1. F INANCIAL A NALYSIS OF NEW SERVICE LINES & PROCEDURES JESSIE MONNIER TERRY BOHLKE

2. TOPICS WE’LL COVER 1.Identify scope of the project 2.Identify the resources necessary 3.Return on Investment (ROI) analysis 4.Getting it Approved

3. IDENTIFYING THE SCOPE OF THE PROJECT KNOWING THE RIGHT QUESTIONS TO ASK

4. SAFETY FIRST What is the service line or procedure being considered? Is it an ASC allowable procedure? Can this procedure be safely performed in your ASC? What kind of training will your staff need to be competent? How will the physician performing this procedure be credentialed, and how will privileges be evaluated and granted?

5. ASSESSING THE SCOPE OF THE PROJECT How much volume can reasonably be expected? What is the payer mix, and how much does each payer reimburse for this procedure? Is it likely that the physician performing this procedure will bring additional cases with them? Will this require extended or overnight recovery? If so, does your ASC have appropriate accommodations and access to competent recovery staff?

6. IDENTIFY THE NECESSARY RESOURCES WHAT WILL IT TAKE TO GET THIS DONE?

7. STUFF What equipment will need to be purchased? (e.g. C-Arm, microscope) Any unusual supplies? Any costly implants? If so, how will these be reimbursed?

8. LOGISTICS Scheduling: is your operating room available at the time the physician wants to do these cases? Is anesthesia available? Should you expect any conflicts for equipment (e.g. C-Arm, ultrasound, etc.)? Do you have sufficient staffing? Are extra staff required? If extended recovery, will you have enough PACU bays to support multiple OR’s? Is Anesthesia available for the duration of the extended stay?

9. RETURN ON INVESTMENT (ROI) ANALYSIS DO THE DOLLARS MAKE “SENSE”?

10. VOLUME & REVENUE Monthly Volume: 20 MedicareIns AIns BIns C Payer Mix50%25%15%10% Volume10532 Reimbursement$1,200$1,800$2,200$2,500 Revenue$12,000$9,000$6,600$5,000 Total Expected Net Revenue $ 32,600 per month ($1,630 / case) Include reimbursement for implants, if applicable.

11. EXPENSES Per CaseMonthly Additional Salaries & Benefits$350$7,000 Supplies$150$3,000 Implant Costs$600$12,000 Total Additional Expenses$22,000 Include only the expenses you would have to add to do this procedure. ($1,100 / case)

12. RETURN ON INVESTMENT (ROI) Contribution Margin: Net Revenue $32,600 - Additional Expenses $22,000 Contribution Margin = $10,600 / month = $127,200 / year Investment = Equipment Cost = $325,000 Return on Investment = Contribution / Investment = 39%

13. PAYBACK PERIOD Expressed in years:  Contribution Margin = $127,200 / year  Equipment Cost: $325,000 Payback period = Cost / Contribution = 2 ½ years Expressed in cases:  Contribution Margin per Case = $530 Payback period (in cases) = Cost / Contribution per Case = 613 cases to break even

14. GETTING IT APPROVED 

15. APPROVAL PROCESS Capital Equipment Request Form Capital Budget Management Company? Medical Executive Committee Including physician credentialing and privileges Board of Directors

16. ANTERIOR CERVICAL DISC FUSIONS (ACDF) REAL LIFE EXAMPLE

17. EQUIPMENTCOST New Microscope$120,000-$300,000 Wilson Frame$3,000 Drill$4,000 Retractor Set$2,200 Spine Tray$1,500 Instrumentation$15,000 Total with New Scope$145,700 – $325,700 EQUIPMENT NEEDS

18. CPT CodeWCIns. AIns. BIns C 22551 (fusion) $3800$5700$3000$3800 22851 (Pros. Device) $2350$2100$2900$2500 22845 (fixation) $0$2600$1600$3800 20930 (allograft) $0$1100$3000$797 Mult. Proc. Discount100/50/50 Pays 1 CPT100/50/25 Implant Reimbursementnone$3675 none Projected Reimbursement $5000$12275$6675$6300 Expected Monthly Volume 1211 Revenue$5000$24550$6675$6300 PROJECTED REVENUE Total Expected Net Revenue $42,525 per month ($8,505 per case)

19. CostPer case Implant$3500 S&B (including 23º stay)$3000 D&M$550 TOTAL$7050 PROJECTED COST Contribution Margin $7,275 per month ($1,455 per case)

20. ROI on $145,700 (low)60% ROI on $325,700 (high)27% Payback Period1.7 to 3.7 years 100 to 224 cases RETURN ON INVESTMENT (ROI) Contribution Margin $87,300 per year ($1,455 per case)

21. We can do better! Can we get a refurbished microscope? Do all patients need to stay 24 hours? Workers Comp loses money on every case. What can we do about that?

22. New Microscope$120,000-$300,000 Refurbished Microscope$30,000 S&B 23º stay$3,000 S&B 6º stay$1,100 Workers Comp Contribution Margin: 23º stay- $2,050 6º stay- $ 150 IMPROVING THE BOTTOM LINE

23. ROI on $55,700360% Payback Period3.3 months 16 cases RETURN ON INVESTMENT (ROI) - REVISED - Contribution Margin $201,300 per year ($3,355 per case) Refurbished microscope Patients average 6 hours in recovery Workers Comp patients minimized

24. PUTTING IT ALL TOGETHER 1.New vs Refurbished equipment has significant impact on ROI 2.23 hour stays made most payors non-profitable 3.Breaking down cost/revenue by payor demonstrates some are profitable and some are not despite best case scenarios. 4.Consider mixing lower revenue cases with higher revenue cases to maximize daily contribution/case 5.Are there additional procedures within same service line you can bring without additional supply costs? (yes, in this case microdiscectomy/laminectomy cases).

25. QUESTIONS / COMMENTS