As the results of Avanza's third annual survey of senior healthcare executives on ambulatory surgery center (ASC) joint ventures reveal, a growing number of hospitals are planning to expand their investments in ASCs.
The report on the survey results notes, "Consumer- and payer-driven trends favor ASCs, and hospitals are recognizing they need at least one ASC in their portfolio to accommodate patients and payers looking for a lower acuity, less expensive site for outpatient surgery."
To add an ASC or grow their number of surgery centers, hospitals and health systems are increasingly exploring whether to convert their existing hospital outpatient departments (HOPDs) to ASCs. On the surface, this may seem like an easy approach to adding ASCs to an outpatient portfolio. Yet it is an approach rife with risk if those involved in the project do not understand or fully appreciate the dynamics of such a conversion. Even small oversights have the potential to derail a project or cause the new surgery center to underperform.
Here are seven of the mistakes we have seen hospitals and health systems making when converting an HOPD to an ASC.
1. Expecting "ASC" to automatically equate to low cost
While ambulatory surgery centers are generally recognized as low-cost venues for outpatient surgery, the reason isn't because they are licensed as ambulatory surgery centers. In fact, plenty of ASCs fail at being low-cost venues. These facilities typically meet unintended fates. For an ASC that is converted from an HOPD, failure typically translates to closure of the facility and repurposing of the space.
Rather, what makes an ASC a low-cost venue for outpatient surgery is what is established operationally before the center opens. This includes the following:
• appropriate levels of staffing to support the procedures on the schedule;
• lean inventory with minimal redundancy;
• ASC-specific information technology rather than hospital-based IT;
• business office personnel with surgery center revenue cycle experience;
• ASC-appropriate capital equipment;
• no unused, "extra" space (unless future expansion is planned); and
• ability to shift nursing staff depending on caseload, potentially using pro re nata (PRN) staffing and operating with flexible staffing.
Once the surgery center is open, success will be largely contingent upon the governing board and management ensuring the ASC does not deviate from these foundations. The concepts of remaining flexible and investing in just what is necessary can be difficult for hospital leadership to grasp. Hospitals often set up processes based on the exception of what may one day occur, planning for every scenario and the potential for something unexpected to occur. In an ASC, you don't plan for the abnormal. Remember: ASCs serve healthy patients for elective surgery.
2. Proceeding too quickly with design and/or renovation
Once a hospital determines that it will convert its HOPD to an ambulatory surgery center, there can be a tendency to move rapidly toward the schematic design and/or renovation phases. Since the project is "just" converting one type of facility to another, it may seem like design and renovation would be the first two significant steps in the process.
But one of the first steps in a conversion that should come prior to design is arranging an ASC-focused life safety review of the existing HOPD space. This will allow you to determine what renovations, if any, must occur for the space to be compliant with ASC regulations. The review should take place before the proforma since you will want to include the cost of any renovations into your forecast. In addition to making sure the space is compliant, the organization should look for opportunities to eliminate unnecessary square footage that can increase overhead expense and negatively impact efficiency.
3. Determining ownership structure
Before pen should be put to paper for drafting the design or a sledgehammer should be put into a wall, the hospital must also determine the ASC's ownership structure. If the surgery center is to be jointly owned with physician investors (as a joint venture), these investors should be involved in the decision-making processes. If a hospital proceeds with design and renovation without the input of the physicians, this could discourage the physicians from investing in the facility. It may also lead to issues with the surgery center layout, including poor workflow, inefficient operating room designs and unusable or unnecessary space.
If your hospital is planning or considering whether to enter into a joint venture with physicians, read this column that provides four key steps to follow as you start planning for the joint venture JV.
4. Forgetting about the proforma
An integral component of building any new facility, including an ASC, is the development of a proforma. For an HOPD-to-ASC conversion, the proforma models the anticipated results of opening the new facility based upon factors that include expenses and estimated case volumes and cash flow.
A proforma is initially developed to determine whether it makes sense to proceed with the project. Once a project is given the green light, the proforma may be marked as completed and ultimately ignored. This is a mistake. The projections in the proforma should undergo continuous updates and revisions during the development process to reflect all decisions that change expenses, case types, case volumes and/or reimbursement. In fact, it is not unusual for a proforma to undergo 20-plus revisions by the time the doors open on the new surgery center due to all the various decisions impacting the tangible numbers.
Hospitals should view the proforma and its financial projections as a dynamic document that helps guide decisions for the HOPD-to-ASC conversion and reflects the way the partners intend their ASC to operate and perform upon opening.
5. Overlooking the HOPD-to-ASC reimbursement decrease
Operating an ambulatory surgery center can prove to be a worthwhile financial venture for a hospital. But doing so requires a hospital to understand an ASC's financials.
Procedures performed at ASCs are reimbursed at roughly 50% of what hospitals are paid for the same procedures. Even if the ASC is owned entirely by the hospital (rather than in a joint venture with physicians), if the facility is licensed as an ambulatory surgery center, the revenue generated by the facility will come in at about half of what a licensed inpatient or outpatient hospital facility would receive.
HOPD-to-ASC conversions can be destined to struggle or fail if this fact is not kept top of mind. The reimbursement decrease means that the ASC cannot be equipped, staffed and operated like a hospital department or unnecessary expenses will inevitably surpass or consume most of the revenue. While some hospital resources may effectively support an ASC if allotted effectively (e.g., human resources, managed care contracting, group purchasing organization), hospitals should not take a blanket approach to allocating their resources and applying their financial methodologies to the surgery center project. The approximately 50% reduction in reimbursement must be considered before any decisions or investments are finalized.
6. No project plan
For a large hospital or health system, converting an HOPD to ASC may seem like small potatoes. After all, some individual hospital departments can be larger than an entire ASC. So, when the time comes to develop the new ASC, there can be a "been there, done that" mentality because of past hospital service line additions or improvement work. This confidence may lead those assigned to overseeing the ASC project to bypass or minimize the importance of developing a project plan and timeline.
But developing an ambulatory surgery center is unlike any other project. A project plan not only helps keep the new ASC on track, but also reduces the potential for delays and oversights. Such undesired developments can rapidly increase the costs associated with the facility, which, considering the aforementioned decreased reimbursement, will prolong the time until the surgery center recovers from the cost of development and begins generating positive revenue. In addition, a plan helps maintain accountability and supports more effective communication between involved parties, which would include physicians if the ASC is to be opened as a joint venture.
7. Involving unnecessary "stakeholders"
A good rule of thumb when undertaking a new project is to involve all stakeholders in project planning and meetings. Engaging stakeholders can help identify best practices and key considerations, reduce risks and secure project buy-in, among other benefits. But it is essential that only "appropriate" stakeholders are involved. What do we mean by this?
During HOPD-to-ASC conversions, there can be tendency for hospitals to confuse stakeholders for services. For a new ASC, stakeholders would likely include hospital and physician leadership. Other stakeholders may include any management positions that have been assigned, but there are few other likely stakeholders. To a hospital, such a small group of stakeholders may seem inaccurate since the number of stakeholders for hospital projects tend to be much higher.
For example, it's fairly commonplace for a laboratory department representative to participate in a hospital project's planning. But such a representative is likely not needed for a new ASC project when all the surgery center might require from the lab department is assistance applying for a CLIA waiver, though even that that is normally completed by the surgery center administrator rather than hospital staff.
Unfortunately, we regularly see representatives who should not be considered stakeholders in an ASC project designated as stakeholders and invited to participate in all of the development meetings. With a larger group of stakeholders, meetings often take longer and become more difficult to manage and coordinate. This has the potential to stall or slow down a project and possibly introduce unnecessary expenses.
HOPD-to-ASC conversions can be successful if …
… hospital leaders understand and acknowledge that hospitals and ambulatory surgery centers are different types of facilities requiring different development approaches. We often say that a hospital is like a cruise ship while an ASC is a small Sunfish sailboat. Turning a cruise ship requires ample planning and calculations performed by many people, with results typically taking considerable time to achieve. Turning the Sunfish, on the other hand, takes a single person pulling a rope and the boat turns.
Like the Sunfish, an ASC must be adaptable, accommodating and efficient to be successful at navigating the same waters as a cruise ship (i.e., hospital system). As long as hospital leaders embrace and never deviate from this concept, they will significantly increase the likelihood that their HOPD-to-ASC conversion occurs on time and on budget and ultimately produces a facility that can deliver on its significant value and potential.
Julie Hamberis, MBA-HA, BSN, RN, CNOR, is a senior consultant for Avanza Healthcare Strategies, which provides health systems, hospitals and surgeons with strategic guidance, focusing on outpatient services. She can be reached at jhamberis@avanzastrategies.com.