Ambulatory surgery centers are a good way to control your practice, profits

An ambulatory surgery center allows a closer relationship with staff and a more comfortable environment for patients.

As Medicare payments to physicians continue to decline, operating in an ambulatory surgery center can be a surgeon’s best option for acquiring greater control of one’s practice and providing better service to patients.

The financial rewards of an ambulatory surgery center (ASC) can help to offset Medicare cutbacks, according to several practice management consultants and surgeons who spoke with Ocular Surgery News. Currently, Medicare reimbursement is lower for a surgeon than for a surgery facility.

“Because of cost cuts, and because LASIK has not been as successful as we’d hoped as a product line, we’re seeing physicians go back to the basics. We’re emphasizing cataract surgery and patient service,” said William Fishkind, MD, vice president of the Outpatient Ophthalmic Surgery Society (OOSS). “You wind up being more efficient than in a hospital, and patients like it, so it’s a practice builder.”

David Schneider, MD, who owns two ASCs, added that owning an ASC can also build physicians’ satisfaction with their work. “There’s not a lot of profit in a surgery center. Much of the value is derived from a feeling of satisfaction of doing a good job and of providing a quality service that distinguishes you from the competition and from the hospital,” he said.

Improvements in cataract surgery efficiency and the decline of the LASIK industry have also contributed to the recent growth in the number of ophthalmic ASCs.

“A lot of surgeons are starting to realize what this means for them and their patients. This is something more of us are seeing as a way we can enhance the experience our patients go through,” said R. Bruce Wallace, MD. “There’s less of a health risk to our patients, and there’s a quicker recovery.”

Dr. Wallace opened his own ASC in 1989. His practice administrator is M.L. Revelett, a certified financial planner with hospital administration experience. Together they began Laser and Surgery Centers of America, a consulting firm for ophthalmologists.

An ASC gives the surgeon control over choice of the equipment he or she uses, rather than having to justify purchases in a hospital setting, Dr. Wallace said.

The consultants interviewed agreed that cataract surgery is the best procedure for surgeons who are considering opening an ASC on which to concentrate. It is the most cost-effective and efficient procedure, and it allows surgeons to build high patient volume.

The planning stage: be realistic

When considering opening an ASC, surgeons must be realistic, several consultants noted. Planning and construction takes time and money. Costs to open a facility can range from $1 million to $2 million. The time it takes to build varies, but surgeons should expect at least a year from inception to opening, said Dawn Cavanaugh, president of Cavanaugh Consulting LLC.

“It takes approximately 1 year to 18 months, depending on the location, state and permit process. In some states it takes 2 weeks to get a permit, and in others 60-plus days. Physicians need to become educated on the process on the front end to avoid overspending and unrealistic expectations,” Ms. Cavanaugh said.

Joining OOSS is an option that can help surgeons during the planning stages. The organization, founded in the 1980s, lobbies for increases in surgeon reimbursement and other issues of concern to ASC owners. But OOSS can also refer its members to surgical administrators, consultants, attorneys and other professionals involved in the process of starting up an ASC, Dr. Fishkind said.

The process of opening an ASC varies depending on the state. A consultant can educate surgeons on concerns such as the state-specific requirements for building and operating ASCs. The consultant can arrange meetings between the surgeon and an architect who can help estimate the cost and the timeline for the project.

Before hiring a consultant, however, there are a number of things a surgeon can do on his or her own to assess the feasibility of opening an ASC.

Is it feasible?

A payer mix analysis, or financial analysis, can show the surgeon what sources most of his or her revenue is coming from: Medicare, self-pay or managed health care companies. A surgeon’s business manager can help with this analysis.

Depending on the city and state, managed care companies may have exclusive contracts with a hospital. In such cases, moving from operating in a hospital to operating in an ASC can eliminate from one’s practice all patients covered by that managed care company, Ms. Cavanaugh said. This may be true even if a management corporation has promised to refer patients from a certain carrier. The management corporation may not be aware that the surgeon’s state allows these exclusive contracts.

“What I have found in certain states, such as California, Florida and Texas, is that they have contracts tied exclusively with hospitals or existing surgery centers. Even though a surgeon may get 80% of his business through Medicare, 25% of the secondary mix might be an exclusive contract such as Blue Cross Blue Shield HMO held by a hospital, which means that those patients would not be covered at the ASC. This analysis is important to understand on the front end of the project,” Ms. Cavanaugh said.

The surgeon can learn about exclusive managed care contracts and pre-certification of surgical procedures from the hospital’s surgery center; however, it may be more practical – and confidential – to hire a consultant to research these matters, Ms. Cavanaugh said.

“As soon as the surgeon has someone call and represent them to the payer, it’s public knowledge (that the surgeon is planning to leave the hospital). This is another reason surgeons go with a consultant, because they can call independently. They can call the state or other services without anyone knowing about the project. Some surgeons do not want anyone to know. They think it will affect their referral sources, and it sometimes does,” she said.

The minimum case volume necessary to make an ASC sustainable is dependent on the region, construction costs, Medicare payments and employment costs, she said. She advised that a surgeon have a minimum volume of 500 cases per year in a rural area and 800 to 1,000 per year in a metropolitan area.

Larry Patterson, MD, who is about to open his second ASC, agreed with Ms. Cavanaugh’s assessment of minimum caseloads, but he advised surgeons to think of the future as well. They need to be prepared if Medicare continues to reduce reimbursements, he said.

“Surgeons have to take into account how many cases they’re doing now and how many they think they’ll be doing in 2, 3, 5 years from now, plus a little cushion in case Medicare drops fees,” he said.

Dr. Patterson expects his caseload to grow during the next 2 years, after he acquires an optometry practice that can refer cataract patients to him.

When considering sources of revenue, surgeons need to evaluate their personal lives as well, Ms. Cavanaugh said. They need to know whether and when they may encounter large personal expenses.

This initial financial assessment will assist surgeons in determining whether they can open an ASC on their own, or if they will need a partner.

Accruing captial

If the surgeon cannot finance the ASC alone, he or she can partner with colleagues or competitors in the community, with a hospital or a management corporation. A consultant can act as a neutral party and inquire about potential co-investors, Dr. Wallace said.

Experts suggest that, before looking for outside investors, surgeons should be familiar with the federal anti-kickback statute and the impact it may have on investment interests in ASCs.

Opinions on partnering with management corporations vary. Because the surgeon must decide, it is advisable to ask other surgeons about their experiences, Ms. Cavanaugh said. She said she has seen surgeons disappointed with management corporations after opening an ASC.

“Once they’re opened, at the end of the month, the surgeons get 40% of the net instead of 100%. In some cases, it becomes a confrontational relationship. I’ve worked with a few groups in ophthalmology that, once they understood how their management service provider worked, realized they were being overcharged for different situations,” she said.

On the other hand, a surgeon may want to partner with a national management corporation because the corporation has the latest information on what procedures are covered by Medicare or other matters, Mr. Revelett said.

“[The partnership] really depends on the financial arrangement and whether the surgeon has access to quality management within their community. If they don’t have someone, then an outside source can help,” Mr. Revelett said.

Ms. Cavanaugh recommended that a surgeon consider opening an ASC alone before considering a partner.

Dr. Fishkind agreed. “A single-service facility with multiple physicians, possibly from outside the center, creates insurance and credentialing issues and costs in additional staff and supplies. A third level of complexity is introduced with multiple physicians and lines of service,” he said.

State-by-state variations

Many factors in ASC planning and construction change from state to state; building permits, the type of facility allowed, licensing and Medicare certification all can vary by state.

After assessing feasibility, the surgeon should learn whether his or her state requires a certificate of need (CON), Ms. Cavanaugh said.

A CON permits a surgeon to build an ASC at a certain location. To obtain the CON, he or she must first prove the surgery center is needed in that area, Dr. Patterson said. He said waiting for the CON took 6 months and prevented him from continuing with the ASC process. Establishing his ASC took a total of 2 years.

Local politics may play a part in the approval, Dr. Schneider said. The CON for his first ASC was denied because the local hospital blocked the approval.

“They used their political clout so that we didn’t represent competition to them. One has to be mindful of the political climate in an area when establishing an ASC to ensure that the political powers in the arena don’t do things to hinder you,” Dr. Schneider said.

Leaving the hospital may mean losing the patients seen there, Ms. Cavanaugh said. At the same time, surgeons may be required to operate on patients there because a health insurance company requires it, Dr. Schneider said.

Building requirements are also determined by the state. The surgeon can determine the layout of a facility to a degree, but state requirements may add costs and seemingly unnecessary equipment.

Dr. Patterson, who practices in Tennessee, said he was required to equip his ASC in the same way as a hospital’s cardiac care unit. He had to install piped gases in the operating room and vacuum ports in the recovery rooms, although these are unnecessary for cataract surgery, he said.

“Regulations and hassles will vary from state to state. Your best bet is to talk to a consultant who is familiar with your state and find what has to be done,” Dr. Patterson said.

Ms. Cavanaugh said the surgeon must research the state health department’s requirements for licensure and Medicare certification. The surgeon must request Medicare form 855B, which sets up the facility to receive reimbursement. The person who heads state health department ASC inspections should be contacted to learn what is involved in the Medicare survey that approves an ASC’s compliance and grants it the right to receive reimbursement.

To participate in Medicare, surgeons may have to have their ASC accredited by a private organization. Some plans within metropolitan areas require this, Ms. Cavanaugh said. Managed care panels may also require it for access to their patient panels, Dr. Wallace said.

Organizations such as the Accreditation Association for Ambulatory Health Care, the Joint Commission for Accreditation of Healthcare Organizations and the American Association for Accreditation for Ambulatory Surgical Facilities perform these private accreditations for ASCs. They require a membership fee.

Building the ASC

Before the building of the ASC can commence, a surgeon must select an architectural firm. Ms. Cavanaugh suggested talking to at least two or three firms to get an idea of their pricing and to determine their availability for the project.

“After they’ve retained a firm, I suggest they hire a consultant. They don’t have to pay the consulting fee for the whole project, but the consultant could meet one or two times with the architectural firm and the surgeon’s practice administrator or project coordinator,” Ms. Cavanaugh said.

The first meeting is probably the most important one because costs are projected, the type of construction project outline is discussed and the timeline for the project is defined, she said. The architects will determine the structure’s compliance with state building requirements. The timeline established at the first meeting will also let the surgeon know when staff will need to be hired and when operation manuals must ready for the state.

The surgeon can begin to accrue cases 60 to 90 days prior to the ASC’s opening, Ms. Cavanaugh said. Before the first surgery can be performed, the facility must pass a “patient-ready” approval. Once that approval is obtained, the surgeon may operate on a handful of patients, and then the state inspector will return to ensure that all compliance standards have been met regarding patient care. Once the ASC has passed this inspection, it can take up to 30 days for the facility to receive its Medicare number.

Because surgeons cannot charge for their services in the interim before the approval is granted, Ms. Cavanaugh suggests seeing patients who may need to finance their treatments or who may receive charity consideration.

Keeping costs low

One way to keep supply costs low is through volume discounts, Dr. Fishkind said. Volume discounting can be one advantage of a group practice, he said. He stressed the importance of maintaining quality rather than going for cost savings.

Another way to keep initial costs low is through product demonstrations. Product vendors may allow surgeons to test their products for free. This can be especially helpful after the surgeon first opens the ASC and is waiting for state certification before he or she can begin earning a profit, Ms. Cavanaugh said.

Surgeons should also consider their scheduling, staff and supply needs. Depending on the number of cases necessary to cover monthly costs, a surgeon may choose to operate only on certain days. For example, Dr. Patterson performs cataract surgery 1 day a week. For that reason, he only has to hire staff for surgery that day, eliminating the need to pay benefits.

“My cost per case is less than half of what it costs our doctors at the hospital. I look for machines and equipment that work more efficiently and at a lower cost, so we’re able to actually make a profit in the surgery center, while in many hospitals they are losing money,” Dr. Patterson said.

Is it worth it?

Although establishing an ASC can be time-consuming and costly, Drs. Patterson and Schneider said it is more profitable and professionally rewarding to open one than to operate in a hospital facility.

“It makes for a better surgical experience for your patients and your staff. It’s an intimate setting in which you can forge even closer relationships with the people you work with. It benefits the entire practice both clinically, emotionally and spiritually. People shouldn’t open an ASC thinking they’re going to become multimillionaires,” Dr. Schneider said.

Likewise, Dr. Patterson stressed patient quality over the for-profit business incentive.

“When you’re doing surgery, the number one thing to do is the best for your patient,” Dr. Patterson said. “You can’t treat this as any other business because there are patients entrusting their eyes to us. Once you’ve gotten to that point, you can do what’s best for them more efficiently and less expensively.”

For Your Information:

• Dawn Cavanaugh, president of Cavanaugh Consulting LLC, can be reached at 1828 Lisa Drive, Suite A, Jefferson City, MO 65101; (573) 632-2661; fax: (573) 632-2776.
• William Fishkind, MD, can be reached at Fishkind & Bakewell Surgery Center, 5599 North Oracle, Tucson, AZ 85704; (520) 293-6740; fax: (520) 293-6771.
• Larry Patterson, MD, can be reached at the Eye Centers of Tennessee, 125 Brown Ave., Crossville, TN 38555; (931) 456-2728; fax: (931) 456-5446.
• David Schneider, MD, can be reached at Midwest Eye Center, 4452 Eastgate Blvd., Cincinnati, OH 45245; (513) 752-5700; fax: (513) 752-5716.
• R. Bruce Wallace, MD, and M.L. Revelett can be reached at Laser and Surgery Centers of America, 4110 Parliament Dr., Alexandria, LA71303; (318) 448-4488; fax: (318) 448-9731.

• Accreditation Association for Ambulatory Health Care Inc. can be reached at 3201 Old Glenview Rd., Suite 300, Wilmette, IL 60091; (847) 853-6060; fax: (847) 853-9028; Web site: www.aaahc.org.
• Joint Commission on Accreditation of Healthcare Organizations can be reached at 1 Renaissance Blvd., Oakbrook Terrace, IL 60181; (630) 792-5000; fax: (630) 792-5005; Web site: www.jcaho.org.
• American Association for Accreditation of Ambulatory Surgery Facilities Inc. can be reached at 1202 Allanson Rd., Mundelein, IL 60060; (888) 545-5222; fax: (847) 566-4580; Web site: www.aaaasf.org.
• American Association of Ambulatory Surgery Centers can be reached at P.O. Box 23220, San Diego, CA 92193; (800) 237-3768; fax: (858) 490-9016.
• Outpatient Ophthalmology Surgery Society can be reached at 793-A Foothill Blvd., #119; (877) 220-3585; fax: (877) 220-2793; Web site: www.ooss.org.