Overcome These 6 Factors that Threaten to Erode Your ASC Profits

Posted on 8 Dec, 2017 |comments_icon 4|By Elizabeth

If you own all or part of an ambulatory surgery center (ASC), you’ve invested a lot of money, energy, and time into what is, essentially, a small business. So how do you ensure your ASC is staying profitable on top of everything else you do as a physician? A combination of financial know-how and strategic planning are essential to the continued profitability of your surgery center.

Unfortunately, this is a place where many physician-owners stumble, because, let’s face it, keeping up to date on financial moves—and following through—can be overwhelming. Knowing where you stand financially (and knowing what to do about it) takes time you might not have. It also requires thinking about problems you may have successfully ignored until now. But current changes in in healthcare make strategic financial oversight imperative. Today’s physician-owned ASCs face a multitude of factors that threaten to erode their profitability.

Let’s look at some top concerns for ASCs today:

Profit Pitfall #1: Value-based Reimbursement

Succeeding with value-based reimbursement means increasing value while lowering costs. A decrease in cost—even a significant one—can’t also result in a decrease in outcomes.

“Theoretically, if we decrease cost by 50% and decrease outcomes by 10%, we haven’t created value. [That’s] not acceptable. Any decrease in cost cannot result in a decrease in outcomes,” says Jeff Peters, CEO of healthcare consulting firm Surgical Directions. Data is more critical than ever in terms of negotiating rates with payers and reporting quality outcomes to Centers for Medicare and Medicaid Services (CMS).

The adage is often true—you have to spend money to save money. If you’re not doing much financial or clinical benchmarking, you’ll likely need to invest money and time in your IT infrastructure, software, staffing, and training. But accessing and developing the data you need will lead to greater profits long-term.

The key is for ASC owner operators to really know their markets and be masters of the data and analytics necessary to demonstrate and be compensated for their financial and clinical merit,” said John Newman, senior vice president and general counsel for Constitution Surgery Centers.

Profit Pitfall #2: Bundled Payment Programs

Despite major health policy changes, Medicare’s bundled payment program is moving forward. Like MACRA, it’s politically bipartisan, and while the program specifics may change, it has little chance of retreating. Commercial payers, who often follow CMS’ lead, have begun to move in this direction, citing cost reduction and better patient care as benefits of bundled payments.

For you to benefit from bundled payments, it’s essential to keep costs per case down, especially if your center depends on Medicare revenue. Medicare sets a target rate for the procedure along with pre- and post-op care. If the center exceeds the target rate, they owe the difference to Medicare. If the care costs less, the center keeps any excess payment.

Bundled payments present financial and clinical challenges, but there are ways to overcome and even benefit from them. Donna Giles, RN, BSN, vice president of clinical operations, and Terry Bohlke, CASC, vice president of operations at National Surgical Healthcare, spoke to ASC owners and operators about productivity at the ASCA Annual Meeting in 2015. They say that the most successful ASCs display three characteristics: “strong leadership, strict time management, and a culture of efficiency.”

Variance in cost of care among surgeons can hinder your center’s ability to lower costs per case. Physicians who are outliers on cost need to be addressed, whether the problem is their choice in supplies (like too-expensive implants) or some other issue. How can you identify high-cost surgeons? It’s all about the data, of course.

Operating room efficiency is also essential to remaining financially viable, says Jeff Peters. He cites delayed start times and too-long turnovers as areas that frequently cause centers to fall short. Increasing and maintaining OR efficiency requires a collaborative environment among center leadership, surgeons, clinical staff, and support staff. How you choose to hire, train, and manage staff at your center will make or break your OR efficiency.

Profit Pitfall #3: Hospital and Health System Acquisition

According to ASCA, hospitals have ownership interest in over a quarter of ASCs in the U.S., and that number is growing. “Hospitals now see ASCs as essential to a future where quality and cost effectiveness will be demanded… With this growing level of recognition and appreciation, hospitals, payers and risk-taking provider groups are buying and partnering with surgery centers like never before,” says Luke Lambert, CEO of Ambulatory Surgical Centers of America.

For physicians, hospital alignment can mean better leverage when negotiating with payers, increased market clout in saturated geographic areas with lots of competition, and better continuity of care (important in an increasingly value-based environment).

There are downsides to weigh, though:

  • Employed physicians who have relinquished equity (along with decision-making ability) in their center can become less engaged, resulting in a negative impact on the center’s performance.
  • A hospital or health system may not view an ASC partner as its equal, leading to further dissatisfaction when physicians begin to feel like a “cog in a wheel.”
  • Health system-employed physicians exert negative downward pressure on caseloads at independent ASCs.
  • As more physicians are employed by hospitals and health systems, independent ASCs will have a tough time recruiting new physicians—the pool will be smaller.

Profit Pitfall #4: Payer Consolidation

While a few specialties draw the majority of their profits from Medicare, many rely on commercial payers. Commercial payers account for 51% of ASCs’ caseload by volume, but 65% of collections, according to VMG Health’s 2016 Ambulatory Surgical Center Financial and Operational Benchmarking Study.

Unfortunately, payer consolidation over the past several years has led to outsized market share. Independent ASCs have less leverage when negotiating rates, and as a result some ASCs are choosing hospital or health system alignment to take advantage of the larger system’s negotiating power.

“Less payers in a community translates into less market options for surgery centers,” according to a July 2015 article in Becker’s ASC Review. “…If there are only a few key payers in a community, an ASC must either contract with them or face challenges of being out-of-network with them.”

And being out-of-network is more ominous than it sounds. Commercial payers are consistently reducing the amounts of their out-of-network reimbursements—if they’re paying at all. “Payers are being held accountable by employers and are scrutinizing out-of-network claims, Naya Kehayes, CEO and managing principle of Eveia Health Consulting & Management, told Becker’s.

“As a result, payers are implementing aggressive audit procedures and demanding refunds from providers who offer out-of-network patients discounts,” she continues. “Payers are also… terminating contractual relationships with providers to deter physicians from providing surgery in an out-of-network surgery center.”

Profit Pitfall #5: Out-of-Pocket Patient Payments

Significant increases in high-deductible health plans (HDHPs) and HSAs has placed greater financial responsibility on patients. It is estimated that the percentage of workers enrolled in an HDHP has increased from 10.0% in 2006 to 46.0% in 2015, according to the 2015 Kaiser Employer Health Benefits Survey. As a result, health decisions are becoming increasingly consumer-driven.

Patients are price shopping, making value-based comparisons among providers, and at times even delaying needed procedures due to out-of-pocket costs. Not only does this threaten to reduce caseloads at ASCs, it also makes revenues harder to collect, as a larger portion of revenues is coming directly from patients, not payers.

Profit Pitfall #6: Declining Reimbursement

Reimbursement changes, while hard to predict and plan for, can wreak havoc on a center’s budget. For example, if you have contracts that expire, and you’re unaware or unable to renegotiate rates, you may be faced with receiving flat or lowered reimbursement from that payer. If CMS adjusts rates downwards, you’ll need to know so you can plan cost reductions to compensate. Lower reimbursements not only affect payment for the procedures you’re already performing, they can also affect your overall case volume.

If your physicians experience a reduction to their professional fees through Medicare, they may stop bringing cases to your surgery center. Lori Vernon of Health Inventures spoke to Becker’s ASC Review about the importance of staying updated on regulatory issues affecting surgery centers when strategic planning. “It’s very important to know what Congress, or what CMS, is doing. You can receive updates through your state ASC association or the ASCA.” Keeping your strategic plan current by understanding governmental actions that will impact surgery centers is vital.

But Wait…There’s Hope

If these potential profit busters worry you, you’re not alone. Evidence might suggest that independent, physician-owned ASCs are a dying breed, but don’t be quick to form that conclusion. “Overall, the ambulatory surgery center space reflects a mature market, with fewer opportunities for true de novo development,” Newman told Becker’s ASC in 2016. “That having been said,” he continues, “I remain bullish on the future for ambulatory surgery centers. ASCs fundamentally empower physicians to promote efficiency in patient care. As long as ASCs maintain their inherent capacity to be both cost-effective and qualitatively superior clinically, they will always have a place in the market.”

Consider the many opportunities for independent ASCs to grow and profit in the market today, including:

  • Increasing your volume of cases that have the highest revenue returns
  • Replacing low-acuity, high-volume cases (like GI) with high-quality, higher-acuity cases
  • Increasing the specialty or procedure mix within your ASC
  • If you already have the volume, expanding your ASC

If you’re thinking “OK, let’s just get out there and get some more ortho cases on the books,” you’re heading in the right direction. But to truly take advantage of any opportunity, you need to be prepared, and that means being financially intelligent and having a strategic plan. In today’s healthcare environment, physician-owned ASC’s that want to stay competitive, independent, and profitable will have to take a careful look at their ASC’s overhead, revenue cycle management, and operational efficiency. That’s where strategic planning comes in—a combination of financial awareness, goal setting, and concrete action plans.

Capitalize on the guidance to combat today’s threats and take your ASC to the next level with TCI’s How to Lead Your ASC to Excellence and Profitability: A Guide to Making the Right Decisions for Your Ambulatory Surgical Center.



Elizabeth works on an array of projects at TCI, researching and writing about modern reimbursement challenges. Since joining TCI in 2017, she has also covered the nuts and bolts of cybersecurity, compliance with federal laws, and how to tap into the advantages of telehealth services.

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