Archive April 2001 II, No. 4

Managers Squeeze Profits Out of Plastics

As more baby boomers rush to get facelifts and liposuction, managers find creative ways to make these procedures pay off.

Yasmine Iqbal, Contributing Editor

BIO

Even though demand for cosmetic plastic surgery is more intense than ever, more patients don't necessarily translate into increased profits for the facilities hosting their procedures. Long case times, high implant and supply costs, and price wars between competing facilities are factors that may make these cases difficult to make money on for facilities that do a low volume of cases. For high-volume facilities, or single specialty centers, however, profits may be easier to come by. These were just some of the insights we gleaned from a survey of 600 Outpatient Surgery readers. Sixty-nine, or 11.5 percent, responded.

Fifty-eight percent of our respondents say cosmetic surgery is "very profitable" or "somewhat profitable." Among the 25 percent of respondents who termed cosmetic surgery "very profitable," 71 percent were single-specialty facilities. Those who find cosmetics profitable said that it was at least partially due to the fact that patients pay for the procedure directly and often pre-pay. In fact, 30 percent of our respondents cited the fact that the procedures were uninsured as a "very important" factor affecting profitability. "There's no hassling with insurance companies," says the medical director of one Boulder, Co.-based facility. Herve Gentle, MD, a Texas-based plastic surgeon, agrees: "We receive payments prior to surgery, compared to a questionable third party after the procedure," he says. A CEO of a multispecialty surgery center in Indiana raves, "Our center made $4.9 million net profit, and plastic surgery has 10 percent of the volume-we believe we can make good money on plastic surgery cases."

Not everybody is enjoying the same success. Twenty-five percent of our survey respondents say cosmetic surgery is "not too profitable," and 7 percent, all multi-specialty facilities, say it is "not at all profitable." "The procedures barely cover labor, equipment, supplies, and pharmacy costs," says an OR supervisor in Tampa. Observes an administrator in Denver, "Our average plastic case takes 2.5 hours, and the charges average $2,000. In that same time frame, we could schedule two knee scopes and make $4,200."

Respondents cite a number of reasons for low profitability, most notably competition with other facilities (36 percent say this is a "very important" factor affecting profitability). "We have difficulty competing with centers that are single-specialty plastics and reconstructive centers," says the administrator of an Ohio-based multispecialty facility. "We must keep prices low to attract business," states an Arizona-based facility coordinator, adding, "It's very competitive in Arizona." Other factors that influence profitability range from the prices of implants and supplies, anesthesiology costs, the location of the facility, and "the economy."

Saving on supplies
Thirty-six percent of our respondents say they will take measures to improve profitability; most of their plans center around tracking supply costs, finding ways to cut back on supplies, and passing off the costs of implants to surgeons and patients.

One Tampa-based OR supervisor states that he will undertake a "detailed cost analysis" of his cases. An OR manager in Wisconsin plans a similar strategy; she's going to purchase software to track costs per case more closely. In addition to tracking what they use, many are vowing to become smarter shoppers-such as the supervisor of an Austin, Texas-based center who says she will work to "find the absolute lowest-cost vendors of certain supplies and drugs."

An OR manager in Virginia plans to keep track of the exact cost of supplies and pass more of these charges on to patients, including shipping and handling charges for implants. Jason Flecher, director of the Surgery Center of Centralia, in Illinois, says at his center, he asks the surgeons to purchase the implants themselves and bring them to the center.

Cracking down on OR times
While 54 percent of our respondents say OR and PACU time is a "very important" factor that impacts profitability, only 23 percent say they have taken or plan to take specific measures to reduce OR and PACU time, perhaps because they are resigned to the fact that cosmetic-surgery cases generally take longer and cost more than other types of cases. Adam Dorin, MD, of the Surgery Center of Chevy Chase in Maryland states that OR and PACU time for cosmetic surgery cases "is almost impossible to change. These cases simply are not amenable to the preferred model of multi-case, fast turnover, and high volume rooms." Nevertheless, managers are finding ways to use OR time more efficiently and reduce PACU times. A sampling of comments:

The director of an Illinois-based facility says that while she can't decrease OR time ("it is surgeon dependent"), anesthesia is key to keeping PACU times short. "We use short-acting anesthesia and patients wake up quickly," she says. Other managers, such as Kathleen Hasz, manager at the Marshfield Clinic ASC in Wisconsin, plan to decrease PACU time by fast-tracking cases: "Strictly local cases will bypass first recovery," she says.

The director of a New York-based facility says she does all surgical preps in the pre-op holding area; she cancels the case if the surgeon is more than 15 minutes late.

A number of respondents observe that increasing staff and nurse efficiency is vital to decreasing OR time. Marsha Edwards, the OR Manager at Phycor of Western Tidewater, in Virginia, plans to educate her staff and "increase staff knowledge on set-up and recovery." The medical director of a Chicago-based facility also states that he plans to train his staff to "know the preferences of all the surgeons." Facilities that already have experienced cosmetic-surgery staff are taking special measures to make sure they are available when needed-one Texas-based surgical director plans to consolidate her plastics cases to three days a week in her multispecialty facility to allow for more efficient staffing for patients requiring overnight stays.

Many managers also plan to crack down on their surgeons, tracking case times to the second and insisting that surgeons keep to within block time limits. "Surgeons often do not estimate case times correctly," says the director of an Indiana-based facility, who plans to take steps to evaluate "actual" case times.

Several respondents specifically mentioned what one administrator terms a "hidden" factor that increases both supply costs and OR time and negatively impacts profitability-surgeons who schedule OR time for a particular case and then perform "extra" procedures that take up time. "We charge up front, only to have the surgeon add other procedures during the case; we rarely get reimbursed for these other procedures," says one Tennessee-based administrator. She says that at her center, they are now having patients who pre-pay sign waivers stating that if the scheduled procedure is changed, they will owe more.

Increase volume
The majority of our respondents-72 percent-say that they have taken or will take some action to increase volume in their facilities. We found, however, that high volumes don't necessarily equal high profitability: the 25 percent of our respondents who state that these cases are "very profitable" do an average of 30 cases per month; the 32 percent who stated that cosmetic surgery was "not too profitable" or "not at all profitable" cited an average of 28 cases a month.

We prompted our respondents by asking them what specific measures they planned to take to increase volume (see the graph on page 36 for their responses).

Respondents told us about other strategies as well: The CEO of an Indiana-based facility says, "We are actively recruiting other plastic surgeons to do surgery at our place. We have six ORs at present and are building four more." The practice administrator of a Colorado-based facility says that in addition to attracting patients with print and radio advertising, seminars, and a web site, she will add ancillary services, such as a skin-care service.

A few of our respondents seem reluctant to take on more plastics cases, perhaps because making them profitable can be difficult. Says the administrator of one Texas-based ASC: "Although we're currently offering surgeons block time, quick turnaround time, and an experienced staff, we're not actively recruiting for additional plastics."

Raising fees
The majority of our respondents-86 percent-say they have procedure-specific fees; only 16 percent say they charge by the minute or by the hour. Forty-six percent plan to raise fees next year, but many are planning to lure patients with a variety of price deals. For example, Haroon Qazi, MD, President of the Plastic Surgery Center of Indiana, plans to advertise special rates for a limited time only to attract patients.

Many managers stress the need to keep prices relatively affordable to compete with neighboring facilities. Says an Illinois-based surgical director: "Surgeons expect facilities to have very low prices-sometimes too low. Patients are very price sensitive."

We asked respondents to give us average facility fees of the top five cosmetic procedures (as determined by the American Society of Plastic Surgeons' 1999 survey). Here's what they said:

Some of our respondents reported a lump-sum fee, including the facility and the surgeons' fees. Here are the average fees that these facilities reported:

Although some respondents would agree with the Tennessee-based administrator who said these cases took "too much time and effort for so little reimbursement," many agree that good results always generate more business. Says one plastic surgeon: "Good results equal more money." And even if the procedures themselves aren't profitable, offering them may lead to increased business overall. "Cosmetics is not profitable in itself," admits one New York-based surgical director, "but surgeon and patient satisfaction have led to a 37 percent increase in the volume of these procedures over procedures that are covered by insurance."

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