Mike Lipomi is president and CEO of Surgical Management Professionals in Sioux Falls, S.D.
Q: When an ambulatory surgery center loses revenue in this bad economy, how do you figure out when and where to cut services?
Mike Lipomi: That's a very important question, because if an ASC does not precisely figure out what should be cut, it may end up cutting too much or cutting the wrong thing. Then it will be even deeper in the hole. The trouble is that our bad economy is such a huge problem, hanging over all of us, that we tend to blame it for all kinds of stuff. A bad economy can uncover some very real problems within the ASC, but those problems weren't necessarily caused by the bad economy. More likely these are deep-rooted problems that did not harm the ASC in good times but will do so when times get bad.
Sure, volume could fall a little due to the economy, but the underlying problem is that your collections are down or your coding is inaccurate, and you didn't even know that. The irony is that when an ASC cuts staff to be in line with lower volume, the wrong people may be cut, such as staff in the business office. Then the ASC has even fewer staff to root out the collections issue. In trying to solve a relatively minor problem –– the lower volume –– you have created a whole new problem –– fewer staff in key areas –– and you still don't have a clue about the original problem: the collections issue.
Q: Isn't it true, though, that the bad economy is having a significant impact on ASCs?
ML: Yes, to some extent that's true. But healthcare is shielded from economic downturns to a great degree. When times get tough, consumers cut discretionary spending, like buying a new car or a boat or taking a vacation, but healthcare is not really discretionary. You can hold off on some surgeries, but eventually you have to get them. And unlike other consumer services, you don't have to pay the full bill for surgery because your insurance is picking up most of the cost. So there are several key forces shielding ASCs from this bad economy.
Q: Is there still something left for ASCs to cut? Didn't they already make a lot of cuts when the recession hit in 2008? Assuming this was done, what is left to cut?
ML: There is still definitely more to cut, and I'll tell you why. It took going through those cuts once for people to understand and appreciate why the cuts were needed and how they are to be carried out. In a sense, they just got started the last time. Now they know how to do it and they've already started going through a change of attitude. For example, it may never have occurred to them before that there is an alternative to throwing away reusable instruments.
Q: What are the typical mistakes ASCs make when carrying out cuts?
ML: They tend to cut staff before anything else. Since salaries are the largest expense item, employees are the first to go. It's a knee-jerk response. In fact, your employees are your most important asset. Friendly, relaxed staff might be the reason why patients and referring physicians prefer your ASC to the hospital or another ASC down the road. And here you go, reducing staff so much that no one feels friendly and relaxed anymore. It might take a while for that change to register on your bottom line, but it could do so eventually.
Q: When you're looking at cutting staff to the right level, how do you know the difference between overworked staff, relaxed staff and staff who don't have enough to do?
ML: That's where benchmarks come in. What is the right staffing level for the specialties and volume you have? Look at the national benchmarks. Maybe you are already at the right staffing level but your problem has to do with finding the right level of salaries or benefits. There are national and even local benchmarks for these things. After all, salary levels in Des Moines are going to be different from salary levels in Los Angeles.
Staffing benchmarks can also help you deal with what I call "FTE creep." You start off with just one scheduler and then, when times are good and your volume is rising, that person needs an assistant, so you hire an assistant scheduler, and then you hire a few more people for other things that have to get done. After all, the money is rolling in. But then volume falls and you still have these extra people. Everyone has some amount of FTE creep because the ASC is such a dynamic place, with shifting volume and changing staff responsibilities.
Virtually everyone has some fat to cut on the staffing side, but my point is that it has to be done judiciously. For example, don't overreact to temporary downturns in business. Volume may be down simply because a couple of key doctors are taking vacation or maybe someone is sick. Before taking any steps, verify that this is more than just an isolated event.
Q: You said an ASC should consider cutting other items besides staff. What else should be considered?
ML: You should definitely look at your overhead and your supplies. People tend to look at these items later, if at all, because they think, "I'm always going to need to keep the lights on and I'm always going to need supplies." The easy pickings seem to be on the salary side. But you can in fact find considerable savings by taking steps like renegotiating vendor agreements, or finding new vendors or persuading your physicians to use a less expensive device.
These strategies take some work, but they don't cut into the muscle and bone of the organization like taking the easy route and cutting essential staff. Persuading physicians to switch their supplies means pinpointing the waste and presenting the information to them. With anesthesia, for example, price every product the anesthesiologists use, and ask them to explain. One anesthesiologist might be ordering a vial with one and half doses because it's convenient to draw up, and then he throws away the extra half dose each time. That's a considerable amount of waste. Or a cataract surgeon may be using a more expensive anesthetic option meant for longer surgery. Or an orthopedic surgeon is using hips that cost $5,000 more than anyone else's hip.
Everyone has heard of these opportunities. It takes time and effort to compile the data, present it to the physicians and have a conversation, but the savings can sure beat taking away the receptionist at front desk, greeting the patients. While you'll save on the minimum wage you pay her, the $8,000 you are paying for a hip could have been reduced to $3,000. Multiply that out by six hips a month and you have a much greater savings than laying off the receptionist and making the place a little bit colder for patients.
Q: Does the bad economy make it easier to justify cuts?
ML: A bad economy can, to some extent, make cuts more natural and more expectable. But you should be watching your expenses all the time. Wasting money simply because you are making a lot of money is no excuse. Also, don't overexploit the bad economy. Don't present staff with some dire scenario on what happens if we don't cut, such as: "We need these cuts and if we don't get them, we're closing." That just causes panic.
Portray the problem as accurately as possible, using data, and then inspire people. Help them understand they have value and they have a role in creating a good outcome for the center. You might say to the surgeons, "Look it, we're not getting the case volume we once had, and our costs are going up and our margin is shrinking. Our goal is to be profitable and strong, and we need you help." Talk to your physicians and staff.
Q: Would it help to bring the whole staff together and have a conversation?
ML: While I do believe in dialog, I don't think it's wise to have a big group meeting. Talking about each person's shortcomings is hard enough to do among peers, let alone in front of everyone else. Instead, I recommend holding a series of meetings of various groups within the organization, outlining expectations that staff need to meet. The CEO meets with the managers and each manager meets with his or her own staff.
Q: Are there examples of cutting too much?
ML: Some things become what I call "icons." They don't cost much but they carry a lot of meaning, and if you cut them, get ready for the consequences! For example, people like cookies in the lounge. If you cut them out, they'll start thinking, "They're asking me to cut the cookies but that other group still gets to have their picnic!" It stirs up a lot of anxieties and doesn't produce much in the way of savings.
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