Four years ago, when Allied Physicians Surgery Center in South Bend, Ind., decided it was time to add cataract surgery, the required capital outlay was cause for concern. So instead of risking the large investment up front, the physician-shareholders opted to contract with an outsourcing company. The result was the instant, and instantly profitable, ability to draw cataract cases from a fairly competitive market.

For each day the center has scheduled cataract surgeries, the outsourcing company brings in everything required for the cases: the phacoemulsification equipment, surgical microscope, intraocular lens implants, microsurgical instruments and surgical disposables. It also provides a technician who sets up the equipment and supplies, monitors the equipment during the procedures and helps with OR turnover between cases. The only items the company doesn't provide are the pre- and post-op pharmaceuticals and the anesthesia.

Currently, three surgeons perform about 100 cataract cases per month at Allied Physicians, with the possibility for more. Read on to find out if cataract outsourcing is right for you.

The benefits and costs of outsourcing
Because there is no capital outlay with outsourcing, there is no risk if a facility's circumstances change. "We eliminate the financial risk," says Jim Tiffany, president of MSS, one of the two largest outsourcing companies in the country. "If the cases go away, we go away, and the facility's costs go away."

Facilities who opt for outsourcing can also offer surgeons the opportunity to use whatever brands of equipment and supplies they prefer. The larger outsourcing companies can generally accommodate any request. Obsolete equipment is never an issue because, when a surgeon wants to switch to a newer model, the facility can build the change into his contract. In addition, facilities are relieved of having to manage inventory, pay for equipment maintenance contracts, upgrades or repairs, and bear the cost of replacing phaco handpieces.

Outsourcing companies often bill facilities monthly or after each surgery day. Costs depend on what equipment and supplies the surgeons use and what the facility's contract includes. For example, some surgeons prefer the most expensive equipment, while others don't. Some facilities contract for everything that is needed for every case, while others may contract only for a microscope, only for supplies, or any combination in between. Contracts have been signed for as low as $95 per case, but the cost per case can be about $600. That per case cost is fixed, unless the facility changes what it orders, which can then push the cost up or down. Even at the high end, the cost per case can compare favorably to Medicare's facility fee per case, which currently is $973 for ASCs and $1,376 for HOPDs (adjusted across the country according to wage index values).

Is outsourcing for you?
Outsourcing works for many different reasons and for many different kinds of facilities. Start-up centers appreciate not having to purchase their own equipment and supplies. ASC groups with multiple facilities like not having to outfit every location. Large facilities can better accommodate different doctors who all have different preferences.

One core group of customers for outsourcing companies is rural community hospitals, for example, in towns large enough to have an optometrist but not an ophthalmologist. "In rural America, hospitals are often located within a large elderly population," said Dennis Deters, marketing and sales director for one of the largest outsourcers, Vantage Technology. "Cataract surgery is a great service for these hospitals to offer. Surgeons from neighboring cities can satellite there. Often, the revenue helps to keep the hospital in business."

Chad Cooper is the president of United Hospital District in Blue Earth, Minn. His 25-bed critical access hospital with $26 million in annual gross revenue serves an area of about 17,000 people, providing a variety of inpatient and outpatient procedures. Two other hospitals are in the area, one within 20 miles and another within 45 miles. Also nearby is a physician-owned ASC, and the nationally known Mayo Health Center in Rochester is only 90 miles away.

"Every situation is different, and each organization has to evaluate the specifics of its situation, but the numbers are pretty straightforward," says Mr. Cooper. "When you analyze your costs and your potential revenue, it is clear whether you will be able to reach the break-even point providing the service on your own. The issue for us is access for our patients, but we do a relatively small volume of cataract surgeries, not a big enough number to break even on our own or exert supply buying power. It's nice to have the option of one of these mobile companies to allow us to provide a service that we may not otherwise be able to justify if we had to make significant capital investments of our own."

One surgeon with a large practice of his own in Minneapolis comes to Blue Earth once a month to perform an average of 15 cataract surgeries. "Traveling needs to be worthwhile for the surgeon, and the outsourcing company allows him to be very efficient," says Mr. Cooper. "He's also confident that he is always able to work with a technician experienced in cataract surgery."

Taking advantage of an outsourcing company's supply buying power was an important consideration for Kathleen Hasz, RN, BSN, as well. She is the operations manager of the physician-owned multispecialty Marshfield Clinic in rural Marshfield, Wis. Last year, 14,685 procedures were performed there, and four ophthalmologists did 1,239 cataracts. The facility was able to show the surgeons that outsourcing was a more cost-effective way to keep up with technology, but an even bigger benefit was the ability to make better use of staff time. "We were devoting so many hours of staff time to cataract surgery for tasks such as logging lenses, ordering supplies and pulling supplies," she says. "Outsourcing allowed us to pull 0.8 FTE from those tasks and maximize that time elsewhere. You have to take a close look at your costs. Don't forget important incidentals like warehousing, crowded supply areas, the dollars associated with generating and processing purchase orders, and shipping costs."

For Pam Watson, administrator of HealthSouth Florence Surgery Center in Florence, Ala., not having to maintain a supply inventory is a major advantage of contracting with an outsourcing company. "We just pay for what we use when we use it," she says.

HealthSouth Florence, the only multispecialty outpatient surgical facility in northwest Alabama, has been outsourcing cataract cases for nearly four years. The facility owns its own surgical microscope, but contracts out for all of its other cataract needs. Four surgeons perform an average of 150 cases each month. Only one other physician-owned outpatient facility provides the procedure in the area. Savings on the cost of supplies and equipment maintenance and repair also led the center to choose outsourcing. In addition, says Mr. Watson, the outsourcing company-supplied technician is a bonus. "Our staff feels as if he is an important addition to the team," she says. Better yet, she says, "our surgeons were allowed to preview the equipment they would use, and they haven't seen a change in how things go for them other than when they want a new machine, they get it."

Run your numbers carefully
While outsourcing cataract surgery can be profitable at any case volume level - companies report working successfully with facilities that perform as few as 50 or as many as 2,000 cases per year - some say that going it alone can be even more profitable at higher volume levels.

"At certain volume levels, with expert operations management, managing your own ophthalmology program might be better for you," says Regina Boore, RN, BSN, MS, the CEO of Progressive Surgical Solutions, a firm that develops ASCs. "It costs approximately $150,000 to outfit an OR to provide cataract surgery. If you don't have that capital or your volume is unpredictable, outsourcing can represent profit without risk. For many rural facilities, knowing they can have an experienced technician and current functional equipment available when needed is important, but a complete financial analysis is key. Your profitability potential depends on many factors specific to your center, including surgeon efficiency, scheduling patterns and volume potential, so you have to consider them all when doing your break even-profitability analysis."

Take supply costs as one example. Direct supply costs for cataract surgery generally run between $200 and $325 per case depending on surgeon preference, standardization and purchasing power. Your supply costs per case could potentially be less, however. It's not unusual for a highly efficient, high-volume cataract surgeon to get his average cost per case less than $200.

"The big factor is that critical volume," says Ms. Boore. "If you have enough volume to maintain an expert staff, justify the capital outlay and negotiate good deals on supplies, going it on your own can be more profitable in the long run than outsourcing."

Others liken outsourcing to leasing a car. At certain times or for certain reasons, it might make good sense. For example, you don't have a down payment, or you simply must have a brand new car every two years. However, you never end up with a tangible asset or build any equity, which are contributors to profit over the long term. You're forever paying that leasing fee. This may make sense if technology is advancing and improving rapidly. But if advances in IOL technology or surgical technique primarily drive advances in the procedure, the flexibility to turn over your phaco equipment may be less important.

You can always make the switch
Back at Allied Physicians Surgery Center in Indiana, where they began outsourcing four years ago, some ophthalmologist-shareholders have joined the team. The change may prompt a new value analysis of outsourcing versus establishing their own cataract program, according to materials manager Debra Straw. "It's possible that eventually we might want to buy our own equipment," she said. "But right now everyone is very happy with the situation."