This article is written by Scott Becker, David Pivnick and Lindzi Timberlake of McGuireWoods.
This article discusses 12 ideas and tactics that are critical to ASC success both today and over the next 24 to 36 months. ASCs must both block and tackle effectively and approach the market in certain new ways to stay effective and profitable.
ASCs face two substantial threats. First, payors are increasingly looking at all avenues to cut costs and stay relevant in the insurance business. In an article in the Wall Street Journal, entitled "Medical Care Time Warp," dated August 2, 2012 it states:
"Under pressure to squeeze out cost, some of the U.S.'s biggest health insurers are quietly erecting more hurdles for patients seeking medical care. The companies are in many cases reaching back to the 1990s and boosting the use of techniques that categorized patients and doctors alike. Today's approaches are tweaked, but many feel familiar to many: Insurers are rolling out plans with more restricted choices of doctors and hospitals, and weighing new requirements for referrals before patient can see specialists." It also states that payors are using "Narrow networks: Often " tiered, "so patients get bigger out-of-pocket charges if they go to providers that aren't in the top category, then even larger bills if they go completely out of the insurer's network." The WSJ also states that "Insurers are creating plans built around particular health-care providers that they own or partner with. WellPoint is "rolling out a number of narrow and tiered networks" across its markets, said Ken Goulet, executive vice president. These networks involve around 30% to 70% of the company's full list of providers, he said."
In a Bain & Company report entitled "Healthcare 2020" it states:
"Payers are searching for all available tools to stunt the growth of a sector that has successfully resisted cost containment for decades. The net result will be an unprecedented decline in the share of the overall healthcare profit pool captured by innovation-driven companies in favor of lower-margin sections like generic manufactures and providers."
Second, competitors are increasingly becoming vertically integrated and attempting to buy up and control physicians that are the lifeblood of surgery centers. Here, Bain uses dialysis as an example of vertical integration and states:
"Companies like Fresenius Medical Care, which started out producing dialysis machines, have emerged to "own" an entire segment of care – vertically integrated with machines, clinics and drugs. With global government spending estimated at about $50 billion for dialysis products and services, but with shrinking reimbursement per treatment, the vertically integrated model may be an effective path to capture a very specific part of the profit pool"
With this background, here are 12 concepts ASCs should consider.
1. Become Great in an Area and at Consumer Branding and Marketing. As surgery centers compete with vertically integrated systems to attract physicians and patients, they will increasingly need to be masterful at finding an area to excel in and in making the effort to be really known for that area. They can attempt to, for example, (1) become dominant in a specific specialty or procedure or (2) be low cost to consumers and payors in a high volume area. Increasingly, ASCs will need to excel in an area and be able to fully market and brand themselves as outstanding in that area.
We view a surgery center as needing to both be profitable and to attempt to be a leader in certain areas. Whether it is in a specialty niche area, as a low cost provider, or in having the best surgeons, it is critical that a center be known for quality and greatness in certain areas to succeed in the long run.
2. Great Billing and Collections. As margins decrease throughout health care, it will be critical to fully and properly collect on ASC billings and collections. This includes increasingly from patients as well as payors. Financial success is highly dependent on great revenue realization.
3. Managed Care Contracts. A center must really work to obtain favorable contracts and it must be careful not to sign a bad payor contract even if the payor is a small percent of its business. Over the past several years, centers have often signed unfavorable payor contracts with small percentage payors only to
find that those payors then rent their networks to other payors and that they are actually setting their pricing for a broad variety of payors.
4. Out of Network. Out of network is increasingly criticized. That stated, providers still make a disproportionate amount of earnings from a small percentage of patients that are paying via payors out of network rates. It may be necessary to take some risk and work with out of network patients in order to stay successful.
5. Examine Bundling Mechanisms. Increasingly payors are very receptive to and often seeking to pay for an entire procedure via one contract. Here, if a center can become a leader in bundling together all aspects of a procedure, particularly high volume or high cost procedures and develop contracts with payors that are attractive to physicians, they can possibly retain a core spot in the market.
6. Constantly Be Recruiting Surgeons. A center must constantly be looking to recruit additional surgeons who can work at the center and help add capital to the center. Recruiting should not be an every few years type effort, but rather should be a constant activity to find the best surgeons to join the center.
7. Consider a Hospital Partner. Centers in many markets may benefit from a hospital partner particularly with respect to physician issues or managed care contracts. However, not all partnerships with hospitals are destined for success. It often depends on the true interests of the hospital in such partnerships and its willingness to really devote efforts to help the surgery center.
8. Recruiting Great People. There is no substitute in business for extremely smart and focused people. Particularly with the changes in business, there is a real premium on smart, agile, focused persons as leaders and at every level.
9. Standardizing Costs. A center must be able to measure cost per surgery and to bring the cost within reason so they can focus more time on recruiting more cases and better cases.
10. The Best Boards are Highly Engaged Boards. A Board of the center should be focused constantly on greatness and on high profits and be regularly in touch and view the surgery center as a critical part of their daily existence. The best boards are highly engaged and meet often.
11. Be Alert to Risk. A center must be very cognizant of what its key risks are. Whether the risks relate to the loss of a key employee, regulatory risk, a key surgeon, infection risks or a specific payor situation, the centers' leadership must be highly attuned to core risks.
12. Continued Failure. If a center has failed six times, it is often the case that you can try and buy that center and turn it around. However, it is likely that the center suffers from systemic problems that will not be solved with any new operator.
More Articles on Surgery Centers:
LA's Bogalusa Medical Center to Close Ophthalmology Clinic
WV's Mon General Hospital Opens Endoscopy Center
Indiana University Creates New Exchange Program for Optometry and Ophthalmology
This article discusses 12 ideas and tactics that are critical to ASC success both today and over the next 24 to 36 months. ASCs must both block and tackle effectively and approach the market in certain new ways to stay effective and profitable.
ASCs face two substantial threats. First, payors are increasingly looking at all avenues to cut costs and stay relevant in the insurance business. In an article in the Wall Street Journal, entitled "Medical Care Time Warp," dated August 2, 2012 it states:
"Under pressure to squeeze out cost, some of the U.S.'s biggest health insurers are quietly erecting more hurdles for patients seeking medical care. The companies are in many cases reaching back to the 1990s and boosting the use of techniques that categorized patients and doctors alike. Today's approaches are tweaked, but many feel familiar to many: Insurers are rolling out plans with more restricted choices of doctors and hospitals, and weighing new requirements for referrals before patient can see specialists." It also states that payors are using "Narrow networks: Often " tiered, "so patients get bigger out-of-pocket charges if they go to providers that aren't in the top category, then even larger bills if they go completely out of the insurer's network." The WSJ also states that "Insurers are creating plans built around particular health-care providers that they own or partner with. WellPoint is "rolling out a number of narrow and tiered networks" across its markets, said Ken Goulet, executive vice president. These networks involve around 30% to 70% of the company's full list of providers, he said."
In a Bain & Company report entitled "Healthcare 2020" it states:
"Payers are searching for all available tools to stunt the growth of a sector that has successfully resisted cost containment for decades. The net result will be an unprecedented decline in the share of the overall healthcare profit pool captured by innovation-driven companies in favor of lower-margin sections like generic manufactures and providers."
Second, competitors are increasingly becoming vertically integrated and attempting to buy up and control physicians that are the lifeblood of surgery centers. Here, Bain uses dialysis as an example of vertical integration and states:
"Companies like Fresenius Medical Care, which started out producing dialysis machines, have emerged to "own" an entire segment of care – vertically integrated with machines, clinics and drugs. With global government spending estimated at about $50 billion for dialysis products and services, but with shrinking reimbursement per treatment, the vertically integrated model may be an effective path to capture a very specific part of the profit pool"
With this background, here are 12 concepts ASCs should consider.
1. Become Great in an Area and at Consumer Branding and Marketing. As surgery centers compete with vertically integrated systems to attract physicians and patients, they will increasingly need to be masterful at finding an area to excel in and in making the effort to be really known for that area. They can attempt to, for example, (1) become dominant in a specific specialty or procedure or (2) be low cost to consumers and payors in a high volume area. Increasingly, ASCs will need to excel in an area and be able to fully market and brand themselves as outstanding in that area.
We view a surgery center as needing to both be profitable and to attempt to be a leader in certain areas. Whether it is in a specialty niche area, as a low cost provider, or in having the best surgeons, it is critical that a center be known for quality and greatness in certain areas to succeed in the long run.
2. Great Billing and Collections. As margins decrease throughout health care, it will be critical to fully and properly collect on ASC billings and collections. This includes increasingly from patients as well as payors. Financial success is highly dependent on great revenue realization.
3. Managed Care Contracts. A center must really work to obtain favorable contracts and it must be careful not to sign a bad payor contract even if the payor is a small percent of its business. Over the past several years, centers have often signed unfavorable payor contracts with small percentage payors only to
find that those payors then rent their networks to other payors and that they are actually setting their pricing for a broad variety of payors.
4. Out of Network. Out of network is increasingly criticized. That stated, providers still make a disproportionate amount of earnings from a small percentage of patients that are paying via payors out of network rates. It may be necessary to take some risk and work with out of network patients in order to stay successful.
5. Examine Bundling Mechanisms. Increasingly payors are very receptive to and often seeking to pay for an entire procedure via one contract. Here, if a center can become a leader in bundling together all aspects of a procedure, particularly high volume or high cost procedures and develop contracts with payors that are attractive to physicians, they can possibly retain a core spot in the market.
6. Constantly Be Recruiting Surgeons. A center must constantly be looking to recruit additional surgeons who can work at the center and help add capital to the center. Recruiting should not be an every few years type effort, but rather should be a constant activity to find the best surgeons to join the center.
7. Consider a Hospital Partner. Centers in many markets may benefit from a hospital partner particularly with respect to physician issues or managed care contracts. However, not all partnerships with hospitals are destined for success. It often depends on the true interests of the hospital in such partnerships and its willingness to really devote efforts to help the surgery center.
8. Recruiting Great People. There is no substitute in business for extremely smart and focused people. Particularly with the changes in business, there is a real premium on smart, agile, focused persons as leaders and at every level.
9. Standardizing Costs. A center must be able to measure cost per surgery and to bring the cost within reason so they can focus more time on recruiting more cases and better cases.
10. The Best Boards are Highly Engaged Boards. A Board of the center should be focused constantly on greatness and on high profits and be regularly in touch and view the surgery center as a critical part of their daily existence. The best boards are highly engaged and meet often.
11. Be Alert to Risk. A center must be very cognizant of what its key risks are. Whether the risks relate to the loss of a key employee, regulatory risk, a key surgeon, infection risks or a specific payor situation, the centers' leadership must be highly attuned to core risks.
12. Continued Failure. If a center has failed six times, it is often the case that you can try and buy that center and turn it around. However, it is likely that the center suffers from systemic problems that will not be solved with any new operator.
More Articles on Surgery Centers:
LA's Bogalusa Medical Center to Close Ophthalmology Clinic
WV's Mon General Hospital Opens Endoscopy Center
Indiana University Creates New Exchange Program for Optometry and Ophthalmology