload now. We also invested in pain management and reinforced our ophthalmology and podiatry equipment. An ENT program might be in our future if we have enough interest, but that's a secondary priority.
Payer contracts
The Phoenix area is a highly managed care market, a big negative for us because of the implants we use in a large portion of our procedures. Here's a quick example of what we were up against. The cost of grafts (to us) used in ACL repairs range from $1,900 to $6,000. One of our third-party payers would pay for a graft if we appealed the case, but refused to cover the screws and anchors needed to secure the implant. The hardware costs between $250 and $600, an amount we lost right off the bat in ACL repair cases.
That was a crippling situation for us, but instead of ceasing to perform our bread-and-butter procedures, we tried to renegotiate our payer contracts to include carve outs for expensive implants. A corporate partner will have the experience to help you with the process, but sometimes that's not enough to turn the negotiating tables in your favor.
The numbers game
Lean on your corporate partner to install an information system to track management information - things like supply inventory, billing and collecting, and physician utilization. Clear and easily accessible data is an incredibly powerful tool in the successful management of any facility. Here's how our new information system has helped me.
- Supply costs. The inventory process of our past was difficult and very inaccurate. When we did count everything to plug into our new information system, we found close to $75,000 worth of supplies we no longer had a use for and our corporate partner was able to find a sister center to take the supplies off our hands. They have a Web site that serves as a quasi eBay for the facilities that fall under its corporate umbrella; we're able to find takers for supplies we no longer need and pick up needed supplies for a large discount.
The supply-tracking system we use is invaluable in getting a handle on our costs per case. I now provide surgeons with the exact amount we spend on supplies for each procedure. Equipment reps are notorious for adding hundreds of dollars to case expenses with - what I like to call - the widgets and toys they sell surgeons. With the hard numbers I now present to my surgeons, they're able to make an accurate and comprehensive analysis of whether a new supply is something they actually need.
- Bargaining power. Our facility's information system also gives me leverage with our local implant vendors. The cost of implants will make or break our center, and I now have the data to back up my tough talk with vendors. I make them aware that we show our surgeons the cost per case of their product - and their competitors' products. I haven't had one vendor who isn't willing to sit down and talk after learning about the data I can reference.
- Budget forecasts. Before our corporate partner established a business office within the walls of our center, I sent invoices to our downtown hospital and essentially had no way to track A/R.
Today, I know our accounts over 90 days are 12 percent of the total AR, our collection rate for accounts over 90 days is in excess of 95 percent and the collection rate for accounts over 120 days is more than 90 percent. I can also track cash collected against estimated front-end revenue. In other words, if I know exactly what we're collecting over 90 days, I can accurately determine how cash is lagging out and therefore don't have to keep money frozen in reserve.
Developing my budget is now a hands-on process. Not only can I see where our finances stand on a monthly basis, I input factors that change our center's financial performance - things like caseloads dropping because a surgeon is on vacation - and measure our actual performance against forecasted numbers.
I'm now able to do an accurate cost-case analysis. Are we using the right fee schedule for a particular third-party payer? What's our net revenue by CPT code? What's our inventory supply cost per case? I had no clue before the information system was implemented.
- Facility comparisons. A corporate partner will provide an online network of sister facilities to benchmark your center's performance against. In fact, I'm working with a sister facility to determine why its arthroscopy case costs are less than Metro's. We've discussed supplies, the way surgeons perform cases and coding. It's been a hugely valuable exercise to work with another center to discover ways to improve our financial performance.
Stronger than ever
My center was within months of shutting its doors forever. It didn't just survive; it prospered. We'll be performing 400 cases a month shortly, a number I never would have imagined reaching two years ago. The foundation for success was in place to make that kind of turnaround possible, but it was the presence of a corporate partner that gave us the tools and legitimacy to pull it off.
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