Surgery Center Turnarounds Five Key Ideas from Two Case Studies

by Joseph S. Zasa, Principal

As the surgery center market matures and ASCs age and go through second

-generation change, the number of under performing centers

has increased. Accordingly, the need for turnaround

management and turnaround strategies is rising.

W/ASD -1

  Can it be fixed? Do the surgeons and/or institutional partners really want to make the changes necessary for this to be successful? What are the real motivations and agendas?

  Volume – do the vested physicians have enough cases to make this venture profitable? Are there potential new users that may perform cases once the center achieves success?

  What about barriers to entry such as employment relationships, non-competition clauses, and/or exclusive payer arrangements?

  Is there anything else unique to the market?

W/ASD-2

W/ASD-3

  Are the financials in cash or accrual format? Are they accurate?

  The Compass – follow the cash and collections   Balance Sheet – how much debt? Is there off balance

sheet debt? Accounts Receivable – what are the write off policies? Can A/R days be calculated?

  Number of Cases by month – look for trends, specialty mix, type of cases

  Net Revenue Per Case specific to payer mix and case mix   Staffing cost per case – be cognizant of case mix   Supply cost per case – be cognizant of case mix   Accounts Receivable – how is A/R worked?

W/ASD-4

  The Compass – follow the cash. Understand how the money is handled, collected.

  Charge master

  Pre-certification process

  Collection process – pre-surgery and post

  Payer contracts– carve outs, MIS system, testing to see if payers pay, denials

  Coding and Billing – timely, accurate

W/ASD-5

  Inventory– is it appropriate for the case and specialty mix

  Risk Management – logs, studies

  Turnaround Times

  Staffing– see financials. How is center staffed? How are schedules made?

  Clinical Protocols

  Patient and Physician Satisfaction Surveys

W/ASD-6

Obtain Buy In = The surgeons, onsite management and staff to

collectively agree on the program

W/ASD-7

  Communicate well with the team –Don’t work in the dark

  Measure progress = Make this fun and enjoyable

  Recognize achievement

W/ASD-8

9 O.R. ASC – 9,000 cases per year

  Losing $100,000 per month

  Recently completed a move and overhead was causing cash flow problems since costs not accurately determined

  Bank gave management a finite time before calling the loan

  Vendors not paid and credit on hold

W/ASD-9

The Diagnostic

  Plenty of cases and a good group of physicians

  Debt was too high. Could not pay dividends until debt/bank issues resolved. Physicians to put more equity in the center

  Very good staff and onsite management

  Inventory and clinical functions acceptable but lack of clinical management plan and updating

  Potential to recruit additional surgeons and procedurists

W/ASD-10

The Diagnostic Continued

  Extremely low revenue per case due to poor collection procedures

  Extremely low revenue per case due to poor contracts

  Poor accounting and reporting

  Staff not using MIS system

W/ASD-11

THE FIX

  New charge master

  New business office procedures coupled with daily, weekly, and monthly reporting

  MIS training for all staff

  Input of all payer contracts to determine A/R days

  Introduction of employee bonus policy

  New clinical policies and procedures

  Re-negotiation of payer contracts

  Adoption of new bylaws and governance agreements

W/ASD-12

  The center was able to show a profit within 90 days and become cash flow positive.

  Equity was raised to address vendor issues and bank concerns.

  New physicians were added.

  Major payer contracts re-negotiated.

  The ASC declared a significant dividend 9 months after operational changes implemented and has declared a quarterly dividend each quarter since initial dividend.

  The ASC declared a staff bonus at the time of the dividend and each quarter since initial dividend.

W/ASD-13

  Losing $50,000 per month

  Informed that the Line of Credit with the bank would be called within six months.

Small, 2 O.R. ASC performing 150 cases per month

W/ASD-14

The Diagnostic

  Relatively low number of cases.

  A mixed bag with the physicians

  Debt was too high. Could not pay dividends until debt/bank issues resolved.

  No management structure. Staff consistently went around supervisor and to physicians to resolve issues.

  Business manager competency issues. Clinical manager willing but needed structure.

  Severe lack of training regarding basic ASC operations

W/ASD-15

The Diagnostic Continued

  Long turnover times in OR

  Poor business office controls and procedures, excellent clinical procedures

  Medium to low potential to recruit additional surgeons

  Very low revenue per case due to poor collection procedures

  Poor contracts

  Non-existent accounting and reporting

  Staff not using MIS system properly

W/ASD-16

THE FIX

  Discussion with investors regarding the management program, structure of the center and need to work together as a team to make it work.

  The size of the center is limiting, but could be used to its advantage. The Management Plan designed around making the center a “boutique” operation that focuses on certain specialties and is a center of excellence for these specialties.

  Identified orthopedic, endoscopy and pain management physicians who expressed an interest if the center was able to become successful.

W/ASD-17

THE FIX Continued

  Complete overhaul of the business office including new personnel in all areas

  Engaged a third party company to provide temporary coding and billing assistance while new business systems implemented.

  Adopted new Business Office Procedures coupled with Daily, Weekly, and Monthly Reporting and Measurement

  Engaged a health care accounting firm to provide monthly financials and determine actual financial picture of the center

W/ASD-18

THE FIX Continued

  Introduction of Employee Bonus Policy

  Adoption of new Clinical Policies and Procedures

  Re-negotiation of key payer contracts

W/ASD-19

  The center was able to become cash flow-positive within 90 days.

  Excess cash flow used to pay vendors. The center was able to get it’s A/P clean within six months.

  New physicians were added (Ortho, Endoscopy and Pain) based on the ‘boutique’ approach – better service, smaller group, potential for higher returns and a larger ownership.

  Major payer contracts re-negotiated (ongoing).

  The ASC declared a dividend 9 months after operational changes implemented.

  The ASC declared a staff bonus at the time of the dividend.

W/ASD -20

  Neither center had a cogent management program, designated leadership completely accountable for the ASC, or proper oversight and training.

  Due to the leadership void and management structure that acts as the foundation to achieve performance, each center slowly drifted off track and nearly failed.

The case studies highlight two very different centers with strikingly similar issues.

Both centers had a break down in the fundamentals of ASC operations (Clinical, Risk Management and Business Office functions). While it may seem that the key problems were business office related, the problems were more macro oriented.