Becker's ASC Review

10 Becker's ASC 21st Annual Meeting – The Business and Operations of ASCs – Call (800) 417-2035 MEDARVA Stony Point Surgery Center already had cash-pay pricing calculated and available for patients at the center before deciding to post pric- es online, but not every center is at that stage yet. "It's easy to get providers to say they want access to international patients and self-insured em- ployer groups, making the verbal commitment to packaged pricing," says Mr. Miller. "However, most groups aren't aware of their true costs. We work diligently with them to come up with the packaged price." Industry evolution Additional forums for price comparison online are sprouting up as well. President of Surgical Notes and Surgery Center Network Jeff Blankin- ship launched a direct-to-consumer surgical so- lution and education platform called "I Need a Surgery" earlier this year designed specifically to bring price transparency to surgery and ASCs. In June, five surgery centers also listed their prices with PricingHealthcare.com, a database designed to help patients price compare. "I think there remains a vital niche in the health- care industry for the independent ASC. We at Stony Point Surgery Center do everything we can to stay independent and price transparency is one way to do this," says Mr. Kupper. "Across the board, awareness of ASCs has been lacking. Demonstrating our value to the community has been a missed opportunity. I hope the ASC com- munity will take price transparency and discuss- ing the value that ASCs bring to healthcare and run with it." Mr. Miller has been working with payer groups in several states who are sending their employees outside of the country for quality healthcare at a lower cost. Instead, he proposes a domestic net- work of packaged pricing at ASCs and surgical hospitals, and payers are paying attention. How- ever, not all surgery centers are excited about price transparency; some who have out-of-network contracts fear publishing their prices for cash-pay patients or bundled payments will put the OON rates in jeopardy. "Some ASCs have made a lot of money over the past decade on OON contracts and they are the ones who fight price transparency," says Mr. Miller. "But those that adapt will have more op- portunity to generate new business. We are just scratching the surface now in offering our narrow network. ASCs that accommodate the self-funded employer packages and can move quickly will have the windfall in the short and long term. Oth- ers will adopt over the next five years or see their revenue fall off the shelf." n Arthur E. Case, CASC, Senior Vice President of Business Development at Out- patient Healthcare Strategies. "If distributions are causing cash flow issues, look at whether you are leaving enough money in the bank to cover short-term working capital or operating expenses," he says. "You don't want to end up in a situation where you are not paying a bill and end up getting hit with late fees or missing out on discount opportunity because you paid a distribution without considering upcoming expenses." Even a $200 to $400 difference in distribution pay could make a huge impact on accounts payable. It may not always be in the best interest of the ASC to make large distributions if cash flow will take a hit. 2. New physician buy-in. One of the biggest factors impacting an ASC's value is physician mix. The strongest ASCs are constantly recruiting new phy- sicians to bring cases to their centers, and with a shrinking pool of indepen- dent physicians in most communities some centers are looking to fast-track physician buy-in. "Due to the maturity of the ASC industry, it is often hard to even find what we call 'orphan' surgeons — ones without an ASC investment," says Joan Dentler, MBA, president and CEO of Avanza Healthcare Strategies. "An ASC looking to grow its investor pool is going to need to offer something compel- ling to lure an investor from an existing investment, and the competition between ASCs to attract new surgeons coming into an area is fierce." Bringing on younger surgeons ensures the ASC will continue, even after the initial investors retire. Buyers like to see a plan for the future, and adding the surgeon's cases can help improve the center's financial situation. However, current owners must ensure new investors have aligned goals and motiva- tions for future growth. "A key to a successful partnership is making sure everyone is on the same page about what they want out of the investment," says Ms. Dentler. "If a new investor is more interested in having their special supplies and equipment while the current owners are focused on expense reduction to improve return on investment, there are going to be problems." 3. Large capital purchases. It's important clinically for ASCs to have updated equipment, but outdated equipment can also impact the center's value. Because a buyer would need to replace outdated equipment, an ASC with updated systems is more desirable. ASC owners and operators may also look to add new specialties or higher acuity cases, and purchasing that equip- ment often comes at a significant price. "We are seeing a lot of capital purchasing at our centers as cases that have been dedicated to the hospital environment move toward surgery centers," says Dar- en Smith, director of clinical services at Surgical Management Professionals. "Some of those cases coming into ASCs require power equipment — like total joint replacement — or other tools for procedures like spine surgery." In addition to keeping the equipment up-to-date, surgery centers are now faced with purchasing practice management systems, operations software and electronic medical records. Mr. Smith recommends collecting quotes form several different vendors before making a purchase and doing the research to determine how the acquisition will impact the center's capital budget. "On each of the items you plan to put into a capital budget, do research to create a return-on-investment report," says Mr. Smith. "Show your board how the investment in new equipment will yield new cases and how long it will take before the equipment will pay for itself." He typically likes to see a return-on-investment in less than 24 months. The ASC should have a place in the budget for capital expenses, but sometimes investors need additional funds. Traditionally they sought financing from banks, but new access to capital from private equity or other healthcare-spe- cific lenders could be beneficial in the future. 4. Declining reimbursement. Insurance companies are squeezing pay- ment wherever possible, and ASCs are seeing declining reimbursement on many standard cases. In-network contracts and narrowing networks leave some ASCs struggling; those that have depended on out-of-network con- tracts in the past may be re-thinking their strategy as some centers across the country are seeing these opportunities dry up. One of the strategies to curb lower reimbursement is bringing in higher acu- ity cases that were previously considered inpatient cases. Joint replacements and spinal fusion, to name a few, are now performed in the outpatient setting due to newer surgical and pain management techniques. But, financial suc- cess with these cases isn't always guaranteed. "ASCs would be wise to carefully conduct their due diligence into the new cases," says Jessica Nantz, president of Outpatient Healthcare Strategies. "Ask the physicians to project their volume and then assume the figure will be at least 30 percent lower. Speak with payers to determine whether they will cover the cost of the cases. Speak with your suppliers and group purchasing organizations to determine exactly what supplies will cost. Make sure there's a positive return-on-investment. If the numbers don't add up favorably for the ASC, these cases could hurt the facility financially." Even if the ASC determines higher acuity cases will be profitable, these are riskier cases and require careful patient selection, surgical precision and staff education before making the transition. Higher acuity cases often take longer 5 Most Pressing Financial Issues for ASCs (continued from cover)

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