At the 11th Annual Spine, Orthopedic & Pain Management-Driven ASC Conference on June 14, Matt Lau, corporate controller of Regent Surgical Health based in Westchester, Ill., discussed his best practices for orthopedic and spine surgery centers to determine the profitability of their cases.
Although many nonfinancial professionals tend to assess the strength of an income statement solely by the bottom line, Mr. Lau stressed that the individual components from the top line down are important items to consider in order to drive decisions that generate healthier margins.
Typically, income statements list expenses alphabetically, from advertising to wages, but this makes it difficult to analyze because each expense item can be very disjointed from the ones around it. He advocates grouping related expenses to help better judge what drives the profitability of an organization.
"Just by looking at your income statement, would you be able to determine your total labor expense and facility cost?" he asked. Doing so requires well-organized subtotals that provide meaningful at-a-glance summaries of various expense categories.
From there, Mr. Lau advised centers determine their variable and fixed costs and use them to determine a breakeven point at which revenues minus expenses equal exactly $0. That figure allows ASC leaders to set a minimum monthly volume of procedures needed to keep the lights on and aim for points above that benchmark in order to bring in larger margins.
To set pricing and volume goals adequately, ASC leaders must know the cost and revenue for each procedure performed. "Every single line on your income statement you should know on a per case basis," he said. That helps determine the necessary price for each procedure's direct cost while also exceeding the per-case coast of each procedure.
And to determine the financial viability of your organization, providers should use professional benchmarking tools populated to compare to national and regional data, Mr. Lau said. "All this stuff seems simple, but if you're not doing it, you may not know what you're doing that affects the performance of your center," he added.
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Typically, income statements list expenses alphabetically, from advertising to wages, but this makes it difficult to analyze because each expense item can be very disjointed from the ones around it. He advocates grouping related expenses to help better judge what drives the profitability of an organization.
"Just by looking at your income statement, would you be able to determine your total labor expense and facility cost?" he asked. Doing so requires well-organized subtotals that provide meaningful at-a-glance summaries of various expense categories.
From there, Mr. Lau advised centers determine their variable and fixed costs and use them to determine a breakeven point at which revenues minus expenses equal exactly $0. That figure allows ASC leaders to set a minimum monthly volume of procedures needed to keep the lights on and aim for points above that benchmark in order to bring in larger margins.
To set pricing and volume goals adequately, ASC leaders must know the cost and revenue for each procedure performed. "Every single line on your income statement you should know on a per case basis," he said. That helps determine the necessary price for each procedure's direct cost while also exceeding the per-case coast of each procedure.
And to determine the financial viability of your organization, providers should use professional benchmarking tools populated to compare to national and regional data, Mr. Lau said. "All this stuff seems simple, but if you're not doing it, you may not know what you're doing that affects the performance of your center," he added.
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