Thinking About Building a Retina ASC?
The future is at hand—let's get started.
Part 2 takes on the first scenario: building your own ASC. In this article, Glenn deBrueys, Chief Executive Officer of American SurgiSite Centers, discusses the three components that have the greatest impact on the feasibility and success of building any business: revenue, direct costs, and overhead.
Let's say you have decided to build a new ASC for your retina surgical procedures. Whether you are building from the ground up or retrofitting an existing space, new ASC businesses getting started must consider three major economic issues: revenue, direct costs associated with the project, and overhead expenses. This article will discuss these key components in relation to turning a solid idea into a successful business.
Surgeries performed at an ASC produce revenue. The first piece of information you need to evaluate whether to build your own facility is a 1-year condensed professional activity report, which can be obtained from your billing manager. This report lists all the surgical procedures that you and your practice associates have performed in a given year.
Because not all surgical procedures have ASC-eligible facility fees, it is important to include only those procedures that are performed in an ASC or hospital setting rather than procedures that can be performed in an office.
Once you have determined the volume of ASC-reimbursable procedures your practice performs, the next matter that you must assess is insurance company payments. Cases must be categorized by each insurance carrier, because all carriers have their own unique payment methodologies. Payor Mix is essential to learn so that you can project revenue generation accurately.
It is important to weigh all sources of revenue when considering building an ASC. You may be surprised to see that certain carriers have low payments for professional fees, but the facility fee reimbursement schedule could make it worthwhile to pursue a contract to offer surgical services. For example, certain states have low professional fees for Medicaid patients, but have better than average reimbursement for the ASC/hospital portion. Other carriers may want a global contract, which would bundle anesthesia fees with the facility fee. When building an ASC, you do not want to divide your surgical schedule between the hospital and the ASC; so you will need to have contracts with as many insurance providers as possible, so consider them all.
ASC revenue can come from sources other than facility fees. You may wish to hire an anesthesiologist or a certified registered nurse anesthetist and bill for anesthesia services. Similarly, you can consider hiring a physician's assistant or internist to perform preoperative history and physical exams.
Once you calculate the revenue of total patients and consider your payor mix, the last step is to determine the write-off rate for noncollectible bills. The write-off rate for your pro forma should be calculated at the same rate as your practice write-off rate.
Once you have determined how much the ASC can potentially bill for services, the next concern is how much it will cost to run your business.
Direct costs are expenses incurred that relate to the actual surgical case. These are the supplies used on every procedure. When surgeons work in hospitals, cost consideration of supplies is rarely on the the surgeons' mind. However, in your own facility, careful consideration is required. Be comfortable with the selection of your supplies, so that optimal care can be provided, but consider all items used to see if alternate products could work while saving you money.
All supply items should be studied. You may consider something as simple as having personnel keep a pair of sneakers in their OR locker for exclusive use in the OR suite instead of using disposable shoe covers; or as complex as evaluating the use of varied surgical technologies for greater efficiency that were not available for use in the hospital where you operated. The devil is in the details. Because repeat supply purchases can kill profitability, focus attention on this element. Some ASCs make the mistake of continuing to buy supplies that are typically used in the surgeon's hospital setting. But significant savings can be found by changing draping materials, switching brands of surgical gowns, sutures, and microscope covers, as well as evaluating the options on the retina machines and sclerotomy systems available.
Overhead is often called G&A (General and Administrative) and covers the areas of fixed expense. These are expenses that are essentially the same every month. Typically this would include rent, utilities, insurance premiums, bank loans, and most importantly, payroll expense. Performing surgery two or three times a week is more costly than filling 1 day with surgery because the payroll will be markedly less. The OR nurse manager should be full-time to coordinate all functions of running the ASC, but the rest of the staff should be part time, or come from your office to assist you.
G&A can be managed properly with appropriate forward planning. To start, the layout of the facility will determine the number of employees that will be required to run the facility well. A good OR layout should be designed with the nursing staff in mind. Although surgeons stay in the OR for the entire procedure, the nurses, OR techs and orderlies have to retrieve surgical supplies, transport patients from pre- to postoperative care, and unload and store shipments from the various companies that service the ASC.
There are architectural features, such as having an upscale reception area that can enhance your ASC and make for a pleasant environment, but concentrating on efficient space planning is a key component for realizing profits in your ASC. If you size the physical plant correctly, your problems are more likely to be small and manageable. There is usually a correlation between ASC size and payroll because larger facilities need more people to manage the space. For example, excess hallways, will not only expand the size of the facility but will also drive up the cost of debt for the construction, overhead, and rent with commensurate higher maintenance costs. Debt service results in higher interest expense and prolongs the facility from reaching break-even levels. Determine the number of ORs that you need by considering the current practice volume, the current business environment, and future potential by inviting other surgeons to use your ASC.
Review your business plan with your partners and administrator. Are local politics such that you will be the only practice utilizing the ASC? Does the population growth in your community encourage you to build a larger facility than what you need presently? How financially strong is the hospital in your community?
If your ASC is designed for rapid turnover, one OR room is often enough. Careful thought should go into support areas (eg, central supply, sterile processing areas, decontamination facilities) that serve the OR space. With the appropriate level of instrumentation, a single room can turn around in 5 to 7 minutes. By the time the chart is completed, the next case should be ready. Seek experienced advice. The construction note and monthly rental payments will be with you for the long haul, so put time and effort into the planning process.
The pro forma worksheet (Figure 1) focuses on the amount of surgery and related direct costs for each surgical category. Keep in mind that procedure costs vary by practice. For this article, a weighed mix of average reimbursements from facilities in Massachusetts and Arizona are exhibited along with a weighted mix of G&A expenses. This demonstrates a minimum breakeven scenario.
If you would like to work up your own surgery center scenario, please contact us and we will provide you with an Excel template in which you can input your specific data: www.americansurgisite.com.
Glenn A. deBrueys is Chief Executive Officer of American SurgiSite Centers, Inc., in Somerset, NJ. He can be reached via his web site at: www.americansurgisite.com.
Pravin U. Dugel, MD, is Managing Partner of Retinal Consultants of Arizona and Founding Member of the Spectra Eye Institute in Sun City, AZ. He is a Retina Today Editorial Board Member. He can be reached via e-mail at: email@example.com.
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