ASC Board Executive
TOWARD A BETTER BUSINESS MODEL FOR AMBULATORY SURGERY CENTERS
Article by Herb Rubenstein, President, Herb Rubenstein Consulting, and
Cher Pascoe, President, Pascoe Professional, Inc.
Introduction
Ambulatory Care Centers or Ambulatory Surgery Centers (ASC) represent an innovative response to advances in medicine. With the ability of modern medicine to perform many surgeries on an "out-patient" basis (in and out quickly with no overnight stay), hospitals are no longer the sole location of choice for these procedures.
Ambulatory Surgery Centers have lower capital costs than hospitals, are operated with a leaner staff, and solve an important logistical problem associated with doing surgery in hospitals - scheduling.
Prior to the creation of these out-patient surgery centers, many doctors felt they were at the mercy of hospitals in being able to schedule their surgeries. As patients and doctors alike know, hospitals are not the most agile or flexible of institutions. If a place could be built that allowed doctors to have more control over scheduling their surgeries, and would be less costly than a hospital setting, this type of arrangement would have strong economic and competitive advantages over traditional hospitals when it came to out-patient surgery.
In addition to these advantages, one additional element makes ASC's even more likely to be the place of choice for doctors, and patients, for out-patient surgeries. ASC's offer doctors something they could rarely get in hospitals - an investment opportunity.
ASC's sprung up in the United States with doctors being not only the key investors in these centers, but since doctors were significant investors, they were and are able to play a significant role in the management of these centers. Doctors serve as board members and officers of many of these centers and have a clear say in the day-to-day operations of these centers.
The Customer for the ASC
Proprietary research by Herb Rubenstein Consulting has revealed, contrary to popular belief, that the customers for the ASC's are not the patients. They are the doctors themselves. Basically, it is the doctors who own the facility and the facility serves the doctors. It is obvious that complications arise in a business setting when one group, in this case, the doctors, are the owners/investors, the board of directors, often the officers of the company (management), and are also the customers. This complex set of relationships has benefits, but also presents significant business challenges for ASC's. This article is designed to identify ways a better business model, or framework, can be developed and implemented for ASC's that is consistent with their history and current culture.
Even though doctors may be the primary customers of the ASC's, patients are also "customers" of the ASC's, and are treated well by ASC's. Patients prefer ASC's because they are smaller, lower cost, upbeat, easier to navigate, more patient friendly, and have lower infection rates. With both patients and doctors preferring ASC's to traditional hospitals, and costs, on average, being lower per unit of service for this type of entity, it is easy to see that there is a strong basis for a competitive advantage of ASC's over hospitals for out-patient surgeries.
The Economic Reality
With all of these advantages, how could an ASC fail financially unless the market gets over-saturated with ASC's, which is certainly not the case today or in the near future? In fact, a simpler question is, how could most ASC's not be very financially successful?
When the time for surgery for a patient comes around, doctors generally tell their patients that the surgery will take place at a particular facility, but it a hospital or ASC. The doctor may or may not tell the patient (if applicable) that the doctor owns part of the ASC where this surgery may take place, and will profit from having the surgery at this center.
There is often little discussion or give and take between the doctor and the patient about the patient having a choice of where to have the surgery. Certainly, there are patients that will insist that the doctor use a location for which the patient has a strong preference and the doctor has privileges, but this is not often the case. Usually, the doctor chooses the location of the surgery with little real input from the patient. Basically, although some might dispute this, the patient has no real choice but to say "yes" to letting the doctor unilaterally select the location for the surgery.
In spite of all of these economic and service related advantages that ASC's have over hospitals, not all ASC's are profitable. One leader in the profession recently estimated that roughly half of all ASC's currently in operation will close their doors within five years. How can this be the case? A better question is, how can the existing ASC's learn from this situation to make themselves more financially viable?
We acknowledge that ASC's cannot serve patients with many chronic health challenges since they do not have the back-up facilities, as hospitals do, for dealing with potential complications. Second, in addition to being able to serve only a segment of the population with out-patient surgery needs, we recognize that many hospitals are places that patients know better, and, if given a real choice and no extra cost were involved, the patient may prefer the hospital setting to the ASC.
But there are other significant reasons why many ASC's are not financially successful. Certainly there are many articles and trade journals that address this topic, including the weekly Becker's ASC Review, which is outstanding. The need to add to this growing literature is clear because of two key reasons.
First, the health care landscape will change dramatically over the next three to five years, and certainly in the next decade. Most ASC related studies and articles focus on how to improve operations and financial performance now, and in the short run future. Rarely, do these articles deal with long-range, necessary improvements that will help ASC's survive, and even thrive, in the upcoming new health care landscape of the next decade.
Second, the proprietary research of Herb Rubenstein Consulting comes at the ASC world from a unique perspective. We are authors of books and articles on how to grow businesses and non-profits. We identify strategies, organizational structures, decision -making processes, and approaches that have worked across a broad set of industries. We call them as we see them, and our research leads to recommendations like the ones provided in this article that represent the independence of thought that understands the status quo, and how things are currently done, but is never a slave to the status quo.
We understand the cultures of ASC's and know how our recommendations toward a better business model may conflict somewhat with the history and culture of many ASC's. However, in this article and our other writings on ASC's, we not only provide recommendations, we also provide a bridge for ASC's to begin to implement the recommendations and the new business model in easy to digest steps that can lead, over time, to a new, improved, more effective financial, business and decision making model.
A Chink in the Financial, Business and Decision Making Model at ASC's
Our research has shown that while ASC's represent a truly innovative advance in the economics of the health care profession, one aspect of ASC's, to their great detriment, is very similar to the old service delivery models from which they were born. We have seen time and again that when Administrators and staff (who one would normally call "management") at ASC's recommend changes to the ASC boards, the boards are often slow to decide on these needed changes, and are even slower to implement needed changes once a decision is made. Further, execution of these types of changes at ASC's is often problematic and does not go according to plan.
Slow decision-making, and flawed implementation of decisions once they are made, are key sources of significant problems to ASC's. They impact the economic viability of the ASC. They reduce "customer" (doctor and patient) satisfaction. They increase turnover. They decrease employee morale. They negatively impact the ASC's relationships with vendors. They increase strife and tensions among board members.
The key to realizing why many ASC's have management talent that knows how to resolve some of the challenges the ASC is facing, but have a decision making structure that makes these decisions slowly, if at all, must be discovered if ASC's are to reach their full potential. Our research has focused on gaining a better understanding of the unique role that the board of directors, the doctors, play in the day- to-day management and decision making at the ASC's.
Generally, investors and boards of directors of every significant institution in the world, have figured out that "nose in, fingers out" is a pretty good rule of thumb to guide their relationship with the organization they own and govern. Carver, whose books on boards for non-profits have become legendary, has always tried to set a tone that a board is for strategic direction, not day to day management of the company or non-profit.
What is clear regarding ASC's is that many have Administrators or managers who are given only limited leeway in making key operational decisions regarding the ASC. Thus, based on the research conducted by Herb Rubenstein Consulting, it appears that Administrators and ASC managers are given far too little authority by ASC boards of directors to make key operational decisions and to implement changes in how the ASC is operated. Even more troublesome for ASC's is that often an administrator's scope of authority is not clearly defined and this leads to much slower and cumbersome decision-making and implementation of change. This article suggests a pragmatic approach to resolving this basic challenge facing ASC's as they grow into more mature businesses over the next five years and work to survive and prosper in our new health care economy.
Keys to Success of ASC's
Some suggest that the success or failure of an ASC is pretty much determined even before the doors to the facility are ever opened. Excellent business planning guarantees ASC's that they have the right doctor owners, have the right doctors as its customers, and the right doctors have enough patients to send to the ASC to keep its utilization rate up somewhere near capacity. When all of these elements come into existence, then profits are sure to follow and the ASC has a solid basis to be successful.
In fact, it is often large groups of doctors in a group practice that form or become investors in ASC's and the volume of patients seen by the group of doctors in the practice virtually assures that the ASC will generate sufficient income to be profitable.
In addition, over time, other doctors outside of the original group of doctors who invested in the ASC might want to have their surgeries performed at a particular ASC and may want to invest in that ASC. Group medical practices, though they may not admit it publicly, often require new doctors in their practice to invest in the ASC associated with their practice. This makes the ASC, if successful, guaranteed of having an ever-increasing supply of capital.
Each time an ASC accepts a new doctor who performs a different kind of surgery, additional capital must be spent to accommodate the expensive equipment that the surgery will require. In addition, training and new staff may need to be added to the ASC to accommodate the new type of surgery that will be taking place. Insurance costs may to increase. In general, operational costs may rise significantly when a new surgical procedure is added to the ASC's mix of surgeries performed on the premises.
Specifically, adding new surgical procedures may require additional nurses with a different area of specialization to be hired and trained. From a business perspective, adding and integrating this type of change requires a significant modification of an ASC's business plan. It will require significant changes in the operations of the facility. Integration of new doctors and new types of surgeries requires substantial knowledge about the added risks to the ASC, future potential scheduling challenges, full knowledge of all potential, and the regulations that apply to that type of surgery.
ASC's know that surgeries that take longer than scheduled can result in other patients in the surgery center waiting to go into to surgery to be told that their surgery must be rescheduled for another day. This is hugely disruptive, but necessary, because surgeries running over time push later surgeries too late in the day to be accommodated. In many ASC's the staff leaves at a certain time and will not stay late. (One of the authors of this article had his 3:00pm scheduled surgery at an ASC booted to another day due to delays in previously scheduled surgeries on that day. The patient was in the operating bed for two hours waiting for another surgery to end, only for 6pm to come around and be told, "no surgery today for you.")
There also is the issue of room "turn time"- the amount of time it takes to prepare the surgery suite for the next procedure. If there are multiple types of specialties at an ASC, turn time increases as each set up may be significantly different.
Scheduling challenges abound at ASC's even though they were designed, in part, to address the difficult scheduling challenges that doctors had faced in hospitals. Adding new surgical procedures is only one of the many aspects of how ASC's are operated that give rise to difficult scheduling challenges.
Further, patients, on occasion, come to the day of surgery without the proper medical test results and their surgery must be delayed. Patient engagement, or patient management, is often a challenge for ASC's both in the pre-op and post-op stages. Certainly, when it comes to improving patient engagement and patient management, this must be the domain of the Administrator and staff, and not be micromanaged by a board of directors.
Change Management at ASC's
When problems or necessary changes are identified by management (be they Administrators, staff, or the doctors themselves), the ability to address these problems or execute the necessary changes gets to the heart of how successful an ASC can be financially. Either the ASC has a clear set of rules and procedures for who has authority to make and implement the decisions to deal with the problems or necessary changes the ASC faces, or it does not. Usually, it does not.
Every significant decision to address a problem or how to implement a change at an ASC cannot be made by a board of directors. The ability to make and execute operational decisions must be delegated to the Administrator of an ASC in a clear manner. Decision-making authority must be given to Administrators and staff because it is only at this level can these decisions be made quickly enough to address the problem without wasting money or reducing service or quality levels.
Micromanagement by boards of directors at ASC's often lead to decisions being made slowly and implemented poorly. If the Administrator is not qualified to make key decisions, and that is why doctors, acting as members of the board feel they must make them, the Administrator should be replaced with a more competent manager. If the board of directors simply does not know how to delegate decision-making, and the spending of the organization's resources quickly and effectively to deal with problems, then the board must be trained to delegate this authority to the Administrator and staff. At present, our research shows there is very little training for boards of directors of ASC's in this area.
The New Business Model
The new business model that ASC's need to implement to be more effective, now becomes clear. ASC's, as they grow into a larger and larger part of our health care system, must become agile and quick to identify problems and challenges in their operations. They must become equally agile and quick in making the corrective decisions, and allocating the resources and authority to implement the corrective action.
This business model is not new. It is the standard business model for most businesses in the United States. Management, not the board, must run the operation. Management, not the board, must be the one given sufficient authority over the ASC's financial resources to make the investments necessary to fix problems and implement needed changes.
Management, not the board, must design and implement the operational changes called for at ASC's. Clear lines of decision making and levels of authority must be part of the new business model of ASC's that want to thrive in our new health care system that will be placing greater and greater demands, and creating greater and greater opportunities for ASC's in the next five years.
Giving management and staff the leeway to implement key decisions in the manner that management and staff deems appropriate is consistent with the "flat" organizational structure that has made the US technology sector so successful over the past decade. Hierarchical systems where everything is run by the board or investors is a model that has long passed its prime and is no longer relevant or appropriate in our quick paced economic system.
Getting to the Heart of Stumbling Blocks at ASC's
ASC's are innovators. Their investors are innovators who are always looking for a better, more profitable way to provide surgical services. They have instituted significant advances in the world of medicine. However, when it comes to figuring out why more ASC's are not financially successful, an insight by Peter Drucker may be telling. He was asked what is wrong with innovation. His response was, "The problem with most innovation is that it is not innovative enough."
This may provide some insight into some of the challenges that ASC's find most difficult. First, many ASC's have over-active boards of directors that are too slow in making decisions that management knows need to be made. Second, ASC's often have too many cooks in the kitchen when it comes to implementing change at the ASC. Third, as stated previously, the confusion of the role of the board vs. the role of "management" does not help ASC's.
If this problem is obvious to skilled business analysts, then why is it not discussed more often in the literature on ASC's? That is, why does it appear that few today are telling boards of ASC's that they often get in the way of effective management and profitability of their own ASC? The reason has to do with the culture of ASC's.
The culture of the ASC's is that they are doctor, not management-centric. All investment and all power flows from the doctors who own the ASC. (Certainly hospitals are buying ASC's, but generally hospital boards and management leave ASC management to the doctors who were the original investors in the ASC where the hospital has invested). Delegation of power in ASC's has not yet matured as it has in other businesses that have hired and trained professional management that is given full authority by the Board to run the operations and run them effectively.
Who is out there in the ASC industry who can tell the board of directors that they need to clarify, and actually reinvent their role, for the ASC to reach its potential? Certainly not the administrator of the ASC who is hired and fired by the board. Certainly not the patients. Certainly not the "customers" because the customers are also the doctors who own the facility and who are on the board of directors. Certainly not the traditional management consultants in the industry because they have often been co-investors with the doctors in these centers, and their customers are the doctors, not management.
Who will tell the Board of Directors of ASC's that it may be part of the problem? This is an open question to which ASC's should give serious attention. This article suggesting that a new, more limited role for the board of directors of ASC's must be part of the new business model for successful ASC's is a start in that direction.
This article recommends that the role of the board of directors and Administrators at ASC's be re-examined. It should be the goal of every ASC to have a business model where the Administrator has clear authority up to certain levels of decisions, and is evaluated on how they exercise and carry out that authority.
Conclusion
Careful analysis and guidance is needed to help generate the best business and decision-making models for ASC's. The roles of the Administrator of ASC's and their boards of directors must be more properly specified. Management and ownership in business each has their proper roles. Today, at many ASC's, those roles are neither clearly defined nor appropriately allocated.
The ASC's that resolve the board/management challenge identified in this article will be the financial and performance leaders in their fields. After getting the roles right for the board, the executive, and the staff in ASC operations, decisions can be made more quickly. Once problems are more quickly addressed, rapid implementation of changes can run more smoothly. Then, with these improvements, profits and customer service at ASC's can be enhanced and ASC's will be able to reach their financial potential in the new health care economy.
About the Authors
Herb Rubenstein is the President of Herb Rubenstein Consulting, a consulting firm to businesses and individuals with its headquarters in Denver, Colorado. He is the author of two business books, Breakthrough, Inc.: High Growth Strategies for Entrepreneurial Organizations and Leadership for Lawyers, and over 100 articles on business strategy, entrepreneurship, leadership, and improving how organizations function and deliver value. He can be reached at herb@sbizgroup.com. He can also be reached at (303) 279-1878. The website for Herb Rubenstein Consulting is www.herbrubenstein.com.
Cher Pascoe is a Medical Marketing Professional and President of her own strategic consulting firm, Pascoe Professional, Inc. Cher has over 23 years specializing in all aspects of medical marketing and serves as Senior Advisor to The White House Health Project, a 12 year project developing and measuring ROI of employer-based health education, wellness and prevention programs. She can be reached at (303) 232-8161 or cher@pascoeprofessional.com .
