Converting your ASC to for-profit? Plan smart
By Stephen W. Earnhart, MS
President and CEO
Earnhart and Associates, Dallas
More hospitals are becoming involved in the freestanding ambulatory surgery center (ASC) field with new construction or conversion of existing ASC departments into for-profit, physician joint ventures. I have received close to 100 e-mails, calls, and letters from OR staff in this situation:"Is this legal?" they asked. "Can they do this?" "We're inside the walls of a not-for-profit hospital. How can we become for-profit overnight?" "We have bond issues with our hospital that will not allow us to significantly reduce our operations."
Here are the answers: a) Yes, it is legal. b) They can do it if they wish. c) There are tax implications that can be resolved. d) Bond restrictions have not yet been an issue.
Why are hospitals converting? My research indicates the major motivations are the follow- ing: pressure from surgical specialists who want greater efficiencies and profitability; pressure from external sources such as Columbia, Healthsouth, or Quarum who are trying to gain marketshare in the area; pressure from reimbursement sources such as case re-direction to a freestanding center; inability to respond to decreasing reimbursement, current or proposed; a desire to be proactive; or all of those things.
What happens once the decision is final and you face some "smart" decisions, which are even tougher when the center is built off campus? What do you do about lithotripsy, for instance? Do you construct another pad across the street because your urologists insist on being included? Kidney stone lithotripsy is not a Medicare-approved or -covered ASC procedure. You can't perform it in your new center. The cost of constructing a mobile pad can reach $40,000, and you'll get just 15% to 25% of the reimbursement from your other carriers.
What about "needle location" for breast biopsy? Your patients probably have them done in the room on an ABBI table. In a worst-case scenario, they go to radiology, have the needle placed, and are wheeled to the OR from there. Will you duplicate a $220,000 table in the new center? Does that mean you can't perform locatons in your ASC?
Another major issue is a urology table with fluoroscopy, the developer room, lead-lined walls, and the other expenses for relatively low reimbursable procedures. Do you duplicate this $240,000 unit and tie up an OR for this service? And how do OB/GYNs cover their patients in labor when they have a GYN procedure scheduled? What do you tell them when they say they won't be using the new center?
These are a scant few of the decisions you'll make as we grow more distant from the Mother Ship. We all know the vast majority (85%) of surgery will be outpatient; "when?" is the only question. Just a trickle of acute care facilities are responding. Within two years, most hospitals will have strategic plans to "off-site" ambulatory surgery, I believe. So if you're not facing these questions today - give it time.
As you move through the hundreds of decisions you'll make, remember why the facility is being built. If it's a result of your surgeons wanting more input into the center or wanting to increase profits, seek their advice. Most likely a "physician advisory board" will be established in the new entity to deal with key issues. It may ask for details, such as how much reimbursement the ABBI table will generate or how many of last year's lithotripsy cases were Medicare. If the center was motivated by a desire to gain market share by locating it in another part of town, duplication of equipment may not be an issue. Profitability may be secondary or not even an issue! Be careful before you upset everyone by saying it doesnmake sense to do this or that.
I dearly hate the over-used expression "thinking outside the box," but before you make decisions about any of the issues, you need to do just that: Determine the motivation for the move and don't expect "business as usual." If there's one constant in these transitions, it's that nothing is constant. Everything is different. Find out the rules before you start playing. Tell your staff not to assume anything. Have staff meetings on a weekly or daily basis if needed to prevent rumors from taking over logic. Survivors are those who recognize the changes, adapt to them, and make smart decisions.
(Contact Earnhart at: 5905 Tree Shadow Place, Suite 1200, Dallas, TX 75252. E-mail: [email protected]. Web: http://www.earnhart.com.)
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