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Business Advisor
9 Mistakes That Can Sink Your Surgical Facility
Scott Becker
Publish Date: October 10, 2007

Whether you're the new kid on the block or you've been around the block, here are nine blunders that can sink a center.

Overbuilding Physicians excited by projections of revenues and caseloads and the prospect of a big, beautiful building often overbuild. Building big is a cost that you'll never stop paying for. It starts with added construction costs and continues with extra costs in equipping, debt service and utilities.

Poorly thought-out staffing It's tempting to minimize wages by staffing the center leanly. But that can put you at odds with employees and cement your reputation as a poor payer. The better tack is to reduce the number of hours the facility is open to meet your expected caseload. Rather than being open five days, paying staff for five days and operating at 30 percent capacity, open three days a week, operate at 70 percent capacity and pay the staff very well for those three days. Ultimately, you pay staff more per hour for the hours that they work while keeping staffing costs between 25 and 30 percent of collections.

Signing bad contracts Countless facilities fail not because they did a poor job managing supply costs or scheduling cases, but because they didn't sign profitable managed care contracts. No number of cases can overcome paltry rates. Besides, increasing the number of cases when rates are too low will increase staffing, equipment and supply needs, create scheduling headaches and often lead to poor service. You're much better off operating on a non-contract, out-of-network basis with some payers - or simply not serving patients of those payers.

Not hiring professional management help Many physician-owned surgery centers thrive, but partnering with an experienced management company improves your chances for success, even if giving away a small percentage of revenues stings. You may be making more, even when you're giving up a piece of the profitability, than you would have had you gone it alone. Of course, you want to take care when hiring a pro manager because ?

Hiring bad management...there's nothing worse than hiring a management company that doesn't provide good efforts and intelligent help. Many so-called consultants lack the staff or support to render good services. Find several physicians who've worked with each company you're interested in - not just references that the companies give you. The cost of separating from an underperforming management partner is immense.

Not striking the right balance of shares Just as depending too much on two or three physicians to fill OR timeslots is a bad thing, so too is having too many owners. You want to find a nice middle ground: 10 to 15 is the right number of investors for a mid-sized facility. Keep in mind that a hospital, like a physician, won't be committed if it owns too little; if a hospital owns less than 20 to 30 percent, its interest in the project will be very low.

Having just one bad partner There is an old saying among lawyers: "Bad people cannot make a good deal." And in a surgical facility, it only takes one poorly behaving partner, be it a management company, hospital or individual, to spoil the fun. The result of such a situation is often countless hours spent on political problems, rather than on trying to constructively move the center forward. We witnessed, for example, one physician lead eight key orthopedic physicians out of a hospital project. All it takes is one strong-minded, confrontational physician, particularly if the other physicians don't want to spend their limited time in combat.

You must trust each and every one of your partners if you're going to work together over the long haul. Successful facilities are often built around a practice group or a core base of physicians. When you have this base, whether a practice or a group of physicians who are devoted to each other and the center, viability is often assured, and you can spend your time trying to improve operations and profitability. A center that's built around a large number of unrelated parties without a single, coherent base of viability is more likely to experience long-term challenges and problems. When it comes to running a business, you don't want to be playing catch-up just to survive.

Failing to live up to compliance standards Over the past few years, the Office of Inspector General hasn't appeared overly aggressive in pursuing surgery center joint ventures and transactions, which may lead to a false sense of security regarding the need for compliance efforts in measuring those efforts against the Anti-kickback Statute.

We believe this can lead to bad business practices and extreme vulnerability if your facility were to be investigated or prosecuted, especially because the federal government is reloading resources for investigating healthcare fraud and improper relationships. It's a profitable undertaking for the feds: The DHHS Inspector General recently testified that, from 2003 to 2006, the OIG recouped $13 for every $1 invested in prosecution and investigation. The ambulatory surgery industry certainly is not and will not be immune to these efforts.

Falling down in billing and collections There is nothing more fatal to a business - especially a surgical facility - than not focusing appropriate efforts and resources on billing and collections. If your money is tied up in accounts receivable, your profits are dwindling by the day. There's plenty you can do, aside from hiring top-notch staff for your business office, to ensure this doesn't happen to you; for a full rundown, see "13 Billing Strategies to Get Paid Faster" on page 42 of the March issue.