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If you think you have a problem, here's what to do
By Stephen W. Earnhart, MS
Earnhart & Associates
The most frequent request we get at our office is to troubleshoot facilities. This request comes from freestanding surgery centers, hospital ambulatory surgery centers (ASCs), hospital operating rooms, and everything in between. We have almost 550 clients for these services and, amazingly, most have almost the same problem. Thus, as a very late or very early holiday gift, I want to share some of the commonalities we find.
The call for assistance typically comes from a member of the board or surgical committee. It always begins with "We think we might have a problem at our facility . . ."
The No. 1 reason we are called is for issues related to revenue or profitability.
"We just are not as profitable as we were in the past, and we cannot pinpoint the cause," we hear. This statement holds true for freestanding ASCs and hospital outpatient departments.
So, where do you look for the root cause? It always begins with the center's Profit & Loss Statement. The more common causes of revenue erosion lie in personnel cost and supply cost, so start there. While hospital revenue statements are more difficult to track, it can be done. You might need help from the finance department, however.
As a rule of thumb, your personnel cost and supply cost usually are close to the same percentage of net revenue (NR). Net revenue is not profits and not gross revenue, but it is your gross revenue minus your contractual adjustments — in other words, the money that actually comes in the door before you deduct expenses. Both personnel cost and supply cost are typically about 22%-24% of your NR. The more cases you do, the smaller these percentages should be. Newer facilities that still are ramping up their cases (which can take up to 24-36 months) will find that personnel cost will be significantly higher due to the fact that you still need a certain level of staff just to be available for cases. So, if you are relatively new, don't beat yourself up on that — yet!
We always find that centers are overstaffed by at least 10%. That is not necessarily a bad thing, but it is true. Most managers of the departments are clinical, and all of us like a little extra staff available — just in case! However, paring back in difficult times usually helps.
Almost always we find that the supply costs are being inaccurately counted. Whatever system you are using to track your supplies is faulted by human error. The best way to resolve it is audit your own cases to get a benchmark and then backtrack the system to resolve the issue or update your supplies.
Have someone take the surgeon's preference card in hand and literally check off what he/she uses on the cases. For accuracy, take your top 10 procedures, and audit each one five times. Toss out the high cost and the loss cost, and then average the remaining three to get the best overall cost per procedure. If you have the manpower, do it for each surgeon who performs the same case.
Once you have that checklist, have your materials manager price it for you. Don't forget to add any costs from admissions through PACU to get the most accurate cost. Did anyone mention anesthesia costs yet? You need to add the fluids, drugs, tubing, stopcocks, gases, etc., to your expenses. Anesthesia often can add hundreds of dollars per case to your expenses. It's impossible to ignore, but most try.
Have your materials manager quickly scan your supply cost per unit. Often an error can be discovered quickly. We once found an IV tubing set entered into the system for $210 when it should have been $2.10. Look for the obvious.
Space will not allow for all of the other issues related to an audit. I can add more items we look for in a future column. Let me know if you would like to see more, or if you have any ideas to share. (Earnhart & Associates is an ambulatory surgery consulting firm specializing in all aspects of outpatient surgery development and management. Contact Earnhart at 13492 Research Blvd., Suite 120-258, Austin, TX 78750-2254. E-mail: email@example.com. Web: www.earnhart.com.)