Healthcare ASC Case Studies: Different Information ... · ahead with healthcare IT is a big part of...

By Stephanie Wasek and Scott Becker, JD, CPA

ASCs, with a little diligence, can implementand reap the benefits of electronic medicalrecords, digital dictation, coding and billing

software, inventory management, and cost- and qual-ity-data gathering, say experts. What’s more, movingahead with healthcare IT is a big part of the answer tofixing – or at least improving – the nation’s healthcareproblem, says David Dranove, MBA, the WaltnerMcNerney Distinguished Professor of HealthIndustry Management and professor of managementand strategy at Kellogg School of Management.

“If we don’t adopt healthcare information technology – and I realize this is a cost burden to allof you – we’re just going to go around in circles trying to develop unified, linked standards [for quali-ty and costs],” Mr. Dranove said in his speech, “CodeRed: Reviving the American Healthcare System,” atthe Improving Profits and Business and Legal Issuesfor ASCs conference Oct. 19 in Chicago. “[The ASCindustry] needs to do this so we don’t have to hear themessage again, that it’s time to adapt this technology.”

In short: HIT can improve business operations andthe tracking of quality indicators and can help ASCsmanage their businesses much better. Moreover,more expertise and better tools than ever are

Recent statistics from California, whichlegally requires ASCs to report theirfinances, reveal that each year one-quarter

of all ASCs in the state lose money, one-quarterbreak even and one-half achieve an average profit of20 percent.

“Whereas California is generally a bellwether forhealthcare trends, it is safe to assume that these figures are generally representative of ASCsthroughout the nation, and while these numbersare better than the one-third rule that has appliedfor years – one-third of ASCs lose money, one-thirdbreak even and one-third make money – they stillreveal that a good half of all ASCs are not perform-ing well and are not making money,” says BrentLambert, MD, FACS, the president and founder ofAmbulatory Surgical Centers of America. “This isnot positive for the ASC industry,”

Despite the revealing statistics, Dr. Lambert saysthere is hope for struggling ASCs. “No matterhow desperate the situation, most ASCs can besaved if the right people execute appropriatechanges, whether that is a motivated physician-owner or management company,” he says.However, an ASC cannot be “saved” withoutsomeone first identifying the reasons for its fail-ure through evaluation, observation and bench-marking and then applying effective solutions.

Good third-party management companies thathave specific expertise in the ASC industry are oftensuccessful in turning around and can be the answerfor financially struggling facilities. This is becausethey are able to evaluate an ASC’s operations andeffectively identify problem areas and resolve them.The six case studies presented here depict lessonslearned in identifying concerns and providing turnaround solutions.

Case study No. 1: Florida ASC stops losses and sheds$2.5 million of debtA small southwest Florida multi-specialty ASC had

recurring losses and could not dig its way out of itsdebt of $2.5 million. When ASCOA was engagedto evaluate the ASC, it found a multitude of prob-lems including an administrative staff with limitedbilling experience, poor scheduling, inadequate sur-gery fees, old equipment, bad debt and a negativereputation in the healthcare community. For exam-ple, the ASC was open for five days sitting vacantfor much of the time and the ASC signed every sin-gle payor contract presented to it regardless of theterms, recounts Dr. Lambert.

To remedy the situation, ASCOA took manysteps including compressing the surgery scheduleto two days and having staff leave when they werenot needed, expanding the types of cases toinclude spine, orthopedic and ENT, cancelinginadequate payor contracts and renegotiatingothers, revising the fee schedule, streamliningsupplies and training staff in billing and collecting, especially in regards to the accountsreceivables.

“The accounts receivables in this instance were onlynine days out – they were too good!” says Mr.Lambert. “We discovered that, in order to balance

November/December 2007Vol. 2007 No. 6

continued on page 4

INSIDE2 Letter from the Editor

7 12 IT Products for ASCs

14 CMS Issues New Conditions for Coverage for Ambulatory Surgical Centers

20 Pain Management ASCs –Here to Stay in 2008 and Beyond

23 Your Questions Answered

24 Sample Code of Conduct for ASCs

27 Physician-Hospital Joint-Ventures:An Outline of Arrangements

28 At a Glance: “Key Thoughts on The Orthopedics Industry”

33 Six Core Investing Concepts

35 Spotlight On: Coding, Billing and the New Medicare Payment System

ASC Case Studies: Different Approaches Can Help Facilities Find Turnaround SuccessBy Dana Kulvin, JD, MPH

HealthcareInformationTechnology: 8 Key Benefits

continued on page 8

Save the dates for next year’s conferences from ASC

Communications!

Orthopedics, Spine and PainManagement-Driven ASC Conference

June 19 to 21, 2008FASA and ASC Communications:

Improving Profitability and Businessand Legal Issues for ASCs

Oct. 23 to 25, 2008

2 visit www.beckersasc.com

The ASC Review is published six times per year. It is distributed to approximately 20,000 personsper issue.

Letter from the Editor

This issue of the Becker’s ASC Review focuseson a few core issues. First, we cover a num-ber of case studies relating to turning around

ASCs. We hope that this provides useful guidanceand thoughts for those trying to improve the profitsof their facilities. Second, we include a feature arti-cle on healthcare information technology for surgi-cal centers. For a variety of reasons, the improve-ments in IT available for surgery centers are startingto make a huge difference on both the clinical andbusiness sides of surgery. We hope that you also findthis article helpful. Finally, we have included a num-ber of other articles relating to items such as condi-tions for coverage for surgery centers, pain manage-ment in ASCs, legal and regulatory considerationsfor ASCs, and certain other issues.

To subscribe to the Becker’s ASC Review, please com-plete the form on p. 23.

1. The next issue of the Becker’s ASC Review will focuson bariactric surgery in ASCs and how to perform the same profitably, as well as our annual storyon 40 companies to watch in the surgery center sector.It will also include our first edition of the Orthopedicand Spine Medical Device Market Newsletter.

2. There seems to be a record number of consolida-tion and deal issues emerging. There also seems to be

very good interest from both strategic and financialbuyers for these transactions. Interestingly enough,there seems to be a shortage of hyper-profitableindependent facilities available. This may be becausethe one-off facilities focused on orthopedics or inpart with a good reimbursement mix are very opti-mistic regarding reimbursement changes and arecautiously reviewing sale possibilities rather thanaggressively attacking the same.

3. The federal and state governments are againincreasing the amount of investigative resourcesfocused on healthcare activities. The following is alist of nine key fraud and abuse considerations thatsurgery centers should be aware of as they operatetheir ASCs.

• Surgery centers should not sell shares at belowfair market value to referring physicians.

• Surgery centers should not sell more or lessshares to physicians based on the volume or valueof their referrals.

• Surgery centers should not bring in as ownersthose that are principally brought in as indirectreferral sources or for the purpose of generatingreferrals for other investors in the center.

• Surgery centers should show care in redeemingpeople for not meeting the safe harbors or otheritems that could be tied to use of the surgery cen-ter. One wants to avoid being viewed as overzeal-ous in this regard. Safe harbor compliance, yes;

overzealous as to cases, no.

• Surgery centers shouldbe very cautious aboutpaying special director-ships, particularly wherethe directorships are heldby the busiest and highest-volume surgeons.

• Surgery centers shouldbe very careful of leasingout their ORs.

• Surgery centers shouldgenerally avoid the use of“per-click” leasing rela-tionships where the les-sor is a referring physi-cian or owned by refer-ring physicians.

• Surgery centers shouldbe very cautious of dealsstructured as per-click,particularly “retail” per-click, “under-arrange-ments” ventures.

• Surgery centers shouldgenerally avoid enteringinto percentage-based orvolume-driven manage-ment or directorship con-tracts with physicians orphysicians groups thatrefer to the center.

This is a short list of relationships that surgery centers should be wary of.

4. Our Orthopedics-, Pain Management-, andSpine-Driven ASC Conference will be held June 19to 21. We had a record 600 attendees this year at ourfall conference held in conjunction with FASA. Wealso expect record attendance at this event. Last year,480 persons attended the Orthopedics-DrivenConference. The conference this year will again heldat the Michigan Avenue Westin Hotel in Chicago.Should you desire more information on the confer-ence, please visit www.BeckersASC.com or e-mailme at [email protected].

5. We are seeking suggestions for topics or speakers,and proposals from potential speakers for both theOrthopedics-Driven conference (June 19 to 21) andthe ASC Communications-FASA Conference (Oct. 23 to 25). Please send proposals [email protected].

6. Should you have subjects that you would like tosee covered in Becker’s ASC Review, please e-mail meat [email protected].

7. We have added a great number of terrific advertisers to the Becker’s ASC Review. Certain of the new companies include Amkai (www.amkai.com), B. Braun (www.bbraun-sutures.com), HST (www.hstpathways.com),Surgical Notes (www.surgicalnotes.com), NueterraHealthcare (www.nueterra.com), KBKG (www.costsegregation.com), JCB Laboratories(www.jcblabs.com), Kaye Bassman (www.kbic.com),Foundation Surgery Affiliates (www.foundation-surgery.com), HBE (www.hbecorp.com), SandersTrust (www.sanderstrust.com), Source Medical(www.sourcemed.net), Orion Medical Services(www.orionmedicalservices.com) and Galil Medical(www.galilmedical.com).

Please also see the index of advertisers on p. 32.Thank you. Should you have interest in advertising,please call (800) 417-2035, or e-mail Scott Becker ([email protected]), Jessica Cole ([email protected]) or Ryan Kiernan([email protected]).

Very truly yours,

Scott [email protected] or (312) 750-6016

To subscribe to BeckersASC Review, please call(800) 417-2035 or completethe form on page 23.

3visit www.beckersasc.com

To advertise in orsubscribe to the

ASC Review, please call (800) 417-2035.

Letter from the Editor

Top Priorities for the Industry in 2008

By the time this issue of Becker’s ASC Reviewhits your mailbox, the new Medicare ASC-HOPD payment system will have been

finalized (well, at least theoretically). In addition tothe whole set of issues that brings up (see “SpotlightOn: Coding, Billing and the New Medicare PaymentSystem” on p. 22), there are also new proposedMedicare conditions of coverage for ASCs (see “CMSIssues New Conditions for Coverage for AmbulatorySurgical Centers” on p. 14). Physician-owned hospi-tals were required to begin disclosure of physicianownership on Oct. 1, and the industry narrowlyavoided a fight with Congress over ownership (report-ed on p. 2 in the Sept./Oct. issue of ASC Review).

Suffice it to say 2007 has been on the busy side for theASC and surgical hospital industries. What will 2008do for an encore? I talked to Kathy Bryant, JD, andCraig Jeffries, Esq., about the ASC industry – includ-ing the merger of their respective groups, FASA andAAASC, into the Ambulatory Surgery CentersAssociation – and to Molly Sandvig, JD, the presidentof Physician Hospitals of America, about what liesahead for physician-owned and surgical hospitals.

“The more effective presence in Washington willincrease in importance after the presidential election, when Congress and the White Houselook at objectives.”

The nation’s two largest ASC associations announcedin October that they are merging, the culmination offive months of discussions between AAASC, FASAand the Foundation for Ambulatory Surgery inAmerica (known as the Foundation). Beginning Jan.1, the unified organization will be known as the ASCAssociation – on the same day Medicare begins toimplement the biggest change in its ASC paymentsystem in the last 20 years.

“Both [AAASC and FASA] have very strong pro-grams,” says Mr. Jeffries. “Over the next year, we’ll seewhere the strengths are best blended to bring addi-tional value to the combined memberships.”

The educational and research arms will also be com-bined under the Ambulatory Surgery Foundation.What was originally AAASC’s own meeting will becancelled, and the Foundation will conduct a meetingin San Antonio, May 14 through 17; it will serve asthe annual meeting for the ASC Association.

Ms. Bryant delineated the ASC Association’s three toppriorities for 2008:

• to provide ASCs with the advocacy they deserve atthe federal and state levels in both the legislative andregulatory arenas, [including] continuing advocacysupport for reasonable reimbursement rates andappropriate quality measures and opposition to

restrictions on ASCs’ ability to provide high-quality,cost-efficient care;

• ensuring that changes to the Medicare conditionsfor coverage do not impede or add unnecessary bur-dens to ASCs; and

• assisting ASCs in meeting the day-to-day challengesof operating, [such as] helping to manage changes inreporting requirements, dealing with insurancerestrictions and providing information about ASCs,including all the services they offer and the manyways they benefit their communities.

“The state associations will benefit, and the more effec-tive presence in Washington will increase in importanceafter the presidential election, when Congress and theWhite House look at healthcare priorities,” says Mr.Jeffries. “Yes, the payment area is much more stable andwe have a clearer path than we have in years past, but Iwould not characterize our efforts as being totally satis-fied – the GI situation is still critical.”

AAASC and FASA clinical benchmarking efforts willbe combined to better define quality and quantifyoutcomes. These activities and, most importantly, dis-semination of that information will be necessary todemonstrate that 65 percent of HOPD rates doesn’tmean 65 percent of HOPD care.

“A major impediment to ASCs is that, so often, poli-cy makers and the public lack a good understandingof exactly what ASCs are and do,” says Ms. Bryant.“To the extent that the ASCA can inform the publicabout what really happens in ASCs, like the top-notch surgical care they provide and the off-the-chartspatient satisfaction levels they consistently report,along with the cost savings they offer, we will.

“ASCs are also reporting growing problems withinsurers who refuse to contract with ASCs. We’ll def-initely be looking into these problems.”

ASC participation will be a determining factor inhow successful the ASC Association is in carryingout its missions.

“If we’re at about 40 percent of the industry, we’d liketo double that, get up to 70 to 80 percent, more inline with the AHA’s participation,” says Mr. Jeffries.“Many physicians are currently active through spe-cialty society involvement, and they are supportingthe direction we’re going as an industry. Many of ourmember centers are physician-owned, and as it’s clearphysician-ownership is on the federal radar screen, theASC leadership can help [physician-owners] with theissue that concerns them most.”

“At its heart, our industry is simply not just aboutfinancial incentives. Physicans start hospitalsbecause they see a need in the community for a morepatient-centered, physician-friendly facility.”

Ms. Sandvig is certain that, in the next couplemonths, the physician hospital industry will be chal-lenged again legislatively in a Medicare package billthat will include language similar to the summer’sCHAMP Act in that it will contain anti-physician-ownership language.

“Primarily, we have political challenges to deal with,that’s our main issue — and it has been for quite sometime,” says Ms. Sandvig. “[The legislation] is basical-ly the symptom of a larger problem: hospital-physi-cian relations. And right now, the way some systemsare being run, hospital administration is really inopposition to physicians and their needs. So physi-cians are doing their own things and competing.

“What’s been interesting to me is the studies have allindicated that hospitals actually thrive when there arephys-owned hospitals in the same area. Communitiesbecome healthcare centers of excellence. Instead ofviewing the competition as an incentive, hospitalsview it as an aggravator.”

As a result of the political nature of the problem,physicians have to become more involved, she says:fundraising to provide money to the PHA’s PAC andto elected officials; visiting Capitol Hill personally andrelaying their stories to elected officials; and undertak-ing grassroots education efforts such as writing letters,sending e-mails and making phone calls, are all thingsphysicians can do “to ensure officials know who weare and what we’re doing.”

As with ASCs, another top issue is quality and gettingthe word out about the quality of work performed atphysician-owned hospitals.

“Across the country, there’s a drive toward quality,which differs depending on whom you’re talking to,”says Ms. Sandvig. “What we’re interested in is sup-porting national efforts – groups such as the AMAand think tanks such as the Brookings Institute – indefining quality and how to measure it. Our defini-tion includes patient safety and satisfaction and physi-cian satisfaction; we want to put together our num-bers [with other national efforts’ numbers] so we candisplay and relate those numbers to Congress and ourlocal communities.”

PHA’s third priority for 2008 is community stewardship – “stressing within our industry the needto be community participants,” she says. “A lot of ourhospitals do charitable work; although our industry isfor-profit, they have the interests of the community inmind. We need to make sure those efforts are not onlyrecognized, but that they become the standard ofexcellence for the physician-hospital industry.”

Stephanie [email protected] or (484) 866-1292

available to help ASCs do so (see “12 Key ITProducts for ASCs” on p. 7). The driving factors inthe hesitation, say experts, are cost and lack of inter-operability – but they needn’t hold you back.

“The hardest part in an ASC is that the return oninvestment for $50,000 to $60,000 – which is generally what these systems cost – is difficult tojustify in many cases,” says Matt Petty, the seniorvice president of IT at Meridian Surgical Partners.“But it's a matter of value for the money.”Here are eight key ways that HIT can benefit yourfacility. This article also takes a quick look at theinteroperability issue.

1. Improve A/R management and billingand collections. Billing and collections softwarecan accelerate your revenues by automating manualprocesses, so it’s essential that you have a sound collections process in place to begin with, saysRobert Westergard, CPA, the CFO of AmbulatorySurgery Centers of America (ASCOA).

“You can do a very good job with paper, but it requiresthat you be extremely well organized and well disci-plined and that your process is basically water tight,”he says. “It’s a tremendous benefit to have softwarecheck your payments vs. the contract rates, record andshow the collection history [on an account], and helpyou drive your collection activities.”

The result is that you can get paid faster; Meridianworks to implement appropriate IT solutions in allits facilities because, ultimately, the ROI is there.

“Even though an information management systemcosts money, having the ability to perform taskselectronically gets you your money faster," says Mr.Petty. "There's value in eliminating delays. You canreduce days in A/R significantly.”

Essentially, there’s a clock ticking from the time thecase happens to when a payor reimburses you – andeach day that you have to wait knocks some value offeach dollar reimbursed. Mistakes can delay claims orcause the payment window to expire entirely.

“The older receivables get, the less chance you haveof collecting them,” says Mr. Westergard. “Oncethey get to 90 days old, your chances of collectingthe money start to drop significantly, especially ifit’s money that’s due from patients. If you haven’tbilled properly, your chances of getting reimbursedare slim. Electronic billing software can help elim-inate billing mistakes and expedite claim paymentby 2-3 weeks.”

Avoiding long-outstanding claims can significantlyimprove cash on hand and EBITDA, he says.That's why Mr. Petty recommends software to"scrub" claims – flag them for mistakes and incon-sistencies, in order to make corrections and submitclean claims to the payor the first time.

“If you can ensure that payors reimburse you, and do itquickly, the bottom line will benefit,” says Mr. Petty.

In fact, such a system can pay for itself many timesover at implementation and over its lifetime.

“Improving your AR process often provides a largedollar benefit in a short timeframe,” says Mr.Westergard. “Say your average days in A/R is 60 andyou’re collecting $500,000 per month; the softwarecan help you streamline your process and realistically cut that figure to 35 days. That willbring in $300,000 to $500,000 right away.“The cost of implementation is low and, used prop-erly, the results are dramatic.”

2. Benchmarking and case costing. IT can enable data gathering and benchmarkinganalysis that is almost impossible to do manually.

“For example, it's easier to do case-costing,” says Mr.Petty. “We're finishing up a cash-lag analysis whichhelps us determine when we are getting reimbursedper case by payor or financial class, and we can tellwho's paying us slowly, figure out why, and fix it sothe reimbursement comes in faster in full.

“Once you input data, it's just a value for analysis,and it can be done on one screen instead of 15spreadsheets. But if you don't have the data – if youdon't go electronic – you simply can't get there.”

Another key to ensuring that HIT solutions withcase-costing components work is having a goodunderlying process in place, reminds Mr.Westergard. Further, because of the initial input leg-work necessitated by such systems, their up frontcosts will be much higher. But, done right, you cansee a huge return on investment.

“We cost every case, every month,” says Mr.Westergard. “We want to break each case down by,supplies and overhead – which includes wages. Thenwe compare it to what we’ve collected. For example,one orthopedic surgeon may perform knee arthro-scopies for between $1,200 and $1,500, whileanother does them for $500. If reimbursement is$1,200, you need to show the expensive surgeonhow his colleagues do it for less. Again, a paperprocess can work, but the software helps automatewhat can be a very manual process.

“Good information can help you turn money-losingcases into money-makers. Every money-losing caseyou can do profitably in the future has twice theprofit impact.”

3. Outsourcing transcription and coding.In addition, technology can free you up to explorenew options for ancillary business services. RobertWelti, MD, the medical director of Santa BarbaraSurgery Center in Santa Barbara, Calif., has used acombination of a Web-based dictation portal and anoutsourced coding service to speed the process andsave money for his facility.“Our physicians dictate to the Web-based program,and our coding company is able pull the information

from off-site,” he says. “The next day, they send usthe codes electronically — it’s 25 percent of what itwould cost [to have an in-house staff].” SurgicalNotes is a leader in medical transcription technology.

4. Minimize space and time throughelectronic records as opposed to paperrecords. The physical footprint of any facility isa big issue, says Mr. Petty: “At some point, he says,you will simply run out of space for storage for allthe paper files. It’s a lot cheaper to buy another harddrive than it is to add a room that cannot be utilizedto generate revenue.”

Once implemented, IT solutions are faster to use aswell and, while it may be difficult to quantify thecost savings derived from time savings, they do exist.

“I’m a big fan of scanning every single item – everycontract, every communication, every legal docu-ment – so I can have a searchable database on mylaptop at all times,” says Dr. Welti. “I’ve made all ourforms on Excel Spreadsheets and combined themaccording to specialty into PDFs to create orthocharts and eye charts and general charts, for exam-ple. All we have to do tomorrow, then, is look at theschedule, hit a button, and we’ll have the necessarycharts, preassembled.”

The next step in his facility, says Dr. Welti, isimplementing EMR, which would present evenmore efficiency.

“Not only do people not know what the cost is ofpaper charts in terms of supplies, they’re also notaccounting for the costs of time and effort,” saysKent Barber of zChart.

He uses the example of simply admitting copying apatient’s insurance card before a procedure: “You needto take the insurance card, and make copies – frontand back – on new pieces of paper. Even though thepatient has had to have this done how many timeswith the initial visit and the specialist visit, the infor-mation is not available,” he says. “The most expensivething was the time taken to do it; you have to look atthe cost of paying personnel to do busy work. Andwhat about what they could be doing if they weren’tmaking photocopies? Staff might find they have moretime to spend with patients, or you might find youhave too many people employed.”

5. Demonstrating quality through accu-rate reporting. Quality reporting is key to ASCs’continuing to gain acceptance with the public and onCapitol Hill, notes Kathy Bryant, JD, the executivedirector of FASA in “Top Priorities for the Industry in2008” on p. 3, and the demand for public reportingof outcomes is on the rise. HIT and its data-miningabilities can help with both. Further, ASCs are knownfor leading the way in the surgical marketplace, andstaying a step ahead in the IT arena is a necessarycomponent of that in the digital age.“I understand that market pressures can make it

Healthcare Information Technology: 8 Key Benefits (continued from page 1)


difficult for ASCs to step back and take a long view ofthe strategic technology components that will makethem competitive and profitable,” says AzadehFarahmand, founder and CEO of GHN Online. “Inthe long-run, however, ASCs cannot afford not to dothe due diligence required to develop and implementa technology vision that integrates transparency, inter-operability and access. I believe these IT capabilitieswill define ASC market leaders.”

6. Inventory management. A good inventorytechnology system should allow an ASC to trackinventory levels and better understand both invento-ry turnover and inventory value. This, in turn, canallow centers to hold less excess inventory and tie upless capital in inventory.

Dr. Welti worked with a local company develop aninventory management and case costing system forSanta Barbara Surgery Center that costs about $300 amonth. The system was implemented over the sum-mer, but he’s already seeing the benefits.

“We now know the exact costs of each case and acrosssurgeons, so I can prove to surgeons what they coulddo to lower their costs,” says Dr. Welti. “Being able toget the eye surgeons to come together on the lensesand the packs we use for eye surgery is going to behuge for us; just by getting two eye surgeons to dowhat another one of our surgeons is doing [in termsof supply costs] will save us $50,000 a year, easily.”

Acceptance of the system in the facility was driven by

the fact it only takes a minute to use during any givenprocedure and doesn’t encumber short cases, he says.

7. Scheduling. By using Web-based schedulingsoftware, ASCs can dramatically improve the use oftheir time and reduce both paperwork and staffingneeded to track scheduling. Companies such asScheduleSurgery.com report hugely improved reduc-tion in case cancellations due to scheduling mistakes,improved confirmation notification to surgeons andpatients for appointments, and reduced staff timedevoted to scheduling.

8. Dashboard reporting. Great managers wantto know each day, not each month, the state of keyvariable such as collections, receivables, cash balances,cases scheduled, case mix and other key factors.Dashboard reporting through systems such as SourceMedical, HST, Amkai and others are now available(and also can be customized) to enable managers totrack their businesses and to plan and implementstrategies much more efficiently and timely.

Market forces demanding more from manufacturersInteroperability, or lack thereof, is another majorissue. There are two ways around it: Buy individualmodules according to your needs from one company,or seek out open-platform software that fits each taskyou want to be able to perform. There are advantagesto both. The former simplifies HIT implementation,say experts, letting you deal with just one company

instead of one or more during the initial process andlater, when bugs crop up (as they inevitably will). Thelatter is more work, but also lets facilities better customize solutions.The market is trending toward a wider variety ofchoices for ASCs, says Chris Beavor, senior vice pres-ident, sales and marketing, for Healthcare Systemsand Technologies (HST): “Up till now, there was nota lot of choice. If you take the pulse of the market, it’sstarting to happen, and choice and competition breedbetter service, better pricing and better products.”

Which is why interoperability is coming into vogue.

“ZChart and other companies are recognizing thatthe data belongs to the surgery center, patient infor-mation belongs to the patient and the ASC, and weneed to be pretty careful about whether we’re seen asmonopolizing those things, I think,” says Mr. Barber.“So we’re going for interoperability and trying tomake things as user-friendly as possible and not throwup a bunch of road blocks,” so facilities will be morelikely to pursue IT solutions.

More to the bottom line, says Mr. Petty, the abilityto pick and choose can save you a lot of money.

“For some tools, there's just not a measurable ROI,”he says. “Hospitals benefit from robust materialsmanagement, but a small ASC doesn't have so muchgoing on that it can't manually manage somethingapproaching perpetual inventory. ASCs by nature


need to look for solutions that fit into smaller, morelimited-scope settings.”

Coding and billing software, EMR, smaller scalematerials management, scheduling software thatinteracts with the physician offices’ software and dictation are among those that fit the bill, say theexperts we talked to.

Contact Stephanie Wasek at [email protected].

3 Tips for HIT SuccessBy Scott Riemenschneider

Ensuring your success as a customer in newtechnology ventures mainly rests on threekey issues.

1. Selecting an appropriate solution.It’s important to have a good understanding ofyour current processes in order to identify thetype of change and the value that a new tech-nology can bring. In essence, you need toknow what you are trying to accomplishthrough the use of technology. Perform anintrospective assessment of your current envi-ronment to determine current areas of need.Externally, you need to look at the productsavailable on the market; once you identifypotential solutions and get in touch with thevendors, it’s good practice to test drive theproducts. Involve representatives from all areasof your facility to evaluate the products and tostart building buy-in from your staff.

2. Selecting the right vendor. A goodvendor will quickly be able to deliver you a listof references that operate in environmentssimilar to yours. When you follow up with thereferences, ask not just about the productyou’re interested in, but the implementationprocess as well as the training and level of sup-port provided by the vendor to get a feel for itsservices. Equally important, a vendor shouldanswer any and all questions about implemen-tation honestly – some parts of the process willbe rough, and any vendor who doesn’t briefyou on those isn’t telling you the whole story.

3. Creating a high level of com-mitment in your staff. Even with thebest software solution, it takes a strong commit-ment from the customer as well as the vendorto realize an efficient and successful implemen-tation. Your vendor can help – when you hitbumps or see potential ones coming, sharethem. The vendor wants its product to succeed,and it should help you through challenges,engendering in your staff a sense of comfort andpositive feelings as a result.

Mr. Riemenschneider ([email protected]) is the president of Focal PointHealth’s ScheduleSurgery.com.

AmkaiChartsAmkaiwww.amkai.com(866) Amkai-EHRFYI: AmkaiCharts is a comprehensive electronicmedical record system specifically for ASCs andsurgical hospitals encompassing nearly all special-ties. The software lets you fully electronicallychart patient encounters, manage prescriptionsand organize records, among other capabilities.

DGF PlatformDGF Medservwww.dgfmedserv.com(630) 324-4730FYI: The DGF Platform lets directly connect tomake secure transactions with insurers on a systemthat runs on Windows and via the Internet. Thecompany provides training, support and assistancefor all users, and extensive transaction data reports.

EmmiEmmi Solutionswww.emmisolutions.com; www.emmidemo.com(866) 294-3664FYI: These interactive, Web-based programs edu-cate patients before and after surgery about allaspects of their procedures, allowing for improvedinformed consent, increasing patient satisfaction,mitigating risk and reducing OR cancellations.

SurgeOnExperior Healthcare Systemswww.experior.com(800) 595-2020FYI: Experior’s SurgeOn software, designedspecifically for ASCs, has many capabilitiesincluding electronic scheduling, patient account-ing, electronic billing, preference cards, materialsmanagement, patient surveys, quality assurance,and reports and surveys.

GHN VisumGHN-Onlinewww.ghnonline.com(214) 696-5717FYI: GHN’s Visum is HIPAA-compliant and letsyou manage claims in real time and process transactions electronically from start to finish. Thesoftware is open and standards-based, so it will workwith a variety of payers to enhance claims acceptance.

HST Pathways Healthcare Systems and Technologywww.hstpathways.com(800) 290-4078FYI: HST Pathways lets ASCs manage workflow,scheduling, registration, accounts receivable, claims,statement processing, collections, insurance follow-up, denial tracking and job scheduling for automating unattended tasks and more in asecure but easy-to-use format.

OptOROptOR Systemswww.optorsystems.com(805) 679-7591FYI: OptOR, a materials management systemthat updates itself when needed, lets you performcomprehensive case costing, create dynamic pref-erence cards, maintain perpetual inventory, cross-check invoices, verify prices, automatically gener-ate purchase orders and track implants.

ProVation MDProVation Medicalwww.provationmedical.com(888) 952-6673FYI: Designed by physicians and coders, ProVationMD software eliminates dictation, automates appli-cation of procedure codes and CCI edits, and pro-vides coder-ready, image-enhanced procedure docu-mentation, enhancing your ability to receive properreimbursement in a timely manner.

SCORSchedule Surgery www.schedulesurgery.com(888) 463-9058FYI: SCOR works with your existing schedulingsystem and uses automated rules to help decreasetime spent scheduling cases by over 58 percent.Because it is Web-based, physician offices cancheck schedules and requests any time.

Vision, Advantix and SurgiSourceSourceMedicalwww.sourcemed.net(800) 447-0104FYI: Depending on your needs, you can choosefrom SourceMedical’s Vision, AdvantX andSurgiSource to handle various aspects of facilitymanagement in order to increase productivityand efficiency; accelerate cash flow; reduce costs;and enhance care quality and patient safety.

Surgical NotesSurgical Noteswww.surgicalnotes.com(800) 459-5616FYI: Surgical Notes’ software is designed with thehelp of surgeons to let you efficiently automatetranscription, coding, document and informationmanagement, EOB processing, HIPAA compli-ance, practice management and clinical imaging.

zChart EMRzChartwww.zchart.com(866) ZCHARTSFYI: ZChart is a completely wireless, paperless,open-source electronic medical record designedwith the help of healthcare professionals exclu-sively for ASCs, letting you execute chartingduties with maximum efficiency so they candevote more resources to patient care.

12 IT Products for ASCs


the A/R, administrative staff was writing off any bill that was not paid within ninedays. Thousands and thousands of dollars were being left on the table.”

As a result of its work, the center was able to accomplish the following:

• Staffing costs went from 39 percent to 20 percent of revenue.• Supply costs went from 27 percent to 14 percent of revenue.• Rent went from 8.5 percent to 3 percent of revenue (the rent did not actually

decrease but ended up representing a smaller portion of the increased revenue).• A/R went from nine to 39 days outstanding – but almost no unpaid bills were

being written off.• A/P went from $640,000 to being current (less than one month outstanding).• Average revenue per case increased over 300 percent: from $807 to $2,600.

After one year, the severely in-debt ASC had cut its losses and was profiting eachmonth, says Dr. Lambert.

Case study No. 2: Hiring a leader to turn an ASC aroundA multi-specialty joint venture ASC was losing money and came to SurgicalManagement Professionals for help. On its face, it appeared that the ASC simply hadsome billing problems that adversely affected revenue. However, on closer inspection,SMP determined that the ASC was failing because it lacked any real leadership. Inresponse to the immediate fiscal issues, SMP reviewed and resolved the ASC’s billingand revenue issues. For the long-term, it sought out and hired a qualified and effective on site leader for the ASC.

The ASC was operating with an unproductive and inefficient front-office resulting in a loss of cases. “For example, the front office did not operate in a customer friendly manner and so physicians and patients had a difficult timescheduling appointments,” recalls Doug Johnson, the executive director of SMP.

In addition, there were billing problems. “We found big piles of charts that wereeither not billed or re-billed in accordance with the payor’s requirements. Many ofthe charts were also coded incorrectly so that maximum revenue would not be billed.Cleary this resulted in a huge loss of revenue for work that had been performed andbecause this earned revenue was not entered in accounts receivables, there was no wayfor a bookkeeper to know it was missing,” he explains.

To resolve these issues, the center instituted a customer friendly policy throughoutthe ASC, reworked the charts, submitted or resubmitted the bills to payors andrestructured the entire coding and billing system so that all charts would be codedcorrectly and submitted properly.

However, the biggest underlying problem was the lack of leadership. It was this lead-ership void that ultimately led to the billing and revenue problems because the staffhad no concrete guidance. It also led to the hiring of an ineffective director of nurs-ing and business officer manager. Not surprisingly, the ASC had huge staff turnover.

“The ASC had no leader and was not functioning as a team,” says Mr. Johnson. “Theanesthesiologists thought they were in charge, the physicians thought they were incharge and, the investor group and board did not know who was in charge.Ultimately, the Board’s role is to set policy and ensure leadership, neither of whichwas done here.”

Also, not surprising is that SMP found that a lot of people – patients and healthcareprofessionals alike – were angry with the ASC. After firing the director of nursingand front office manager, SMP sat down with the staff and asked for patience whileit restructured the facility and hired effective leaders. “Fortunately, the board and stafftrusted us and we hired a site manager with excellent leadership skills, hired an effective director of nursing, and stabilized staff turnover,” says Mr. Johnson. “Withthese staffing changes alone, that first year we skimmed the losses and broke even andsince then we have been profiting more each year.”

ASC Case Studies: Different Approaches Can Help Facilities Find Turnaround Success (continued from page 1)


Case study No. 3: Leadership invigorates physician base to bringfinancial health to ailing ASCA 12-year old multi-specialty ASC losing close to$50,000 a month and burdened with excessivelyhigh debt approached HealthMark Partners toassist in a turnaround. HealthMark determinedthat the ASC was not generating sufficient revenuebecause many of the physician owners were notcommitted to using the facility and non-ownersbelieved the center would soon fail. HealthMarkconcluded that the non-use mainly resulted fromthree problems: The ASC was old and outdated; itwas not considered a healthy, vibrant ASC withinthe community; and there was a perception thatsome difficult physicians were operating at it.Further, HealthMark uncovered that many of thecases being performed at the ASC were not gen-erating sufficient revenue.

HealthMark resolved to invigorate the ASC’sownership base with committed, highly-regardedphysicians through marketing its turnaround andmodernizing the facility.

“This step was taken so that any successful turn-around initiatives would accrue to the benefit ofthe members who understood the financial risksand were willing to commit to turning the ASC

around,” explains William G. Southwick, presi-dent and CEO of HealthMark Partners.

In order to attract new, committed and qualifiedphysicians, HealthMark reestablished its core typesof cases and chose those with high turnover and lowacuity that would work successfully within thesmall ASC (two ORs and two procedure rooms). Itthen, with the help of a few of the remaining physician owners, identified physicians within thecommunity who fit the new focus of the ASC andwhose needs would be met by the ASC.

“With this targeted approach to find high-quality,committed physicians, we were able to double thenumber of active physician owners at the ASC. TheASC is performing very well now and has becomea go-to facility in the community,” explains Mr.Southwick.

Further, the ASC has been able to obtain robustcontracts with area payors, some of whom were ina position to direct business to the ASC. Lastly,with the expansion of active physician investors anda restructuring of the surgical case focus, the ASC ispresently undergoing a renovation to make it technologically modern, more efficient and aesthetically appealing.

“By boosting its physician base, the ASC has gonefrom being in debt and in doubt, to being a reliable

profit center with community recognized quality,”says Mr. Southwick, “and this could not have beenachieved without rigorous study, difficult choicesand the commitment and entrepreneurial spirit ofthe ASC’s physician leaders.”

Case study No. 4: Renegotiating key fiscal contracts to pull an ASC out of the redIn 2002, a failing multi-specialty ASC approachedPrexus Health Partners for help. The 13,000 squarefoot center opened in 1999 and had 19 physicianinvestors. Despite a volume of more than 6,000cases in the previous year, the ASC lost approxi-mately $300,000 that year. The center and Prexusdiscovered many fiscal and operational problemswithin the ASC.

This center had four main problems: inadequatemanaged care contracts; rent far above the commu-nity standard; debt financed by excessively highinterest rates; and disproportionately high usedequipment costs.

Upon taking the ASC on as a client, Prexus and thecenter took the following steps. First, it evaluatedthe ASC’s managed care contracts and renegotiatedthose that were unprofitable so that they would provide adequate compensation. “In somecases Prexus was unable to obtain sufficient


compensation and in those cases advised the ASCto drop contracts,” explains Mr. Jansen.

Second, Prexus renegotiated the ASC’s facilityrental contract to a monthly payment the ASCcould afford and one that was more reflective of themarket rate for the community. The ASC had beenpaying a rent that was 65 percent higher than thestandard in the community. “This renegotiationwas not an easy one and basically occurred ‘underthe threat of bankruptcy,’ a concept the landlordcould understand,” says Mr. Jansen.

Third, to cure the enormous debt expense, Prexusrefinanced the ASC’s debt to a more manageablerate that better reflected the current lending market.“We were able to work with a bank experiencedworking with our company in order to achieve amore reasonable interest rate for the ASC’s loan,”says Mr. Jansen. In three years, the center success-fully decreased the ASC’s debt expense by morethan 25 percent. Lastly, Prexus and the centeraddressed the issue of the equipment costs butcould not undo the past mistakes. Here, Prexusadvised the ASC on how to make knowledgeableequipment purchases in the future, he adds.

Prexus’ turnaround scheme at the ASC has been agreat success. After instituting these changes andmaking the ASC more efficient, in three years theASC went from a loss of 8 percent of its net revenue

to a gain of 23 percent. “We continue to work withthis ASC and the physician owners continue to garner a profitable return on their investment,” says Jansen.

Case study No. 5: Management turned around ASC with new operating system and policiesA marginally profitable large midwest multi-specialty ASC took proactive measures and contact-ed WoodrumASD to help it increase its profitabili-ty and avoid future financial problems.WoodrumASD examined the ASC’s revenues andexpenses and found opportunities for improvementin both areas. “Fortunately, this ASC approached usearly so money had not been lost yet and its prob-lems were solved in a manner that did not disruptits business; we found essentially that no one waswatching the till,” says Joe Zasa, ASC consultantand CEO of Woodrum Ambulatory SystemsDevelopment.

On the revenue side, the ASC had not been operat-ing to its fullest financial capacity in three mainways. First, it had not raised its fees in 10 years.Second, its contract with its one major payor didnot provide for carve-out reimbursements forexpensive implants and other high-cost items.Lastly, none of the ASC’s payor contracts wereloaded into the database system so those payments

were not part of the system’s accounts receivables.WoodrumASD evaluated the ASC’s fees andadjusted them to market rate.

“So much in regards to technology and processeshad changed in ten years, that the ASC’s rate structure did not provide adequate compensationfor the services it was providing,” explains Mr. Zasa.

In addition, WoodrumASD and the center renegotiated those payor contracts that did not provide for carve-outs and loaded all of the ASC’spayor contracts into the data system so that theASC could properly monitor its payments andaccounts receivables. As Mr. Zasa details, “accountsreceivable days is the financial measuring stick for abusiness office and provides the necessary dataneeded to determine if the business office is operating efficiently.”

Further, the center took important proactive measures.

“To avoid similar revenue issues in the future, weestablished policies requiring the ASC to review itsfees and payor contracts at least annually and estab-lished a management program to monitor billing,coding and collecting,” says Mr. Zasa.On the expense side, the ASC had not evaluated itsvendors’ costs, including its group purchasingorganization, in years, and as a result was overpay-ing for a lot of supplies and equipment. It also had


not converted its employee benefit plans to other,less expensive but equally suitable plans, resulting inoverpaying on this line item. WoodrumASD evalu-ated the ASC’s supply costs and identified GPOsand vendors that offered less expensive options.

“This worked out well because the physicians didnot have to change what they were using but sim-ply got to pay less for those items,” says Mr. Zasa.

In addition, WoodrumASD presented the ASCwith alternative employee health plans that provid-ed the same or better coverage but at lower rates.Lastly, WoodrumASD again established policiesthat required the ASC to examine its equipment,supply and health insurance costs on an annualbasis. As a result, by lowering its fixed costs andrealizing all of its revenue, WoodrumASD helpedthe ASC to increase its profits exponentially.

“Professional management and the necessary policychanges provided this ASC with the tools to thriveand flourish,” says Mr. Zasa.

Case study No. 6: Conversion of anASC’s ownership structure was a winning strategyRegent Surgical Health helped a hospital ownedmulti-specialty ASC design a plan to restructureitself to become profitable; the facility had beenclose to failure and had no history of distributingprofits since its inception in 1987. “Being hospi-tal-owned, physicians did not have any greatincentive to improve the quality of servicesthere,” recalls Regent Surgical Health founderand CEO Tom Mallon. However, the hospitalwanted to retain control of the ASC and was thusresistant to selling off any ownership shares.

To provide the hospital with the control theydesired and the profitability, Regent separated theASC’s real estate from its operations and createdtwo distinct entities. The hospital then retained100 percent ownership of the real estate and theoperations side became a joint venture betweenthe hospital (39 percent), the physicians (51 percent) and Regent (10 percent).

“The hospital liked this idea because it stillretained a fair amount of control. It also was in anadvantageous fiscal position whereby it wouldnow enjoy two revenue streams,” says PaulSkowron, an administrator with Regent. “First, asthe owner of the real estate and landlord of thefacility it would receive rental income. Second, itwould receive profit distributions from the joint venture operations entity,” explains Paul Skowron.

The venture has been a success. Mr. Skowronreports that only six months after converting itsownership base, the ASC made its first profit dis-tribution ever. He states that the attention to theASC has increased greatly and the gross marginshave sharply improved.

“Further, the ASC was able to improve its payormix in part by drawing in more commercial pay-ors and worker’s compensation business,” headds. With Regent’s continued involvement and guidance, the ASC will next launch a new spineprogram and plans to renovate and expand are currently being reviewed.

SourcesDonald J. Jansen, MHA: Vice president for development, Prexus Health Partners, Hamilton, Ohio; (513) 300-8140; [email protected].

Douglas V. Johnson, MBA: Executive Director, SurgicalManagement Professionals, 600 S. Cliff Ave., Suite 106, SiouxFalls, S.D. 57104; (605) 335-4207; [email protected].

Brent W. Lambert, MD, FACS: President, Ambulatory SurgicalCenters of America (ASCOA), 195 Hanover St., Ste. 2, Hanover, MA 02339; (781) 258-1533; www.ascoa.com; [email protected].

Tom Mallon, MBA: CEO and founder, Regent Surgical Health,Four Westbrook Corporate Ctr., Ste. 440, Westchester, Ill. 60154; (708) 686-1522; www.regentsurgicalhealth.com; [email protected].

Paul Skowron, CPA, MBA: Administrator, Palos Surgicenter,Regent Surgical Health, Four Westbrook Corporate Ctr., Ste. 440, Westchester, Ill. 60154; (708) 492-0531; www.regentsurgi-calhealth.com; [email protected].

William G. Southwick: President and CEO, HealthMarkPartners, Inc., 40 Burton Hills Blvd.; Ste. 300, Nashville, Tenn. 37215; (615) 329-9000 ext. 224;[email protected].

Joe Zasa, Esq.: CEO and partner, Woodrum Ambulatory SystemsDevelopment, 7326 Wentwood Drive, Dallas, Texas 75225; (214)369-2996; www.woodrumasd.com; [email protected].

Seven Common ASC Mistakesthat May Lead to Failure

Brent Lambert, MD, FACS, suggests the fol-lowing seven reasons that ASCs fail and offersadvice for improvement.

1. Poor case volume. Inadequate casevolume is often the primary reason for anASC’s failure and thus it is imperative that anASC increase it. “The best way to increase casevolume is to recruit qualified, active and effi-cient physicians who understand the benefits ofan ASC and plan to use it,” says Dr. Lambert.In return, the ASC must commit to supplythose physicians with the space and equipmentthey will need to efficiently and effectively per-form their surgeries. He adds that the ASC’sexisting physician-owners may be the bestresource to locate and recruit the right type ofphysicians. In addition, get commitments fromthose existing physicians that they will use thecenter. “Many physicians are afraid that if theydon’t perform a substantial number of theirsurgeries at the hospital, the hospital will cutoff their privileges. We have rarely, if ever, seenthis to actually occur,” he says.

2. High staffing costs. High staffingcosts, those that exceed 20 percent of an ASC’stotal revenue, generally are a big drain on prof-its. The single most effective method todecrease staffing costs is to compress the ASCsurgery schedule so that any vacancies in the

schedule are eliminated. “The cost of keeping anASC open without any surgeries scheduled isastronomical,” says Dr. Lambert. “By compress-ing all the scheduled surgeries into, say, a fourhour block of time or three days instead of five,permits the ASC to close down early and sendstaff home. Basically, turn off the lights when thecases are done.” Of course, this method assumesthat the ASC employs part-time or per diem staffthat can be sent home without pay.

3. High supply costs. High supply costseat away at profits, and should not exceed 20percent of total revenue, advises Dr. Lambert.Most struggling ASCs have supply costs over20 percent because they have not taken advan-tage of group purchasing organizations, whichleverage their large membership in order topurchase supplies and equipment in bulk andat a discount. In addition, ASCs should casecost all of their procedures in order to identifywhich physicians are cost outliers. “Physicianswill likely decrease their case costs if they real-ize that another physician in the ASC is spend-ing less on the same type of case. In one ASC,we discovered a $900 discrepancy between twophysicians performing the same arthroscopywith meniscectomy. By uncovering this, wewere able to encourage the outlier physician tocut his costs,” says Dr. Lambert.

4. Ineffective operations. Turnaroundtime between surgeries needs to be kept to aminimum in order to maintain the ASC’sschedule, staffing and effective operations.“Unfortunately many ASCs take too long. Tomaintain efficiencies, turnaround times shouldaverage seven minutes or less, and certainly notbe more than ten minutes,” says Dr. Lambert.

5. Poor payor contracts. Payor contractsthat do not pay an ASC enough for its proce-dures must be renegotiated or cancelled. “Allpayor contracts must be reviewed annually toensure adequate reimbursement and ASCsshould not be afraid to cancel a contract andpossibly go out-of network rather than losingmoney on a case,” says Dr. Lambert. “We havefound that payors start to pay up once theyrealize an ASC will not tolerate inadequatereimbursement.”

6. Poor A/R management. Poor man-agement of accounts receivable usually resultsin decreased profits. The benchmark for A/Rdays outstanding is no more than 40; accountsshould generally be paid within 35 days orfewer. In addition, 65 percent of A/R should becurrent at all times, with nothing due after 90days. To help reach these benchmarks, an ASCshould always bill on the same day of serviceand do its billing and collection on-site, saysDr. Lambert. “Billing on the day of service is anecessary efficiency and on-site billing and col-lections allows an ASC to maintain proper


control and ensure that the A/R is not falling behind,” says Dr. Lambert. Be surethe ASC administrator is well-trained in coding, posting, collecting and submit-ting. “Only a knowledgeable administrator will be able to expertly manage andenforce the A/R processes and know immediately if there are problems.”

7. Staggering debt service. High debt service is a cost most ASCs canavoid by shopping around for lower interest loans or amortizing the debt overseveral years, recommends Dr. Lambert.

– Dana Kulvin, JD, MPH

Use ASC Benchmarks to Pinpoint Weak AreasThe table below presents benchmarks that can be used to evaluate an ASC and determine those areas of the center that may require improvement. The benchmarkswere developed by Ambulatory Surgical Centers of America and can be applied universally throughout the nation and for all types of ASCs. The seven benchmarksare separated into the areas of costs and operations.

Areas Element Benchmark

Lease No more than 10% of revenue.

Staffing 20% or less of revenue.

Supplies 20% or less of revenue.

Case revenue $1000/case on average.

Accounts receivable Less than 40 days, with sixty-five percent (65%)

current at all times and nothing due over ninety

(90) days.

Accounts payable Less than 30 days.

Turnaround time Average of seven minutes or less, no more

than 10.

Co

sts

Op

erat

ions


CMS Issues New Conditions for Coverage for Ambulatory Surgical CentersBy Scott Becker, JD, CPA, Amber Walsh, JD, and Ryan Higgins, JD

The Centers for Medicare and MedicaidServices released a proposed rule on Aug. 31that would revise the conditions for coverage

for ASCs. [See 72 Fed. Reg. 50,470 (proposed Aug.31, 2007) (to be codified at 42 C.F.R. pt. 416).] Theproposed rule includes the most significant revisionsto the conditions for coverage in more than twodecades. According to CMS, these changes “reflectcontemporary standards of practice in the ASCcommunity, as well as recommendations from theHHS Inspector General.”

Specifically, the proposed rule would revise threeexisting conditions for coverage: Governing Bodyand Management; Evaluation of Quality, whichwould be renamed Quality Assessment andPerformance Improvement; and Laboratory andRadiology Services. The proposed rule would alsoadd three new conditions for coverage: (1) patientrights; (2) infection control; and (3) patient admission, assessment and discharge.

Part one of this article discusses the substance andeffect of two key changes to the conditions for cov-erage. Part two highlights the remaining changes.

Key ChangesAll in all, the additional conditions for coveragewould increase information collection require-ments and other administrative obligations forASCs. That stated, the most significant businessimpact of the proposed rule could arise from twokey provisions. These are the addition of a newlycodified definition for “overnight stay” in thecontext of ASCs and a statement and a new ruleapplicable to patient transfers.

• New definition for overnight stay. Theexisting conditions for coverage define an ASC as“any distinct entity that operates exclusively for thepurpose of providing surgical services to patients notrequiring hospitalization, has an agreement withCMS to participate in Medicare as an ASC, andmeets the conditions set forth in subparts B and Cof this part.” (42 C.F.R. § 416.2.) The proposedconditions for coverage would add a new and clear-er overnight stay element to the definition of ASC.

Regarding the definition of ASC and the newovernight stay element, CMS stated the following:

Ambulatory surgical center or ASC would meanany distinct entity that operates exclusively forthe purpose of providing surgical services topatients not requiring an overnight stay fol-lowing the surgical services, has an agreementwith CMS to participate in Medicare as anASC, and meets the conditions set forth insubparts B and C of this part. The overnightstay definition would read as follows:

Overnight stay, for purposes of the ASC CfCs,would mean the patient’s recovery requiresactive monitoring by qualified medical per-sonnel, regardless of whether it is provided inthe ASC, beyond 11:59 p.m. of the day onwhich the surgical procedure was performed.To provide further clarification on theovernight stay definition, we are proposing touse the 11:59 p.m. threshold as the standardfor determining a patient’s status when receiving services in an ASC facility. In theMedicare cost reporting manual (ProviderReimbursement Manual, Part 1, Section 2205(Medicare Patient Days, page 22–16)), we


have defined a hospital inpatient day as beginning at midnight and ending 24hours later. Consistent with this longstanding policy, we would codify in reg-ulations that any patient whose recovery requires active monitoring by quali-fied personnel beyond 11:59 p.m. of the day on which the surgical procedurewas performed, is a patient who may require hospitalization or more intensivecare. Accordingly, ASCs that are Medicare-certified may not keep patientsbeyond 11:59 p.m. of the day on which the surgical procedure was performed.

The potential codification of this new definition raises two important issues. First,the proposed rule could impact the ability of surgical centers to see non-Medicarepatients that stay past 11:59 p.m. The existing conditions for coverage do notinclude an overnight stay element in the definition of ASC; rather, the conditionsmerely limit reimbursement to surgical procedures “generally requiring a post-opera-tive recovery room or short-term (not overnight) convalescent room” without fur-ther defining the term “overnight.” [42 C.F.R. § 416.65(a)(3).] CMS contends thatthe proposed definition is consistent with a “longstanding policy,” described in theMedicare cost of reporting manual, of defining “a hospital inpatient day as begin-ning at midnight and ending 24 hours later.”

• Patient transfers. A second issue relates to the requirement for transfer agree-ments between surgical centers and local hospitals. Here, CMS appears to recognizethat there are often political and competitive issues between local surgical centers andhospitals that often make it difficult for an ASC to obtain a transfer agreement witha local hospital. Notwithstanding this issue, the comments state that the ASC musttransfer the patient to the most appropriate local hospital regardless of business atthose hospitals. Specifically, CMS states:

…Regardless of any business issues that may arise between ASCs and theirlocal hospital, the ASC would be required to transfer patients to the nearest,most appropriate local hospital, since this would affect patient health. Anytransfers that do not meet the requirements of proposed § 416.41(b)(1) and(2) would be determined to be out of compliance with Medicare regulations.

Currently, the conditions for coverage require only “an effective procedure for theimmediate transfer to a hospital, of patients requiring emergency medical carebeyond the capabilities of the ASC.” (42 C.F.R. § 416.41.) The proposed rule couldpose challenges for ASCs by potentially placing ASCs in a difficult bargaining posi-tion with hospitals.

Remaining ChangesThe remaining changes to the conditions for coverage provide for additional controls,some of which are bureaucratic in nature. Commentary issued with the conditionsof coverage provides insight into the agency’s rationale behind the proposed changes.

• Statement and rule on patient rights. The proposed rule adds a newcondition not previously included in prior rules requiring ASCs to notify patients oftheir rights and providing for exercise of such rights. Specifically, the proposedrule addresses the following:

• notice (orally, in writing and on the wall) of patient rights, including the name and address of the application state agency to which patients can direct complaints (and communications must be given clearly in the patient’s own language either through an English-speaking representative of the family or a translator);

• disclosure of physician financial interests in the ASC orally and in writing prior to the first visit to the ASC;

• policies relating to advance directives and the provision of information relating to advance directive options under state law to patients;

• grievance process pursuant to which patients can address patient rights issues at the facility level including a time frame for response and follow-up that patients can expect;

• protection of patient dignity and property (including a specific example described in the commentary, which includes providing space for patients to


disrobe privately and to await surgery separate from clothed family members and others); and

• confidentiality of clinical records, including compliance with existing HIPAA rules and the requirement that clinical records cannot be dis-closed or used without patient written consent ASCs to give patients information about federal and state laws pertaining to these issues.

Many of these new patient rights requirements havebeen implemented and routinely followed by ASCsto date. However, the new requirements will surelynecessitate additional time and resources duringadmission and consultation stages. In particular, theadvance directives policies and explanation willrequire the ASC to be well-versed in advance direc-tives rules in its state and to be able either to answerquestions relating to advance directives or be willingto reschedule procedures until any raised questionscan be answered fully.

It is also unclear whether the new confidentialrecords requirement will defer to certain exceptionsset forth under HIPAA for the sharing of recordswith certain provider affiliates, during the course ofan audit or extraordinary transaction, etc.

An excerpt from CMS commentary relating to thepatient rights requirements is as follows:

The proposed standard at § 416.50(a), Noticeof rights, would require the ASC to provide the

patient or representative with verbal and writtennotice of the patient’s rights in a language andmanner the patient understands prior to fur-nishing care to the patient. The ASC would alsobe responsible for posting written notice of thepatient rights in a place or places within theASC where they are likely to be noticed bypatients waiting for treatment. In addition, thenotice of patient’s rights must include the name,address and telephone number for a representa-tive in the State agency to whom patients canreport complaints about ASCs, and the CMSweb site for the Medicare BeneficiaryOmbudsman (http://www.cms.hhs.gov/cen-ter/ombudsman.asp). (Section 923 of theMedicare Prescription Drug, Improvement andModernization Act of 2003 (Pub. L. 108-173)(MMA), mandated the creation of theMedicare Beneficiary Ombudsman at section1808(c) of the Act, to ensure that Medicarebeneficiaries receive the information and helpthey need to understand their Medicare optionsand to apply their rights and protections. AMedicare Beneficiary Ombudsman Open DoorForum (ODF) has been established to providean opportunity for beneficiaries, their caregiversand advocates to publicly interact with theMedicare Beneficiary Ombudsman to discussissues and concerns regarding ways to improvethe systems and processes within the

Medicare program.

The ASC would also beresponsible for meaning-fully disclosing, if appli-cable, physician financialinterests or ownership inthe ASC facility in accor-dance with 42 CFR Part420 (Program Integrity).The ASC must disclosethe information in writing and furnish it tothe patient prior to thefirst visit.The disclosure of finan-cial information shouldbe such that patients andtheir representatives areable to clearly understandif the physician(s) whowill be performing a pro-cedure has a financialrelationship with theASC. It is incumbent onthe ASC to be able toprovide information thatis not only technicallycorrect, but which is alsoeasily understood by per-sons not familiar with

financial statements, legal documents or techni-cal language. The ASC should be aware of the ageand the cognitive abilities of its patients and rec-ognize that older patients may be confused whenpresented with a document that they cannotreadily understand at first glance.

In § 416.50(a)(2), Advance directives, the ASCwould also be responsible for providing thepatient or representative with verbal and writteninformation concerning its policies on advancedirectives, including a description of applicableState law and, if requested, official State advancedirective forms. In addition, the ASC would berequired to inform the patient or representativeof the patient’s right to make informed deci-sions regarding their care, and to document in aprominent part of the patient’s current medicalrecord, whether or not the individual has exe-cuted an advance directive.

We believe that ASCs should be given flexibili-ty to meet this requirement within the contextof their unique patient populations. Differencesexist among ASCs and, therefore, ASCs shouldbe allowed to determine the process they woulduse to comply with this proposed requirement.As a result, we are not establishing specificguidelines for implementation. We also believethat the ASC should be aware that questionsmay arise when informing patients of theirrights; and therefore, they should provide ampletime for answering questions.

We are also proposing a requirement entitled“Submission and investigation of grievances” at§ 416.50(a)(3). This requirement wouldrespond directly to the OIG report referencedearlier regarding management of patient griev-ances and any alleged violations against patients.

Grievance procedures are already in effect fornumerous health care providers including ASCs.Similar to other internal procedures (for exam-ple, admission and discharge procedures, infec-tion control procedures and others that are com-mon to health care entities) the developmentand implementation of grievance proceduresvary. Therefore, we have determined that itwould be better to allow ASC to establish thespecifics of a grievance system that may match itscurrent one or needs rather than requiring thatevery ASC conform to a single grievance system.We are proposing that the ASC would estab-lish clearly explained procedures for docu-menting the existence, submission, investiga-tion, and disposition of grievances presentedto the ASC (either written or verbal) made bythe patient or the patient’s representative.ASCs would document all alleged violationsrelated to and including, but not limited to,


mistreatment, neglect, verbal, mental, sexualor physical abuse. If other allegations of mis-treatment arise, such as theft of personal prop-erty, the ASC would document this allegation,as well. The ASC would immediately reportthese allegations to a person in authority in theASC, the State, and local bodies having jurisdic-tion, and the State survey agency if warranted,to the extent that such reports are consistentwith the Health Insurance Portability andAccountability Act of 1996 (Pub. L. 104-191)(HIPAA) and privacy provisions.

We are proposing that the grievance processspecify time frames for review and response tothe grievance. We are also proposing the ASCwould be required to investigate, document,and respond to all grievances made by a patientor the patient’s representative regarding treat-ment or care that is (or fails to be) furnished.

We are proposing that certain information becaptured when documenting and responding togrievances. Proposed documentation shouldinclude such information as how the grievancewas addressed, the steps taken during the inves-tigation; written notice to the patient or repre-sentative of the ASC’s decision (containing thename of an ASC contact person); the results ofthe grievance process; and the date the grievanceprocess was completed consistent with HIPAAand privacy requirements. ASCs could use dif-ferent approaches to effectively meet this CfC.We would set forth the general elements thatshould be common to grievance processesacross all ASCs, but we are not explicitly delin-eating strategies and policies that ASCs arerequired to use to comply with the requirement.Also, we would leave the degree of documenta-tion to the discretion of the ASC.

We would propose at § 416.50(c), Privacy andsafety, that patients have the right to personalprivacy and safety, to receive care in a safe set-ting, and to be free from all forms of abuse orharassment. For example, ASCs would berequired to provide a private space in whichpatients could disrobe and wait until the surgi-cal procedure begins because we believe it isinappropriate for patients to be required to sit ina public waiting area while in a hospital gownwith other fully clothed or similarly gownedpatients or be in a common patient area with-out the benefit of partitions. This right wouldalso allow patients, for example, to identify andreport dangerous or unsafe conditions, harass-ment or abusive behaviors within the ASC thatthe patient believes could negatively impact theservices received at the ASC. We believe thisrequirement would act as an additional safe-guard to patient health and safety.

The proposed “confidentiality of clinicalrecords standard” at § 416.50(d) is designed tosafeguard patients against unauthorized use oftheir clinical record. We would assure that thepatient’s right to confidentiality consistentwith HIPAA standards and that access to orrelease of patient information and clinicalrecords is permitted only with written consentof the patient or representative or as authorizedby law. We are proposing to add this require-ment because patients have the right to com-municate with health care providers in confi-dence and to have the confidentiality of theirhealth care information protected. In addition,all ASCs would be required to comply withthe HIPAA health information privacy rule at45 CFR parts 160 and 164.

• Governing body and management.With respect to governing body and management,CMS stated:

…We are proposing new language in thecondition statement which would requirethe governing body to assume direct over-sight and accountability for the QAPI pro-gram. The governing body would beresponsible for ensuring that QAPI efforts,at a minimum, focus on identifying areasneeding improvement and that QAPI is implemented inaccordance with§ 416.43 of this part.Specific governingbody QAPI responsi-bilities are detailed inthe proposed QAPIrequirement at§ 416.43. By focus-ing on QAPI, ASCmanagement wouldbe expected to be bet-ter able to improvecare being furnishedto patients. We arealso proposing thatthe governing bodybe responsible forcreating and main-taining a disaster pre-paredness plan. Inaddition, we are pro-posing to retain thecurrent requirementwhich provides thatthe ASC can contractfor services with anoutside resource.However, we proposeto incorporate thislanguage into a sepa-rate standard, located

at § 416.41(a). The ASC’s governing bodywould still be responsible for the servicesthat are furnished.

…The ASC’s governing body, as part of theASC leadership component, would be respon-sible for maintaining a written disaster preparedness plan that would provide for theemergency care of patients in the event of fire,natural disaster, functional failure of equipment, or other unexpected events or cir-cumstances that threaten the health and/orsafety of its patients and staff members.

• Quality assessment of performanceimprovement. CMS also included a revised condition for quality assessment programs.Regarding this condition, CMS stated:

…To raise the performance expectations forASCs seeking entrance into the Medicare pro-gram, as well as the expectations of those ASCsalready participating in Medicare, we are proposing that each ASC also develop, implement, and maintain an effective QAPIprogram. Our aim is to support the develop-ment of patient-centered, outcome-orientedefforts that focus on patient health and safety.An ASC QAPI program would be designed tostimulate the ASC to constantly monitor and


improve its own performance, and to beresponsive to the needs, desires, and satisfac-tion levels of the patients it serves.…

In proposed § 416.43(a), Program scope, weare proposing that the ASC’s QAPI programmust include, but not be limited to, an ongo-ing program that demonstrates measurableimprovement in patient health outcomes, andimproves patient safety by using quality indi-cators or performance measures associatedwith improved health outcomes and with theidentification of medical errors.…

Monitoring care in an ASC can be challengingsince the typical patient may be seen for onlyone visit. Therefore, it is critically importantthat an ASC’s QAPI program identify high-riskareas and areas of problematic care and conductfollow-up analysis in a timely manner to identi-fy specific areas in need of improvement.…

At proposed § 416.43(c)(1), Program activities,we propose to require that the ASC set priori-ties for its performance improvement activitiesthat: (1) Focus on high risk, high volume andproblem-prone areas; (2) consider the inci-dence, prevalence and severity of identifiedproblems; and (3) give priority to improvementactivities that affect health outcomes, patientsafety and quality of care. We expect an ASC

would take immediate action to resolve anyidentified problems that directly or potentiallythreaten the care and safety of patients.…

• Laboratory and radiological services.The conditions also include a new condition for laboratory radiological services. Regarding this condition, CMS stated:

In § 416.49, we would divide the current con-dition into two separate standards: Laboratoryand radiologic services; in addition, we are pro-posing the expansion of the radiologic servicesrequirement. The laboratory standard require-ments would not change.

The proposed changes to the radiologic servicesstandard would parallel the current laboratorystandard by including requirements that theASC would be required to meet, if applicable,when providing services directly or underarrangement.

The requirement at § 416.49(b)(1) is part of thecurrent laboratory and radiologic services condition and the language would remainunchanged. The proposed language at§ 416.49(b)(2) would require the ASC to meetthe requirements of the CfCs for portable x-ray suppliers found at § 486.100 through§ 486.110 of this chapter if it is furnishing

these services directly. We have also pro-posed that radiologic services furnishedunder arrangement would be performed byan entity that was certified by Medicare as asupplier of portable x-ray services by meet-ing the Medicare CfCs for portable x-rayservices. This change would better ensurethat high quality radiologic services areavailable to ASC patients.

• Infection control. With regard to a newcondition for coverage for infection control,CMS stated:

We propose to establish a separate conditionfor infection control since control of infec-tion is critically important to overall patientand staff health and safety.

We believe that surgery in an ASC must notentail a greater risk of infection to thepatient than surgery in an inpatient setting.Medicare approved surgical procedures areperformed in a variety of settings and webelieve that an effective infection controlprogram should be present in all ASCs. Oneprimary cause of infections is poor surgicaltechnique and follow-up care. The Centersfor Disease Control and Prevention (CDC)1999 Guideline for Prevention of Surgical

Site Infection [Infection Control and HospitalEpidemiology, Vol. 20 No. 4], also states thatserious surgical infections can be explained bythe emergence of antimicrobial-resistantpathogens and the increased numbers of surgi-cal patients who are elderly. Furthermore, theCDC also reports that two million people areaffected by infections that annually occur inhospitals and not including those healthcareassociated infections that occur in long-termcare facilities, ambulatory-care facilities andoutpatient settings (CDC. Public health focus:surveillance, prevention and control of nosoco-mial infections (MMWR 1992; 41: 783–7)).A recent report on maximizing hand hygienecompliance and improved outcomes publishedin Infection Control Today reported thathealthcare associated infections subject patientsto increased risk of morbidity and mortality,increased durations of care and increasedhealthcare treatment costs (E. Fendler and P.Groziak; Maximizing Hand-HygieneCompliance to Improve Outcomes: A NewTool for Infection Control, Infection ControlToday, November 2001). Furthermore, thereport by Fendler and Groziak, according toCDC estimates, states that implementingeffective infection control programs preventsone-third of these infections.

As noted by the former CMSAdministrator, Dr. Mark McClellan, duringhis testimony before the Senate FinanceCommittee on May 18, 2006, “Medicarepayments to ASCs are expected to betterreflect the resources required to performspecific surgical procedures and to be simi-lar to payments under other payment sys-tems. In its 2005 Report to Congress, CMSfound that many orthopedic surgical spe-cialty hospitals were more similar to ASCsthan to acute care hospitals.” To addressthis problem, CMS is developing revisionsto the payment rates and also the list of pro-cedures eligible for payment. …

We are proposing this new condition as amethod to capture specific patient carerequirements in the pre-admission, pre-sur-gical, post-surgical and discharge phases ofthe ASC surgery process. The core objec-tives of this condition would be to ensure:(1) The patient can tolerate a surgical expe-rience; (2) the patient’s anesthesia risk andrecovery are properly evaluated; (3) thepatient’s post-operative recovery is adequately evaluated; (4) the patientreceives effective discharge planning; and(5) the patient is successfully dischargedfrom the ASC.

Under the first proposed standard, “Admissionand pre-surgical assessment,” we would pro-pose that each patient must have a comprehen-sive medical history and physical assessmentcompleted not more than 30 days before thedate of scheduled surgery by a physician (asdefined in section 1861(r) of the Act), or otherqualified practitioner in accordance with Statelaw and ASC policy. We are proposing the 30-day time limit to remain consistent with ourhospital conditions of participation that alsorequires a medical history and physical assess-ment be completed no more than 30 daysbefore an elective procedure or admission. Inaddition, to ensure the ASC healthcare teamwould have all patient information available ifneeded, the ASC would be required to placethe medical history and physical assessment inthe patient’s medical record before the surgicalprocedure is started. …

The proposed standard § 416.52(b), “Post-surgical assessment” would require the ASCto ensure that a thorough assessment of thepatient’s post-surgical condition is complet-ed, documented in the medical record andthat any post-surgical needs are addressedand included in the discharge notes. Wepropose to retain the current standard at§ 416.42(a) that requires a physician toevaluate each patient for anesthesia recoverybefore discharge. The post-surgical assess-ment must be performed by a physician orother qualified practitioner in accordancewith State law. The post-surgical assessmentwould assess all body systems and identifyany unforeseen or unanticipated post-surgi-cal medical issues. The goal would be todecrease the amount of post-surgical com-

plications experienced after discharge in thehome recovery setting.

ConclusionThese proposed rules would, taken as a whole,have a significant impact on ASCs from an operational and business perspective. CMSaccepted public comments through Oct. 30 andexpects to publish a final rule near year’s end.

Vending Machines –Not all Bad!!By Chloe Freed Becker

Avending machine would be great for our school.Sometimes you do not remember your nutri-

tion needs. Also, there can be fit and healthy foodsin a vending machine. I would like a vendingmachine because there are healthy choices and it canhelp those who forget their lunch.

Did you know some things in the vending machinecould be healthy for you? First of all, you can gethealthy apples and fruits in the vending machine.So, you can be healthier and ready for your day.Also, you can get healthy drinks like Gatorade,Propel, and water. So, you won’t get dehydrated andyou won’t get sick.

Did you know sometimes you can forget your foodfor school? You can forget your snack so you can goto the vending machine and then, your not whin-ing to your teacher that you are hungry. In addition,you can forget your lunch so you can get a sand-wich, chips, and fruit. Then, you’re not hungry andnot worried.

A vending machine would be excellent for a school.There are fresh foods in a vending machine. You canforget your snack or lunch. I would like a vendingmachine because sometimes I need food to eat!

While you might be hearing a lot of doomand gloom about pain management’sfuture in ASCs after CMS’s transition to

HOPD-based facility fees, an assessment beyond arudimentary sampling of the most common proce-dure codes reveals a significantly different picture. Infact, as the traditional “grouper-based” facility feesfor individual procedures are being eradicated, thereare new sources of payment previously unavailablein freestanding (non-HOPD) facilities.

Depending on the specific procedure volume andpayor mix, pain management ASCs may see fewadverse effects – and could, in fact, come throughthe transition just fine. To assess the impact of thenew payment system, one needs to understand andevaluate the overall complexity for 2008 andbeyond, from reductions in payment for some procedures, to increases for others, to paymentsentirely new to ASCs.

Identifying payment indicatorsThe road map to this understanding starts withgrasping the payment indicators stipulated by CMSto guide the four-year transition (to be complete bybeginning of 2011) to an HOPD-based system forall ASC services. Payment indicators specify themethod and timing for application of revised pay-ments; and there are 16 ways that is proposed to

happen. Luckily, single-specialty pain managementASCs need only work with a few of them. Theyinclude the following;

• The old groupers, or procedures already classi-fied as receiving facility fees in 2007, will make themulti-year prorated transition from the 2007 basisto 65 percent of the HOPD rate.

• New procedure codes not previously consideredappropriate to office-based facilities (they wereexclusive to hospital-based facilities) will be paidimmediately (starting Jan. 1, 2008) at 65 percentof the HOPD rate.

• Device-intensive procedures (such as neurostimu-lators and drug-infusion pumps) will be paid accord-ing to the multi-year prorated transition to theHOPD basis plus an additional scheduled amountaddressing the costs of the devices themselves.

• Codes that were considered “office-based” anddid not previously qualify for a facility fee, butinstead paid a higher professional fee if performedin the office setting. The difference between theenhanced fee and that paid to the surgeon if usingsomeone else’s facility is/was commonly referredto as the site-of-service differential and represent-ed the minimum fee an ASC should be paid foruse of the facility by the surgeon to avoid theappearance of subsidizing use of the ASC. These

procedures are each being assigned a transitionalvalue (different from the site-of-service differen-tial) that is applied immediately (starting Jan. 1,2008) as the facility fee.

• Two new categories for handling diagnosticradiology codes are applicable where a technicalcomponent is now payable in addition to relatedprocedures (but many others remain “bundled”with the associated code); these fees are to beapplied starting Jan. 2008.

Understanding the reimbursementIf you look only at the prorated transition of the famil-iar groupers from the 2007 basis to the proposed 65percent of HOPD rates, the outlook is indeed notgood, with most facility fees reduced between 24 per-cent and 35 percent. But as seen above, that is only partof the picture. While the basic values for those codes aregoing down, ASCs can now be paid additional fees forsome of the more expensive drugs and biologics usedduring qualifying procedures and, with a few proce-dures, additional fees for the technical component ofancillary diagnostic radiology services. Add to that thesignificant number of codes qualifying for new or high-er payments and the situation brightens considerably.

For example, a large joint injection [20610] under the2007 system only offered an ASC the office-basedsite-of-service differential amount as anticipated

Pain Management ASCs –Here to Stay in 2008 and BeyondBy Amy G. Mowles and William E. Lindeman, AIA, NCARB


compensation: a whopping $21.22, which is particu-larly offensive considering nothing additional can becharged for the drug administered. Under the HOPDsystem, the ASC will be paid a basic facility feeapproximately 75 percent higher than the 2007 site ofservice differential plus separate payment for drugs.

No two codes previously practice-based are treated thesame, however. The increase over 2007 site-of-servicedifferential values for non-radiological pain manage-ment procedures ranges between 23 percent and 128percent, but all those payments for the most commonpain management codes are increasing, and additionalpayments will be made for drugs and biologic agents.

Then there are payments that “jump” codes to identi-fy a facility fee, resulting in another gain for the ASC,such as cervical discography’s [62291] new connectionto radiological interpretation [72285]. Under the2007 system, discography was treated as a practice-based code, meaning an ASC’s anticipated compensa-tion was tied to the site-of-service differential in pro-fessional fees. Under the HOPD system, the paymentindicators direct the ASC to bill the technical compo-nent of the discography under a separate radiologycode that not only creates a defined facility fee, butincreases payment by about 42 percent.

One of the important distinctions with the newlydefined facility fees, higher and in lieu of site of theolder service differential values for office-based proce-dures, is they will be paid directly to ASCs. While itwas understood the practice-based differentials (as anabsolute minimum) should be paid to ASCs, it was apolitical and/or cash flow problem for the ASC to col-lect payment from the operating surgeon because theamounts were paid directly to the physician as globalprofessional fees. For ASCs used by non-owner sur-geons, the new system eliminates the potentiallyunpopular process of extracting payment from part ofa surgeon’s professional fees and clearly defines thefacility fee due directly from the CMS carrier.

Uncovering other new advantagesOffice-based codes are not the only silver-liningwith the new system. For example, vertebroplastyprocedures will not only generate a facility fee for theprocedure code (22520, 22521, or 22522) but alsofor the necessary diagnostic imaging technique (flu-oroscopy under 72291, or CT under 72292). Whilethe completed transition to a HOPD basis is pro-jected to reduce the primary code’s value by about25 percent, the newly applicable diagnostic imagingtechnical component should help offset the loss.

Some other procedures, such as neurolytics, will fairbetter under the HOPD-based system because itaccounts for the costs of expensive needles, probes andgrounding pads – something the old system clearly didnot. Stimulators and pumps (which have longinvolved extended negotiating and compromise to getpaid for) are now included in the AmbulatoryPayment Classification, offset by a “device percentage.”

The overall effect of these changes (transition to anHOPD rate basis) is highly dependent on the specif-ic procedures performed. To give you a better idea,annualized procedure data for four unrelated pain

management groups across the country were runthrough feasibility projections for 2007 through2011. The resulting projections (no escalation of feesfor inflation adjustments where assumed or applied,except as noted) yielded some interesting insights:

• CMS payments for ASC pain management pro-cedures in 2008 will be up from 2007, with aweighted average increase slightly over 2.5 percent.They will then decrease annually as the transition toa purely HOPD basis progresses. Consequentially,investors who have delayed developing new ASCswhile waiting to see CMS’s final methodology havemissed the strongest year for Medicare reimburse-ment in the recent past and foreseeable future.

• The net effect at the conclusion of the transitionto the HOPD basis will be a weighted averagereduction in payment a little under 6 percent – afar cry from the 35 percent or greater losses tout-ed by inadequately informed resources.

• If HOPD rates are projected to increase a modest3.5 percent to 4 percent annually for each year of thetransition (except 2009 where blocked by CMS),the net effect will be an increase in weighted averagepayment of approximately 5.3 percent over 2007’s.

Though such a small sample of pain managementgroups is hardly extensive or statistically precise, itshould serve as a wake up call for those fearing theworst case scenarios postulated elsewhere. The great-est point to be made, however, is how insignificantthose modest reductions can be in a well conceivedand efficiently run pain management ASC.

Productive through2011 and beyondIn the end, any pain man-agement ASC with ade-quate patient volume tokeep staff productive andequipment busy will beprofitable (given a normalprocedure mix). As long asthat is the case, compensat-ing for a 5.3 percent loss,even if from all payors,should be covered byroughly an annual proce-dure volume increase ofless than 2.5 percent (com-fortably within mostgroups’ capabilities andexpectations). Consideringthe likelihood that CMS isnot the only payor, and isprobably the lowest payor,the volume increase tocover the projected reduc-tion should be even less.

A busy pain managementASC has long been anexcellent investment forowner-surgeons, and thetransition to the proposed

HOPD basis will do little or nothing to change that.To get the most from their investment, pain manage-ment groups should size their facilities to be efficientfrom the onset but capable of supporting longer-termprojected-volume increases – beyond a break-evenlevel, each percent of volume growth can increase prof-it many fold. Single-specialty pain management ASCstend to have an advantage pursuing efficiency increas-es compared to multi-specialty ASCs, simply becausethey avoid the down-time of adapting procedure roomequipment and arrangement between cases, and havestaff attuned to the relative high volume possible forthe specialty.

A final push toward ASCs, and away from practice-based pain management procedures, may comefrom the regulatory side — and in fact already is insome states, such as Pennsylvania, where the healthdepartment has recently written opinion that theacuity of pain management patients and the procedures performed are only acceptable inlicensed and certified ASCs. The transition to themore inclusive HOPD procedure list will onlyincrease the acuity of patients treated and therisks associated with the more provocative proce-dures allowed. Then there are expectations of significant cuts in office-based procedure fees –but that is anyone’s guess at this point, and another discussion entirely.

Ms. Mowles ([email protected]) is the president and CEOof Mowles Medical Practice Management (www.mowles.com).Mr. Lindeman ([email protected]) is the president ofWEL Designs (www.weldesigns.com).



For a copy of the2008 Beckers ASC Review Editorial Calendar, please call (800) 417-2035 or visit

www.beckersascreview.com

Sign FASAPAC’s solicitationauthorization form. To help FASAPAC, FASA’s political actioncommittee, better serve ASCs, pleasedownload the solicitation form (http://www.fasa.org/fasapac/Solicitation%20Authorization.pdf), fill it out and return to FASAPAC.


Q: Can a surgery center have two different classes ofstock for physicians?

A: Generally, there are two core differences in types of classesof stock. These differences can relate to (1) voting rights or (2)financial rights. This article strictly discusses different classes ofstock amongst physician-owners. It does not discuss differentclasses of stock between non-physicians and physicians.

Over the past few years, we have examined different types ofconcepts related to different classes of stock for physicians.First, can you sell shares to physicians at a lower price becausethe physician owned shares will not have any voting rights.Second, can you sell shares at a different price due to theconcept that one class of shares has a preferred financialreturn to the other class of shares.

We generally do not encourage either one of these strate-gies as a means to help price shares for physicians at a moreaffordable rate. For example, we have seen situations wherea company will price a new class of shares lower because theinitial holders of shares will have the ability to receive alldistributions up to a certain point. As an example, assumethat the surgery center currently makes $800,000 a year innet income. With this type of preferred stock concept, theinitial shareholders, those that hold shares before selling tothe new shareholders, might receive all of the distributionup to $800,000, before the new shareholders have the rightto share in distributions. Then, the new shareholderswould share in distributions based on some percentagebetween the new shareholders and the old shareholderssuch as based on their percentage of ownership.

We generally do not view this as a recommended course ofaction. First, the hurdle to reach to receive distributions canbe viewed as encouraging the new physicians to bring a greatdeal of cases to the surgery center such that they will meetthe initial hurdle and be able to share in distributions. Thisis different than being able to share in distributions from thefirst dollar or profit in the surgery center. Second, this runscontrary to a good deal of the guidance set forth by theOffice of Inspector General related to sharing in returns prorata based on ownership. Hence, even though there may bejustifiable reasons for such a type of preference or preferredstock, we generally recommend against such a strategy.

We also generally recommend against differentiating theprices amongst classes of shares amongst the physician own-ers based on voting rights. It is generally acceptable where aparty is buying in without control rights and without liquid-ity, to use a valuation firm and have such an independentthird party account for these factors. However, we would bevery cautious about using a strategy whereby physicianshares are discounted compared to other physician sharesbecause some of the shares are purposely developed withoutvoting rights. While there may be justifiable reasons for this,we have concern that an investigator would view this as sim-ply a means to try and reduce the share price for physiciansto entice more physicians to invest and to help capture theirbusiness at the surgery center.

Q: If a hospital owns 51 percent of the shares of a

venture, can the ASC bill for services at higherrates?

A: Generally, a hospital’s owning 51 percent of ajoint-venture ambulatory surgical center wouldnot itself enable the surgery center to bill forhigher rates to Medicare or Medicaid patients.

The ownership of 51 percent may place the joint-venture in a situation where the hospital can treatthe joint venture surgery center as an affiliate oncertain of its managed care contracts. At 51 percent,many managed care contracts provide that a hospi-tal can add on to its managed care contracts anyventure in which it has controlling interests.Accordingly, depending on managed care contracts,this type of venture might be able to bill payorsunder the managed care contracts of the hospital.

Another consideration as to this question evolvesunder the antitrust laws. Generally, the antitrust

laws prohibit a conspiracy amongst two differentparties to decide on the prices to be charged to athird party. Where there is only one party, there isno possibility of “conspiracy” under the antitrustlaws. Generally, the antitrust laws treat two partiesas “one party” if the first party owns more than acertain percentage of the second party (such as anASC). Typically, if a first party owns more than 80to 100 percent of the second party (the ASC), thisbecomes close to a non-issue. In essence, they arealmost always treated as one party. In contrast,where the first party owns less than 80 percent ofthe second party, the extent of freedom under theantitrust laws to jointly contract depends upon thecontrol the first party has over the second party. Ifthe first party has essentially all decision makingover the second party (the joint-venture), there mayalso be significant freedom to jointly managed carecontract.

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A code of conduct is simply one piece of an overall compliance plan. It puts forth a number of core conceptsthat should be incorporated into the compliance plan.Often, a surgery center will have a difficult timeadministering and starting to put together a compre-hensive compliance plan. This is not an excuse for nothaving a compliance plan. However, even in these surgery centers, it can be very easy for a surgery centerto develop a code of compliance that serves as standardrules by which the surgery center operates. This canbecome the mantra and the cornerstone of a culture ofcompliance that every surgery center should have. Theseitems set forth below are the introduction to the piecesof a compliance plan that a surgery center should have.We hope that you find this helpful.

The Center strives to provide quality health careservices to the community. The Center’s values andgoals include the achievement of excellence in thetreatment of the patients and the compliance withall laws applicable to the Center’s operations. Theoperation of the Center in compliance with all lawsshall take precedence at all times over any interestin generating profits. All references herein to “owners” of the Center shall include both direct

and indirect owners. The Center, in its businessand clinical operations, will strive to abide by the following principles:

1. The Center, each owner, and each employeeshall use best efforts to protect the confidentialinformation of patients and families of patients.

2. The Center, each owner, and each employeewill abide by all policies applicable to such per-son’s positions with the Center, as well as all stateand federal laws and conditions of participationin health care reimbursement programs.

3. The Center, the owners, and the employees will notencourage or participate, directly or indirectly, in activ-ities such as theft, bribery, kick backs, misappropria-tion, false statements, submission of false claims, dis-crimination, boycotts, price fixing, or violations ofenvironmental or work place safety laws.

4. The Center, the owners, and the employees willnot make any payment, or offer to make any payment, whether in cash or in kind, to anyphysician, patient, hospital, facility, or otherparty in order to induce the referral of patients orother items or services to the Center.

5. The Center shall not enter into relationships withany person or entity that may refer business to theCenter unless such arrangements involve compensa-tion for fair market value and the arrangements arefully compliant with all laws. No such arrangementshall take into account the volume or value of refer-rals by such person.

6. The Center will only bill for services in a manner that is legally appropriate. Owners andemployees who are involved with billing functionswill not submit any claims for amounts other thanin accordance with the Center’s policies. In theevent that any owner or employee discovers anyintentional or unintentional improper billing prac-tices (including the submission of any false claim),such person shall immediately report it to theappropriate Center personnel.

7. Owners and employees who refer patients forservices to the Center will only refer patients forservices or procedures that are medically necessary orcosmetic in nature. Services that are neither med-ically necessary nor cosmetic in nature shall not beperformed at the Center.

Sample Code of Conduct for ASCs


8. The Center, each owner, and each employee shalltreat all patients (including Medicare, Medicaid, andindigent patients) in a non-discriminatory mannerin accordance with Center policies regarding acceptance of patients.

9. The Center shall not offer shares in exchange forreferrals. Shares in the Center may only be sold atfair market value, and the sale of more or less sharesdepending on the referrals generated by such personis strictly prohibited.

10. All distributions of Center earnings shall bebased on the number of shares held by the ownersand shall in no way be based on the volume or valueof referrals to the Center.

11. Each owner shall notify patients of his or herfinancial interest in the Center if he or she referssuch patients to the Center.

12. Each owner and employee shall treat all patients,Center personnel, and other members of the com-munity with dignity, respect and compassion.

13. The Center, each owner, and each employee willmaintain a safe working environment, will fulfill allduties in a safe manner, and will notify the properCenter personnel immediately of any hazard, injury,equipment problem, or other potential safety issue.

14. If an owner or employee becomes aware that anyCenter staff or owner or other person providing

services to the Center has engaged in any of thebehavior prohibited above, such person must notifythe appropriate Center personnel.

15. The Center and each owner will strive to main-tain compliance with the ambulatory surgery centerSafe Harbor to the Federal Anti-Kickback Statute,and, except to the extent of efforts to comply withthe one third tests of the ambulatory surgery centerSafe Harbor, the Center, the owners, and theemployees will not pressure any person or entity torefer patients or cases to the Center. In furtheranceof such, the following principles shall be followed:

A. Any services provided to the Center by owners orother persons or entities will be provided pursuantto a written contractual arrangement directly withthe Center or an affiliate. Any such contract,whether it is directly between the Center and physi-cian owner or other person or entity, a subcontractwith an affiliate, or otherwise, will be negotiated andentered into by all parties at arm’s-length.

B. Any services by owners to the Center shall belegitimately needed services and shall be clearly enu-merated in the contract. All such services shall alsobe necessary to the maintaining or improving thequality and/or efficiency of the Center’s operations.

C. No physician owner or other person or entity willreceive any compensation or remuneration, eitherdirectly or indirectly, from the Center, or any affili-ate of the Center, that is related to the volume or

value, or potential volume or value, of such physi-cian’s or other person’s or entity’s referrals of patientsto the Center (i.e. based on such physician or otherperson or entity’s referrals).

D. Neither the Center nor any affiliate of the Centerwill provide any incentive to owners to refer patientsto the Center and the Center will not withhold anycompensation from any owners who do not referpatients to the Center.

E. No owner, except as specifically required under theASC Safe Harbors, shall be required to perform serv-ices to the Center and all contracts pursuant to whichowners provide services to the Center should clearlystate the same.

F. No physician owner shall condition referrals toanother physician or otherwise require anotherphysician to perform cases referred by such firstphysician at the Center.

G. No physician shall be admitted as an owner orallowed to become or remain an owner based on hisor her ability to generate referrals for other physicians.

To advertise in orsubscribe to the

ASC Review, please call (800) 417-2035.


This short article briefly outlines severalmethods by which hospitals attempt toalign interests with physicians. Some of

these options may be useful for different types ofprojects. Further, depending on whether pursuingan imaging venture, an ASC venture, a nuclear cam-era venture, a cardiac cath venture or other type of venture, some of the models may be more or lessuseful. Briefly stated, the core models are as follows:

Minimal integration models. We generallyview the following as minimal integration models.Typically, this means that the arrangements are shortterm and generally do not require the developmentof partnership agreements or require extensive capital contributions.

• Medical directorships. This involves an agree-ment with a physician or physician group whowill provide various services to the venture, such asadministrative services, training of employees andstaff, etc., in exchange for a set fee.

• Management contracts. These are situationswhere either the hospital would manage a physi-cian practice or a physician would manage adepartment of the hospital or some other effort onbehalf of the hospital.

• Gain-sharing efforts. Gain-sharing usuallyinvolves the hospital and physicians workingtogether to achieve cost savings in purchasing forcertain surgical procedures or other proceduresand then sharing those savings between eachother. While a minimal integration model, theseefforts take a great deal of time and effort to puttogether.

• Under-arrangement joint-ventures. In the tra-ditional under-arrangement joint-ventures, a hos-pital simply buys an existing service from a physi-cian group or similar entity and then bills for theservices. This is differentiated from the moreextensive under-arrangement ventures being puttogether today and noted below.

• Part-time employment arrangements. Here, thehospital or a related party employs physicians on apart-time basis to provide services to the hospital.

• Independent contractor. Here, like an employ-ment agreement, the hospital typically contractsdirectly with a physician and has him or her pro-vide services on the hospital’s behalf. In otherindependent contract arrangements, such as hos-pital-based independent contractor arrangements,the physician provides services and bills third par-ties. Often, there is very little economic difference.

Medium integration models. We generallyview the following as medium integration models.

They require more effort to put together than aminimum integration model and often require capital contributions and the development of vari-ous partnership type agreements.

• True joint-venture. Here, the physicians andhospital joint-venture to be the actual provider ofservices, and they develop the joint-ventureprovider together. The provider of services billsthird party payors and Medicare. This is a typicalor traditional model for a surgery center.

• Equipment, real estate or infrastructurejoint-venture. Under these types of joint-ven-tures, the physicians and hospital jointly investin an equipment joint-venture or real estatejoint-venture. Then, this venture leases equip-ment or real estate to either a physician groupor a hospital group or both.

• Under-arrangements joint-venture. Under thisscenario, the physicians and hospital will often puttogether a much fuller under-arrangements venturethan under the minimal integration under-arrange-ments. Then, this joint venture will include every-thing except the provider number and license.Rather than providing services to third parties andcommercial payors, itwill provide its servicesto the hospital and thehospital will bill its serv-ices as hospital outpa-tient department servic-es to third parties. These types of under-arrangements and joint-ventures involve several regulatory risks.Nevertheless, they havebecome increasinglycommon and popular.

Full integration mod-els. There are also severalcomplete integration mod-els, of which the followingare a few:

• Income and employ-ment through hospitaldirectly. The typical fullintegration generallyincludes full and com-plete employment ofthe physicians. Here,the hospital directlyemploys physicians.This has the benefit of

satisfying the Fraud and Abuse Statute employment safe harbor and the Stark Actemployment exception.

• Hospital employs the physicians through asubsidiary. Here, the hospital creates a subsidiarycompany and employs the physicians through thesubsidiary. Again, this provides the hospital withincreased control of its ability to provide servicesover time and to control the physicians’ services.

• Professional corporation or foundation model.Under this type of scenario, the hospital providesservices through a captive or related professionalcorporation that employs the physicians. Here, wenote certain recent IRS private letter rulingsregarding UBIT in practice corporations ownedby hospitals.

This article is not a legal analysis of the models discussed herein. Rather, this is intended as anoverview of certain of the options. As one movesforward with any of these options, one should consider the provision of more comprehensive legalguidance, as well as the review of different valuationissues that are involved in each model.

Physician-Hospital Joint-Ventures:An Outline of Arrangements


Dr. Cherf founded the Midwest OrthopedicInstitute, an orthopedic physicians group withfull integration of diagnostic imaging, rehabilita-tion, ambulatory surgery and occupational medi-cine under one roof. He presently practices inChicago and is once of the founding members ofthe Chicago Institute of Orthopedics. With morethan 15 years’ experience and fellowship trainingin sports medicine, he has served as team physi-cian for several collegiate and professional sportsteams in addition to U.S. Soccer. Dr. Cherf haspublished in numerous peer review journals,speaks internationally, and serves on several advi-sory boards for healthcare-related businesses.

Scott Becker, JD, CPA, is a partner in and co-chair of the health depatment at the national lawfirm of McGuireWoods in Chicago. For moreinformation, visit his McGuireWoods profile(www.mcguirewoods.com/lawyers/index/Scott_Becker.asp) or www.BeckersASC.com.

What you will learn: There are two keyissues that will be the focus of the Webinar:

1. A forecast for the next 10 years in orthopedics; and

2. how ASCs, hospitals and medical device companies should work with orthopedic surgeons.

Who should attend: C-level hospital leader-ship, vice presidents and other leaders who whowork in a orthopedic-physician-relations capaci-ty, orthopedic physician leaders, ASC administra-tors, ASC owners, and ASC and medical devicecompanies.

When: Wednesday, Dec. 5 at 2 p.m. CST (run-ning time: 60 to 90 minutes)

About the speakers: John Cherf, MD,MBA, MPH, is an orthopedic surgeon at theChicago Institute of Orthopedics, a clinical advi-sor for Sg2 and a thought-leader in orthopedics.

Cost: $199 if registering before Nov. 19 (save $50!).

How to register: There are five easy ways.

1. Fill out and submit the online registration form (www.beckersasc.com/?page=webinar-reg).

2. E-mail Jessica Cole at [email protected].

3. Call us toll-free at (800) 417-2035.

4. Fill out the registration form on page 29, and fax to (866) 678-5755.

5. Fill out the registration form on page 29, and mail to 315 Vernon Ave., Glencoe, IL 60022.

At a Glance: “Key Thoughts on The Orthopedics Industry”An ASC Communications Webinar


Key Thoughts on The Orthopedics IndustryREGISTER BY FAX OR MAILMail: 315 Vernon Avenue, Glencoe, IL 60022

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There are at least two people that are undisput-ed leaders in their own fields. These includePeter Drucker in management and Warren

Buffet in investing. Previously, we have provided ananalysis of the ASC industry based on a frameworkdeveloped by Peter Drucker. Currently, with thestock market and the lending market in a periodof significant uncertainty, we summarized a fewof the investment concepts set forth by WarrenBuffet. Aside from the fact that Warren Buffet hasmade a good deal of money through investing,the investment concepts themselves are relativelysimple and are driven by common sense. Here aresix of the basic concepts.

• Cash and liquidity in part is fine. Aninvestment broker will often tell you that youneed to be fully invested in the stock market, andthat this is particularly true if you are youngerand have a longer period of time until retirement.In contrast, Warren Buffet articulates that a gooddegree of liquidity is critical. In short, there isnothing wrong with having a certain percentageof your assets in cash and not invested in thestock market.

• Wait for the right pitch. When investing,

whether looking at surgery centers or investmentopportunities, the idea is not to swing at everypitch. Rather, wait till you have an opportunitythat you believe with a good deal of certainty is agood bet. I recall my first surgery center investment; there, I was so excited to have theopportunity to be asked to invest that I promptlydid so. This was despite the fact the center didnot have enough cases and, on top of this prob-lem, was located in a very poor reimbursementmarket. Thus, I showed tremendous brilliance byinvesting in a center with both too few cases andpoor reimbursement. I promptly lost all themoney I’d invested. Since that point, I have bet-ter recognized the wisdom of this concept.Unfortunately, one of the challenges that we allface is that we are not constantly looking forinvestment opportunities, and thus do not havethe chance to look at so many pitches that onecan comfortably sit on the sidelines and wait forthe “fat” pitch. However, this is clearly the rightnotion. Further, as one gains experience investingin stocks or in surgery centers, or in other health-care businesses, one can gain a better and betterunderstanding of what actually is the “fat” pitch.

• Don’t over-diversify. One of the mantrasthat is spoken is that ofdiversification. One ofmy closet colleagues, aninvestment manager atthe famous Oak MarkFunds, Bob Burnstine,long ago said to me thatyou are far better offhaving three to four coreinvestments (in this casea few mutual funds)than 15 different mutualfunds or for that matter50 to 60 different stocks.In essence, you are farbetter off having 10 to15 high quality invest-ments than 30 to 40which are harder tomanage, harder to watchand harder to pay closeattention to. Further, itis almost impossible toclosely follow more thana certain number ofinvestments.

• Protective moats.It is corollary to the con-cept of waiting for thefat pitch, another

Warren Buffet investment rule is to attempt toinvest in something that has a significant moataround it. This means that it has some sort ofprotective barrier to entry that makes it hard torun or compete with. In business, this may be abrand such as Coca-Cola, or a huge reinsuranceentity that has so much capital that it is hard tocompete with. In surgery centers, this may be acenter built around the 800-pound-gorilla hospi-tal in the town, the core orthopedic group in thetown, or built with certificate of need protection.In any event, the concept is to look to invest-ments where there is some protection that is like-ly to give a certain amount of protection to theinvestment over time. Try to understand what thebuilt-in edge of a company is and evaluatewhether that edge is significant enough to investfor the longer term.

• Invest in projects and companies forthe longer run. While one needs to periodi-cally evaluate whether a company is significantlyovervalued or not, the core concept is to look for10 to 15 great investments and to invest in themfor the long run. In essence, do not look to be anin-and-out trader.

• Stick to your area of competence. Itis very difficult to be a master of too many disciplines. For example, one might be an expertcompany in selling or developing medical equipment, such as Alpine Surgical Equipment orBBraun. In contrast, those same companiesmight not do a terrific job of managing surgerycenters or in building or constructing surgerycenters or hospitals. The same concept holds truefor investment. One may become a fairly goodinvestor in a certain type of company, banks orfinancial institutions, or an area such as real estateor healthcare. However, it is almost impossible tobe a terrific investor in all areas. In essence, one ofthe concepts is to learn a great deal about a fewfields and allocate most of your investment dol-lars and time to those few areas.

We find the writings of and about people likePeter Drucker and Warren Buffet to be very educational and informative. We hope that youfind some of these core concepts set forth here of interest.

Contact Scott Becker at [email protected].

Six Core Investing ConceptsBy Scott Becker, JD, CPA

For a copy of the2008 Beckers ASC Review Editorial Calendar, please call (800) 417-2035 or visit

www.beckersascreview.com


Stephanie Wasek: From your perspective,what’s the immediate impact of the new Medicarepayment system on ASCs?

Caryl Serbin: For the most part, I think every-body is just really trying to get their arms aroundwhat the changes are, do some modeling and look atthe potential financial impact. It’s tough not know-ing the final percentage of HOPD rates until at leastNovember, because typically, the budgeting processstarts in August. So everyone is going to be behindthe eight-ball in that regard.

SW: What can ASCs do to avoid as much as pos-sible falling behind?

CS: Go ahead and start the budgeting. You mightnot be able to figure out Medicare’s reimbursementyet, but you can work through expenses and fore-casting volumes. That’s time-consuming as itrequires your physicians to let you know whatamount of volume increase or decrease they are fore-casting. Allocate time for budgeting, accept from thestart that it will be more lengthy and difficult, anddesignate somebody who’s really Excel-proficient. Ithink the take-away is this: Just because you don’thave that final piece of information, don’t hold upthe budgeting process.

In order to determine which procedures you canafford to do and which ones you can’t, you need tocompare the proposed reimbursement to what itcosts you to do the case. Case-costing should beongoing anyway, but now that there’s even moreemphasis because of the radical reimbursementchanges, make sure you are up-to-date.

Another area to focus on is how Medicare changesare going to affect your fee schedules. Compare yourreimbursement from both Medicare and managedcare and develop a reasonable fee schedule (needthat Excel expert again). Currently most ASC feeschedules are based on a percentage of Medicaregroupers and, since groupers are going away, youwill have to rethink and revamp. Most ASCs willend up basing their fee schedules not only on a per-centage of mark-up of Medicare rates, but will docost-basis as well.

During the development of your fee schedule, beaware that some of the new Medicare reimburse-ment rates can be $20 or less (office-based proce-dures). As an example, a fee based on 300 or 400percent of Medicare APCs results in an unacceptablereimbursement rate for those procedures, so look atsetting a minimum default fee. It’s very important tobe able to tell insurers what the minimum is thatyou can accept for a particular case, and that figureis going to vary per center based on overhead.

If your plan is to dump in the APCs, do a multipleand build off of that, you’re going to be in trouble.

You have to do a lot of data mining to determinehow these numbers translate. You may also considerdoing a percentage of the unadjusted HOPD rates.The message is it’s going to take a lot of research. Trydifferent methods until you find the right one, orusually a combination of several. As you experiment,you may find the results of one configuration are toolow, but another can be substantially too high. Forexample, orthopedics as it ramps up may no longerlend itself to 500 percent of Medicare, so you’re really going to have to look at individual procedurecodes. Whatever you decide, allot enough time to dothis and do it right.

SW: Does the new payment system affect billingof private insurers? If so, how?

CS: Yes and no. Currently there aren’t manychanges in the billing process for private insurers,except for the new UB-4 form. However, thethought is that managed care may do somethingsimilar in the near future, such as a single fee sched-ule based on a percentage of hospital rates.

The new system will affect how you renegotiate yourmanaged care contracts. Review your contracts forrenewal dates and determine those whose reim-bursement is based on Medicare groupers. Developa proposal based on the new Medicare rates. Onceyou have your new fee schedule and case costing inplace, these will be excellent tools for negotiation.

SW: How can ASCs help their coders and billersprepare?

CS: In terms of coding, the CPT codes are thesame, so that’s not a change. That’s not to say youshouldn’t educate coders and billers on what thechanges are and how they’re going to affect process-es. There are new approved procedures now; that’sthe big thing the coders and billers are going to haveto know – what they are, how to code them proper-ly, and information about packaged items.

We’re changing from a one-digit grouper to a four-digit APC, which should be a function of the soft-ware. If your center is using traditional ASC soft-ware, these changes should have been prepared for.It may be more difficult for those who have othertypes of software. We’re getting a lot of calls saying,“We have outdated or non-ASC software, would itbe smarter to outsource?” or “We don’t want to payfor software and/or we just lost our coder.” We’realso seeing clients from bigger centers who just don’twant to deal with this. Although they’re sophisticat-ed and understand the new payment system, it’s sortof the straw that broke the camel’s back. I also thinkit’s fueled by managed care: They’re more demand-ing than ever. It has become such a challenge, hasbecome a science to get paid at all.

When they did the NPI form change, it was a sim-ple thing, but that really affected everyone’s collec-tion — not for a long period of time, but centersthat bill on their own weren’t ready for the blip.They didn’t see it coming, and they lost revenueduring that time. Well, this Medicare change is amuch bigger blip than the form changes.

SW: How can a coding and billing company help?

CS: A billing company is immersed in this all daylong; it’s a focused effort, so the end result is better.The next couple of years are going to be a challenge.If an ASC has few resources, it’s likely going to havea rough time. For years physicians said, “What doesa management/billing company do for me?” I don’tbelieve that will be the situation anymore. Practicesand ASCs often begrudgingly outsourced billing inthe past, now there’s excitement – “Here, you takeit!” We will probably reach a point where we’ll haveto say we can take some clients, but not others.

Another area where outsourcing may make a differ-ence is the struggle ASCs are having with repeatedappeals. Going forward, it will be the ability to chasethe money and do two and three and four appealsthat make the difference between success and failurefor some ASCs. It’s especially important with man-aged care, because if they think they can get awaywithout paying you, they’ll do it.

SW: Any other advice on surviving the changes?

CS: Yes! ASCs need to start hoarding some cash.Because of the last-minute modifications in thereimbursement plan and just due to the completerevamping of the system, I don’t see any way this canbe accomplished on time without severe glitches.Even the best-prepared ASCs can still expect delaysand errors in payments.

Typically, a profitable surgery center does a quarterlydistribution. Consider modifying or eliminating thatduring the last quarter in 2007. I advised our govern-ing boards to either hoard cash or open a line of cred-it right away as this often takes time to accomplish.Educate your physicians; explain why they need tohold that money and I’m not so sure you wouldn’twant to secure a credit line anyway as a backup. It’s thesame thought process as preparing for Y2K. That did-n’t happen. But this is going to happen.

Remember, all things considered, this is a positivechange for most surgery centers. However, prepara-tion is key in this situation — it certainly won’teliminate all the problems associated with this majorchange, but if your ASC does all of these things,you’ll have a better chance to come out smiling onthe other side.

Ms. Serbin is the founder and president of Fort Myers,Florida-based Surgery Consultants of America and SerbinSurgery Center Billing.

Spotlight On: Coding, Billing and the New Medicare Payment SystemAn interview with Caryl Serbin, RN, BSN, LHRM


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Dr. Brent LambertCEO of Ambulatory Surgical Centers of America

CitiCapital Healthcare Finance has now been an advertiser inBecker’s ASC Review for over fiveyears. It is one of the few selectindustry publications in which weadvertise. The Review provides ourstaff with timely updates on trendsand other key industry information.Equally important, advertising inASC Review provides our business exposure to multiple decision-makers who are responsible forthe selection of financing andfinancial service providers.

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AAASC..............................................................................21Advanced Practice Inc........................................................36Alpine Surgical Equipment................................................29American Medical Buildings..............................................36Amkai..................................................................................5ASCs, Inc. .........................................................................34ASCOA .............................................................................40

Braun Medical ...................................................................11

CIT Healthcare .................................................................30Citi ......................................................................................6Cost Segregation Services...................................................25

Eveia..................................................................................27

Foundation Surgery Affiliates ............................................13

Galil Medical ...............................................................18, 32

HBE Medical Buildings.....................................................32Healthcare Appraisers ........................................................39HealthMark Partners .........................................................31HST ..................................................................................28

Instantia Health.................................................................22Irmscher Inc. .....................................................................34

JCB Labs ...........................................................................14

Kaye/Bassman International ................................................8

Marcap ..............................................................................24McShane Healthcare..........................................................37MedHQ ............................................................................22Medical Facilities Corp. .....................................................31Meridian Surgical Partners...................................................9

National Surgical Care.......................................................38Nueterra ............................................................................13

Orion Medical Services......................................................10

Physicians Endoscopy ..........................................................2Pinnacle III........................................................................33

Prexus Health Partners.......................................................22Regent Surgical Health ......................................................17

Sanders Trust .....................................................................26Source Medical Solutions...................................................37Surgery Consultants of America ........................................20Surgical Notes......................................................................6Symbion ............................................................................31

VMG Health .....................................................................36

Woodrum/ASD .................................................................15

zChart ...............................................................................16

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