It might sound counterintuitive, but for an ambulatory surgery center (ASC), performing more cases doesn’t always mean making more money. If the total cost of a procedure exceeds the amount a payer will reimburse, the facility is the one that ends up in the red.
To ensure the financial success of your center, you need to make sure that you’re getting paid enough for your cases — enough to cover things like the anesthesia supplies, implants, and the time in the OR. That means you first need to know what each of those costs are—which brings us to case costing. Through effective case costing, an ASC can identify the exact expenses attached to each procedure performed at their facility, and then use that information to determine where adjustments may need to be made and take actionable steps to maximize revenue.
Case costing can be daunting, but doing it well is critical to the long-term viability of your facility. To get started, I recommend centers focus on the two areas that comprise the largest amount of surgery dollars: supplies and overhead.
Supplies: Start with a complete inventory audit, reviewing every item to ensure the correct, detailed product information is logged into your inventory management system (if you’re still using spreadsheets to track products, I strongly recommend investing in software to do this – most surgery center software systems already have a module for it), including unit of measure, unit price, and dosage per case. Yes, every single item — sterile gauze sponges included. It’s going to take some time up front, but it gets easier once the initial setup is done.
Then you should load physician preference cards. These cards outline all of the specific items a surgeon needs for a particular procedure. Make sure the cards are up-to-date and as accurate as possible. Oftentimes, nurses may need to add things to the card as surgeons alter their preferences or learn about new products. On the flip side, everyone must take care to also remove items that are no longer used. Not doing this due diligence can lead to incorrect case costing (in addition to other inventory issues that can affect the overall revenue cycle health of a facility).
With a loaded inventory database and updated preference cards, a center can then cross-reference the information to determine the accurate cost of supplies for a case.
Overhead: A simple way to calculate overhead is by determining the cost of the operating room per minute. Available medical records should reflect detailed case times so you can determine exactly how long the operating room was in use. You can calculate the overhead by using this information and the profit and loss statement for a given month. Begin by subtracting the total cost of medical supplies from the P&L. Then divide the remainder of the operating expenses by the total OR minutes for the same month. The result will be your average OR cost per minute. That average, multiplied by the number of minutes for an individual case, will yield that case’s overhead cost.
The more you know…
Once you have the data regarding supplies and overhead, you can simply add them together to determine the total cost for each of your cases. Then you can compare that amount to payer reimbursements for each case and determine empirically if they are making or losing money for the center.
Other discoveries will come out of this valuable data as well: You may notice that certain specialty cases are more profitable than others, so you will want to work to increase the number of these procedures performed. Or you may notice that due to physician preference, you’re purchasing a product from multiple vendors, which means you’re likely not getting the best pricing from any of them. Through case costing analyses of individual doctors, you can help surgeons see where there are opportunities to save money, and urge them to agree to a single vendor so you are able to buy larger volumes from fewer vendors, which will help you secure better prices.
Good case costing is a veritable treasure trove and key to the long-term viability of your center. With the resulting information in hand, you have the intel to successfully reduce costs and maximize efficiencies, which are the hallmarks of any successful ASC.
Want more tips? Download my ASC Admin 101 eBook, which offers practical steps to be an effective ASC administrator, whether you're a veteran administrator or just starting.