Flashbacks: Developing a surgery center in the ’80s
By Stephen W. Earnhart, MS
President and CEO
Earnhart & Associates, Dallas
Hindsight is, or should be, 20/20. Age, time, and maturity should produce clarity of thought and distinction of purpose. You would think so, anyway. In this special issue of Same-Day Surgery, we are reflective and, I hope, thinking forward from lessons learned in the past. I vividly remember my very first surgery center, which I became administrator of nearly 20 years ago. While it seemed so difficult to accomplish back then, retrospectively and comparatively, it was remarkably easy. I kept a journal of that inaugural event, and I never dreamed for a moment that it would become my career path.
Twenty-some years ago, the regulations, while relatively new, were not as cumbersome as they are now. Not knowing anyone in the industry — or even the industry — I reinvented everything. I wrote every single policy, and then sat for hours figuring out the procedures for them. I wasn’t quite sure what a quality-of-care plan was, but I figured out that it was something that we needed to measure to ensure the safety of our eventual patients — though at the time, I had difficulty imagining that patients would ever show up. We weren’t even on the campus of the hospital.
The genesis of the surgery center was very forward-thinking. At the time, the hospital was 20% outpatient and 80% inpatient. A group of surgeons told the hospital administrator that it was going to build an ambulatory surgery center (ASC) because the hospital was not responding to their needs. Well, I guess some things don’t change all that much. The CEO of the hospital told the surgeons that the hospital would join them and make the ASC completely separate from the "bureaucracy" of the hospital.
The hospital then hired a headhunter and found me redesigning the ambulatory surgery services of a small hospital in Massachusetts. It was a good fit, except that I had no idea what I was doing. I wasn’t even sure what "HCFA" stood for. (It’s now CMS, the Centers for Medicare & Medicaid Services.)
The ASC was to be constructed in a new medical office building off campus. It was my task to design the flow. My background as an orderly, operating room (OR) tech, OR nurse, and certified registered nurse anesthetist certainly helped — but not too much. I needed a strong OR nurse. I looked around and found one. She came on board with me for $8.50 per hour — sans benefits. That was about 15% below market rate, but it was justifiable at the time due to no call, rotation, or weekends. Try that now.
It became apparent that input was needed from the surgeons (investors). Of the 12 who took money out of their pockets for the venture, I was successful in getting three or four to show up for meetings. Again, some things never change. Our total capitalization for the project was about $1.2 million, with the leaseholds and equipment being the bulk of that. The center was a two-OR facility with a treatment room in about 5,000 square feet.
Payer contracting was different than it is now. First, no one knew what I was talking about when I used the term "freestanding." (The term "ambulatory" caused much greater confusion to the patients than it should have — "My feet?") But, be that as it may, a remarkably great reimbursement rate was achieved with the local insurers. I actually got "cost plus" on most of my contracts. No, they didn’t last long. Oh, to go back to those wonderful reimbursement days.
The policy and procedure book included only 48 records — and were handwritten. Obviously, we didn’t have a computer or word processor, but we managed to get them all typed. Of course, we had to retype them every time we changed them.
We had a truly great medical director: a local respected anesthesiologist who kept the surgeons corralled without getting them angry or resentful. We never would have survived that first year without him. I was the administrator, but he was the rock that stabilized the partnership.
Surviving the first lawsuit
The legal structure was a limited liability partnership in which the hospital assumed full liability for the limited partners: the surgeons. It’s not quite that easy today. It was a 60% hospital and 40% surgeon deal that functioned quite well once the surgeons learned that majority ownership doesn’t mean that the hospital runs the show.
We were about four months into operations when a patient sued us. She received a dime-sized second-degree burn on her thigh when a bovie pad came undone. It devastated us, but it was settled out of court, and life went on.
We had a 10-minute turnaround time between like cases, and we were consistently within 10 minutes of our start time. We monitored three quality assurance "screens" per month, and our admission rate and infection rates were almost nonexistent.
At the end of the first year, the nurses got a $2.50-an-hour raise. They deserved more, of course, but it wasn’t going to happen. We did, however, share the profits with the staff — a first in the ASC industry at the time, I think. They received a percentage of the profit pool.
The payback on the center for the investors was two years. We were experiencing 30% growth per year, and we re-syndicated after two years. The original share price was $12,000 per 1% ownership. The re-syndication price was $42,500 per share. All 10 of the available shares were sold in the first hour of the offering.
The center still is doing well. No one remembers me there except for some of the original surgeons. My name still is on some documents I am sure, but they surely are faded by now.
I’m certain none of us expected the surgery center would do well at that time. There were so many odds against it (I was probably the greatest liability), but we all pulled together. The nurses stayed late almost every night to make the pre- and post-op phone calls and to clean the facility. The front-desk staff (one person) would work her magic on collecting from insurers who still had no idea who we were.
The surgeons would try their best to help us, but it was always best if they just left after their cases. Anesthesia came around after a fashion and had the patients extubated before they came into the recovery area — finally. And I kept thinking this was a great concept and we should do more of them.
Well, here we are, and we’re still doing well, aren’t we? Our patients are pleased with our services. Our staff are well-compensated and fulfilled. Anesthesia has adjusted into a well-oiled groove, and the surgeons generally are content. The industry is growing and expanding exponentially, and it’s creating a new wave of personal and professional opportunities for all of us. It has been a good run.
While I miss the innocence and the challenges of the past, I’m excited about the opportunities of the future. All of us have changed in one way or another. We have raised our families, advanced our careers, and gotten older, but the excitement about this industry continues to grow.
I was interviewed a few weeks ago for an article, and I was asked: "If you could go back in time 25 years, knowing what you know now, what would you have done differently in your choice of careers?" Think about that for a moment or two yourself. Computers, cell phones, dot.coms — there are so many exciting choices we could have made. My response? "I would not have changed a thing — not one single thing."
(Editor’s note: Earnhart and Associates is an ambulatory surgery consulting firm specializing in all aspects of surgery center development and management. Earnhart can be reached at 5905 Tree Shadow Place, Suite 1200, Dallas, TX 75252. E-mail: firstname.lastname@example.org. Web: www.earnhart.com.)