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In the past year, our multi-specialty ASC has added endoscopy and currently is building this service toward our goal of 30 cases a month. We were able to accomplish this with no capital investment and what we feel is minimal risk. Each month, we simply report our cases to the endoscope vendor, and then we're billed on a "per-procedure" basis.
The arrangement is one we weren't even aware of a little more than 12 months ago, when a well-respected pediatric gastroenterologist approached us. Affiliated with a big-city children's hospital in our region, he was interested in opening a satellite office in our suburb. He needed a nearby site to perform endoscopy.
This physician had a solid practice and an excellent reputation, and he felt he could bring 30 cases a month to us. Although this is a relatively small number to a large center like ours, we are always looking to build volume. Besides, we've found that any way you can expand services and your physician-patient base will bring benefits to the ASC.
Our perspective
We opened our multispecialty facility in 1989. In our seven ORs and three procedure rooms, we offer surgical services for orthopedics, ophthalmology, general surgery, ENT, and other specialties. Pain management is also an important service, representing half of our total volume of 12,000 patient visits.
Locally, competition has been heating up for us. Two new ASCs have opened, and another established ASC was recently rejuvenated. Although we have a solid rapport with area surgeons (our center is one-half owned by a physician group), we're well aware that we cannot rest on our laurels.
When the pediatric gastroenterologist approached us, we saw three opportunities for our center:
What we found out
Our first step was to determine our costs, so we asked the specialist what type of endoscope and other equipment he would need. We then went directly to the manufacturer to find out what the cost would be.
To our dismay, we found that purchasing a gastroscope, video setup, computer support, cleaning equipment, and maintenance contract would cost us in the neighborhood of $100,000. We had not budgeted for this investment, and couldn't see any way to "borrow" it from another cost category for which we'd planned.
We frankly told the manufacturer that we couldn't envision doing a large number of cases, and we couldn't see how we would make the service pay off. Apparently, we weren't the first facility to be challenged by the cost, because the manufacturer had an alternative ready for us.
The company suggested a "Cost-Per-Procedure Agreement," which essentially is a rental. The manufacturer would supply the gastroscope, video setup, computer support, cleaning equipment and maintenance services. For a specified term, we would pay a certain fee for every procedure we performed.
After diligent analysis, we agreed to a five-year term, and a minimum of 1,800 procedures (30 per month) during that time. We carefully negotiated the per-procedure fee (which, for competitive reasons we must keep confidential).
It only took 60 to 90 days from the physician's initial contract to get our endoscopy service up and running; we've been operational now for about eight months. Our physician uses one of our ORs to do the cases, and he does about 15 to 20 cases a month. It seems likely we'll grow beyond that number later in the five-year term, in order to compensate for the start-up this year. At the end of five years, we may have the option to purchase the equipment at a discount, but with the way technology changes, it's likely that we would want to upgrade anyway.
What to consider
If you would like to add endoscopy to your services, ask yourself the following questions:
Who would perform the procedures? Your best bet is a specialist with an established practice who will commit to using your service. We did a very careful assessment of the (now) associated pediatric specialist, and found he had a great reputation and solid practice. Although we were not able to get a direct commitment from him, we felt confident to proceed when he signed a long-term lease for adjacent office space.
About how many cases could the specialist(s) bring to your facility? Because we had assessed this specialist's patient base, we were confident that his estimate of 30 cases was reasonable. However, this number might not be adequate for a smaller center with lower volume than ours (and fewer ways to spread out fixed overhead).
What are the reimbursements per procedure? You can obtain these from insurance carriers or other facilities that offer endoscopy.
What is your direct/fixed overhead? This includes the costs you incur just by having your doors open, such rent or mortgage, utilities, building maintenance, front office and computer, and staff expense (if any) for this service or procedure.
What is the investment cost for equipment? Find out what the total cost would be to purchase the endoscope and related cleaning equipment, video setup, computer support, and maintenance contract.
What is your target revenue or profit? We aim for 20 percent over costs, and are satisfied with a bit less.
With these answers in hand, you can "crunch the numbers." By looking at all your costs (direct/fixed and equipment investment), target revenue, and reimbursements, you can estimate how many procedures you would have to do to make the service pay. Is this a reasonable number, based on a realistic expectation for your physician(s) and facility?
Perhaps you will find, as we did, that the return does not justify the investment (this is likely if you are expecting a small number of cases). If so, develop a "cost-per-procedure" figure of your own by calculating your expected average reimbursement per procedure and then subtracting your direct- and fixed-overhead cost per procedure as well as your target profit per procedure. The number you have left is the amount you could afford to pay a vendor in a cost-per-procedure agreement. Once the vendor agrees to develop a cost- per-procedure agreement with you, your challenge will be to negotiate a figure close to amount you calculated in the above exercise. Spread it out over a term that's acceptable to the manufacturer, and make sure you can handle it as well. Keep the potential endoscopists informed, and attempt to have them commit to this term (it's difficult to get anything ironclad, but look for any objective reassurance you can obtain). In our case, we had two important factors going for us: The pediatric specialist really did have patients to bring to us and he was genuinely interested in working with our center, and the endoscope manufacturer was willing to work with us and develop an agreement that made sense for us.
What we found
These days, we are building toward those 30 cases a month, and we are feeling no pressure from the endoscope manufacturer. The impression I get is that the company is looking for that total of 1,800 cases, and isn't all that concerned about the term. If we make it in five years, great, and if we don't, we'll work out an acceptable plan.
We've already realized some of those secondary benefits, such as 15 to 20 additional patient families a month experiencing our ASC's services. Two other pediatric specialists from that prestigious children's hospital have applied for privileges here, thanks to the referral of our pediatric gastroenterologist. Best of all, we've been able to add a new service that helps to keep our center competitive.
The arrangement is one we weren't even aware of a little more than 12 months ago, when a well-respected pediatric gastroenterologist approached us. Affiliated with a big-city children's hospital in our region, he was interested in opening a satellite office in our suburb. He needed a nearby site to perform endoscopy.
This physician had a solid practice and an excellent reputation, and he felt he could bring 30 cases a month to us. Although this is a relatively small number to a large center like ours, we are always looking to build volume. Besides, we've found that any way you can expand services and your physician-patient base will bring benefits to the ASC.
Our perspective
We opened our multispecialty facility in 1989. In our seven ORs and three procedure rooms, we offer surgical services for orthopedics, ophthalmology, general surgery, ENT, and other specialties. Pain management is also an important service, representing half of our total volume of 12,000 patient visits.
Locally, competition has been heating up for us. Two new ASCs have opened, and another established ASC was recently rejuvenated. Although we have a solid rapport with area surgeons (our center is one-half owned by a physician group), we're well aware that we cannot rest on our laurels.
When the pediatric gastroenterologist approached us, we saw three opportunities for our center:
- We would gain the association with this highly respected specialist ? before he went to the competition;
- His affiliation with a large children's hospital might enable us to expand our business in pediatrics;
- Our center would make its first foray into endoscopy, which is increasingly being used by several specialties, including ophthalmology, ENT, orthopedics and plastics. Although endoscopes usually are specialty-specific, obtaining a gastroscope would be a good start for the service.
What we found out
Our first step was to determine our costs, so we asked the specialist what type of endoscope and other equipment he would need. We then went directly to the manufacturer to find out what the cost would be.
To our dismay, we found that purchasing a gastroscope, video setup, computer support, cleaning equipment, and maintenance contract would cost us in the neighborhood of $100,000. We had not budgeted for this investment, and couldn't see any way to "borrow" it from another cost category for which we'd planned.
We frankly told the manufacturer that we couldn't envision doing a large number of cases, and we couldn't see how we would make the service pay off. Apparently, we weren't the first facility to be challenged by the cost, because the manufacturer had an alternative ready for us.
The company suggested a "Cost-Per-Procedure Agreement," which essentially is a rental. The manufacturer would supply the gastroscope, video setup, computer support, cleaning equipment and maintenance services. For a specified term, we would pay a certain fee for every procedure we performed.
After diligent analysis, we agreed to a five-year term, and a minimum of 1,800 procedures (30 per month) during that time. We carefully negotiated the per-procedure fee (which, for competitive reasons we must keep confidential).
It only took 60 to 90 days from the physician's initial contract to get our endoscopy service up and running; we've been operational now for about eight months. Our physician uses one of our ORs to do the cases, and he does about 15 to 20 cases a month. It seems likely we'll grow beyond that number later in the five-year term, in order to compensate for the start-up this year. At the end of five years, we may have the option to purchase the equipment at a discount, but with the way technology changes, it's likely that we would want to upgrade anyway.
What to consider
If you would like to add endoscopy to your services, ask yourself the following questions:
Who would perform the procedures? Your best bet is a specialist with an established practice who will commit to using your service. We did a very careful assessment of the (now) associated pediatric specialist, and found he had a great reputation and solid practice. Although we were not able to get a direct commitment from him, we felt confident to proceed when he signed a long-term lease for adjacent office space.
About how many cases could the specialist(s) bring to your facility? Because we had assessed this specialist's patient base, we were confident that his estimate of 30 cases was reasonable. However, this number might not be adequate for a smaller center with lower volume than ours (and fewer ways to spread out fixed overhead).
What are the reimbursements per procedure? You can obtain these from insurance carriers or other facilities that offer endoscopy.
What is your direct/fixed overhead? This includes the costs you incur just by having your doors open, such rent or mortgage, utilities, building maintenance, front office and computer, and staff expense (if any) for this service or procedure.
What is the investment cost for equipment? Find out what the total cost would be to purchase the endoscope and related cleaning equipment, video setup, computer support, and maintenance contract.
What is your target revenue or profit? We aim for 20 percent over costs, and are satisfied with a bit less.
With these answers in hand, you can "crunch the numbers." By looking at all your costs (direct/fixed and equipment investment), target revenue, and reimbursements, you can estimate how many procedures you would have to do to make the service pay. Is this a reasonable number, based on a realistic expectation for your physician(s) and facility?
Perhaps you will find, as we did, that the return does not justify the investment (this is likely if you are expecting a small number of cases). If so, develop a "cost-per-procedure" figure of your own by calculating your expected average reimbursement per procedure and then subtracting your direct- and fixed-overhead cost per procedure as well as your target profit per procedure. The number you have left is the amount you could afford to pay a vendor in a cost-per-procedure agreement. Once the vendor agrees to develop a cost- per-procedure agreement with you, your challenge will be to negotiate a figure close to amount you calculated in the above exercise. Spread it out over a term that's acceptable to the manufacturer, and make sure you can handle it as well. Keep the potential endoscopists informed, and attempt to have them commit to this term (it's difficult to get anything ironclad, but look for any objective reassurance you can obtain). In our case, we had two important factors going for us: The pediatric specialist really did have patients to bring to us and he was genuinely interested in working with our center, and the endoscope manufacturer was willing to work with us and develop an agreement that made sense for us.
What we found
These days, we are building toward those 30 cases a month, and we are feeling no pressure from the endoscope manufacturer. The impression I get is that the company is looking for that total of 1,800 cases, and isn't all that concerned about the term. If we make it in five years, great, and if we don't, we'll work out an acceptable plan.
We've already realized some of those secondary benefits, such as 15 to 20 additional patient families a month experiencing our ASC's services. Two other pediatric specialists from that prestigious children's hospital have applied for privileges here, thanks to the referral of our pediatric gastroenterologist. Best of all, we've been able to add a new service that helps to keep our center competitive.
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