Tips on how to adjust your program for downtime

By Stephen W. Earnhart, MS
President and CEO
Earnhart & Associates
Austin, TX

Recently at a conference, I was asked about what frustrates me the most out of all the work we do. It took me less than a second to reply: expense adjustment. What we see time and time again are centers and hospital departments that have had lost cases, reimbursement cutbacks, surgeons who retired, bad vacation schedules, and employee raises. These changes have not been offset by expense reductions or adjustments, be they temporary or permanent.

How do you spot if you have a problem? Get your last year’s profit-and-loss statement and examine it. If you don’t deal with it directly, ask the person in your organization who does to find out certain key information. First, look at your net revenue. This is the money you collect after the insurance companies take back what you charge them. Some call it stealing; others call it "contractual allowances."

The difference between "gross revenue" and "net collected revenue" can be as much as 70% less than what you bill. It makes you sick, doesn’t it? You don’t need to care about that amount. You want to look only at what you collect, which is the money that is going to pay the staff and the vendors and make distributions to the owners.

You don’t want to make adjustments for short-term downfalls in revenue; instead, you want to look for trends. To me, anything longer than three months is a trend, unless you have a center in a highly seasonal area, such as a plastics center in the summer (typically, a slow period), an ophthalmology facility at the beginning of the year (patients have not yet met their deductibles), or times of historically high numbers of physician vacations. You already should be adjusting for those times in your annual monthly budget.

So what can you do if you have an unexpected downward trend of money coming in? Remember (always) that personnel cost and supplies make up at least 50% of your program’s expenses. If your caseload is down, then usually your supplies are lower as well. If that is not the case, then you have a bigger problem.

So what is the greatest opportunity to decrease expenses? Sadly, it is the staffing. I am a huge advocate of a mix of full-time and part-time staff. One reason is just for times like this. Adjusting down to a reasonable staffing level, especially if you can preserve the full-time positions, is a great way to provide job security. Your part-time staff probably are more flexible in their hours. Some great ways to reduce staffing hours during this time is to make sure that there is zero overtime of course, offer staff time off without pay (it might work for some and incense others), compress your surgical schedule into fewer days per week, reduce your hours of operation, offer early retirement for those who are eligible, don’t fill vacant staffing spots, and other methods that have worked for you in the past.

One mistake we often see is pulling the trigger too quickly in a short-term downfall and terminating staff, only to have to scurry to rehire them three or four months later when you are busy again. Make sure you don’t overreact.

During this time, make sure you can prevent the problem that started this whole mess. Recruit new surgeons, expand your surgical list, try to renegotiate new contracts, and learn to get by with fewer people. Now might be the time to weed out those time- and staff-consuming procedures that have little, if any, profit margin. Don’t cut so deep that you turn away even more surgeons, but if you are consistently losing money on a specialty or a certain surgeon, it might to time to cut them loose for the security of the entire business. It happens.

(Editor’s note: Earnhart & Associates is an ambulatory surgery consulting firm specializing in all aspects of surgery center development and management. Contact Earnhart at 8303 MoPac, Suite C-146. Austin, TX 78759. E-mail: searnhart@earnhart.com. Web: www.earnhart.com.)