Stuck Collecting 2022 Rates? An ASC Insider on Winning the Margin War

As ambulatory surgery centers face stagnant payer rates and rising costs, margin pressure has become the defining operational challenge. Danilo D'Aprile, VP of Business Development at Merritt Healthcare and president of the Arizona Ambulatory Surgery Center Association, spent over a decade running ASCs before moving into strategy. D’Aprile spoke with Athena Doshi, CEO of Exactrx, about protecting margin, planning for succession, and why the industry should be listening to the people running its centers.

From Operator to Strategist

Athena Doshi (AD): Thank you for taking some time today, Danilo. To start, why don't you introduce yourself? Who are you, and how did you end up in the ASC world?

Danilo D'Aprile (DD): My name is Danilo D'Aprile. I'm VP of Business Development for Merritt Healthcare and serving my first term as president of the Arizona Ambulatory Surgery Center Association.

Like most people in healthcare, I didn't plan on it. I was headed toward linguistics, I wanted to work for the UN. Then I stumbled on healthcare as a summer job at 18 and never left. I worked my way through physician practice management, hospital administration, finance, and strategy, and about 12 years ago took a job with Merritt as the administrator of a de novo ASC. What hooked me was the intersection of patient care and entrepreneurship. You're running a small business. You're the captain of the ship, and you can walk through a center and see everything in one place: the impact of your decisions on patients, physicians, and staff, all in one day.

Over time I moved into development and strategy, managing ASCs across multiple states. But I still think like an operator when I do business development. When you're talking to doctors or health systems, they want to know what the finished product looks like, and I can speak to that.

AD: When you're evaluating a center to bring onto Merritt, what do you see in five minutes that someone without that operator background would miss?

DD: There's a fine line. Business development is complementary to sales, and I'm not a salesperson, I don't have that mindset. So I apply my operator mindset instead.

The biggest thing is just how hard an ASC operator's job really is. In development or corporate leadership, it's easy to think about the macro: growth, M&A, physician alignment, payer contracting, all the high-level exciting stuff. But the administrator is carrying all of it: succession planning, financial performance, cases, payer mix, all the benchmarks, plus staffing shortages, personalities, accreditation surveys, supply costs, scheduling, patient complaints, and a thousand other little fires every day that nobody else sees.

What I didn't appreciate until I left operations was how much of those everyday fires the role requires. Administrators spend their day solving everyone else's problems, but they don't have anybody to solve theirs. So now when I walk into a center, I try to understand what keeps the administrator up at night before I talk about any growth opportunity. You always have to think like the operator in order to help the operator.

AD: So now that you're more in the strategy angle, what have you started seeing from that strategy seat that was invisible to you when you were heads-down running just one center?

DD: It's the reverse, right? When you're having to operate an ASC every day, or put out all those little fires, you have a harder time, and naturally so, looking at the grand scheme, the macro-level strategy. And that's why I mentioned succession planning. I think every ASC administrator should always have their mind on succession planning, because that's going to give you the continuity to let the ASC grow and continue being successful.

And that starts from day one. Not when it opens, but when it's in concept. If you don't have that succession planning and recruitment effort on a day-to-day basis, there will come a time where the retirements, or the physicians moving out of the area, catch up really quick. And then you're left with an ASC with half the physicians you started with.

So from a business development strategy perspective, when you're in front of a group of physicians, you have to look at how long you can keep the ASC going with the current group of doctors. Obviously there are things you can't predict, but that's why strategy and operations need to come together and start working on a recruitment plan to continuously recruit doctors into your facility. And I know it sounds easy. It is absolutely not easy. It's always dependent on all the dynamics that exist within a given market.

The Fire You Can't See Yet

AD: Most administrators probably tell you they're too busy putting out today's fires to plan three retirements out. So how do you make the case that this is the fire, they just can't see the smoke yet?

DD: I like how you said it. It's a fire that you just don't see the smoke of yet. From the moment that ASC opens, that ember starts. You should never plan for succession when you start seeing the smoke. You've got to plan for it at the onset.

AD: And is succession planning really about physicians, or is it administrator continuity too? What happens to a center when the administrator leaves and no one's been groomed to take over that position?

DD: I think they go hand in hand. Administrator succession planning is also important. You want to have things in place so that you always have continuity of leadership. I view that as more of a leadership style. As a leader, you want to find the right people that work around you and with you, and let them grow into roles where they can take over. You never want to be an individual that keeps all the cards tight to their chest. You need to show your cards to your team and develop the team to pick up the pieces when you can't, because administrators take vacations, they get sick, something may happen, they may have to move out of the area or retire. You need to have a strong team around you that can pick up the pieces when you're not there.

Protecting Margin When Payers Won't Move

AD: One of the loudest things we've been hearing right now is margin. A lot of administrators we've spoken to are saying the same thing: payers won't reopen negotiations, so they're stuck collecting 2022 rates while every other cost has gone up. Between those windows, what can a center actually do to protect its margin?

DD: I think the hard truth is that there's a margin visibility problem. It's not really a revenue problem. So if payers aren't moving, you have to control the things that you can control.

First, you have to understand your case costs at the procedure level. Most centers know what they spend overall, but far fewer know exactly which procedures are profitable and which aren't. You have to do a deep dive. And now we have added layers, because five years ago we were looking at supply expenses and staff costs and applying a certain number for overhead. But now we have anesthesia subsidies, for example, where you have to figure out: am I paying a subsidy? What kind of subsidy am I paying, an income guarantee or a stipend? And factor that into your case costing, because that's going to be a hidden fee that maybe not everybody thinks about.

Second, try to optimize your payer mix and your procedure mix, because not all volume is good volume. As far as payer mix goes, you want your commercial payers over government payers, but you also have to understand the policies. There are certain policies that may not allow certain procedures, and understanding those dynamics, really getting a deep dive into your payer contracts, is important.

Third, you have to make sure you're collecting everything you're entitled to collect. And I think that's where you come in, Athena, because contract underpayments are very common and they are very much missed.

Fourth, you've got to engage your doctors and show them data. Develop good relationships and trust with the physicians that are utilizing your facility and the ones that own it, because doctors can be a tremendous partner when they understand how implant selection impacts case costing and supply utilization, and how block time efficiencies and scheduling impact the center.

And fifth, I'd say don't underestimate being operationally sound and efficient, because saving even five minutes per case, doesn't sound like a lot, until you realize what it means across a thousand cases in a year and the overhead and costs associated with that time. Time is money.

AD: So when the next renegotiation window finally opens again, what separates the administrators who walk in with leverage from the ones who walk in hoping for the best?

DD: There's a major separation, and it always helps to find some leverage and get creative. Let me give you an example.

A few years ago, a payer who shall remain nameless used a third-party implant reimbursement company. We were doing 50 to 60 total joints per month. They contacted me and said they were going to cap our implant reimbursement. I said, it's not in the contract, I went through it, there was nothing about a cap. We'd negotiated full implant reimbursement. And they said, "We're a third party, we don't have to abide by the payer contract." And I said, "Well, I don't have a contract with you. I have it with the payer."

So here's where the leverage comes in. I said, I'll tell my doctors we can't do total joints here anymore because you're capping our reimbursement, so they'll take all of them to the local hospital. Then I'll let the payer know they'll be reimbursing the hospital three times what they reimburse me for that case, and you can deal with the patients angry about their higher out-of-pocket costs. That stopped them dead in their tracks. That was my leverage. You have to get creative.

AD: Five years ago, the anesthesia subsidy barely existed as a line item. Now it can quietly eat your margin. How many administrators do you think are actually costing it per case versus lumping it into overhead?

DD: For me it's a newer problem, I only started dealing with anesthesia subsidies about three years ago, and it depends on the market. Arizona is very different from New York or Connecticut, where I've also operated. The shortage of anesthesiologists and CRNAs is much greater here, and reimbursements are lower, which drives the subsidy conversation.

If an administrator doesn't even understand what a subsidy arrangement looks like, that's problem number one. Just like your payer contracts, you have to know your anesthesia contracts cold and be reconciling quarterly, especially under an income guarantee model, which I recommend over a stipend. Once you open the books, you see the reimbursement by case, and you understand your true anesthesia cost per case.

Listen to the Boots on the Ground

AD: Early on, you said the thing administrators carry that nobody really sees: the daily fires, having no one to solve their problems. A lot of operators assume that weight is unique to them, their center, their market. What's a problem you were so sure was just yours, and then realized so many people in the ASC community were quietly carrying too?

DD: I would say physician alignment.

When I was an administrator, I thought our center's physician problems were unique to that center. And then I started working across other centers. I opened up another center that had its own unique set of challenges. And then I moved to Arizona, took over an existing center, and it was a completely different world from New York and Connecticut. And I realized everyone's dealing with some version of the same thing. Every center is trying to tackle the same questions: How do we talk to doctors? How do we engage with physicians? How do we keep them accountable? How do we balance owner expectations with the realities of being operationally efficient? How do we align on what makes the ASC successful?

We always assume our biggest problems are financial or regulatory. But a lot of the time, we're dealing with humans, and everybody has a personality. The ASCs that thrive are the ones that have figured out how to build trust with their physicians and align doctors, owners, leadership, and staff around a shared goal.

AD: Who should more people in the ASC community be listening to?

DD: Honestly, the boots on the ground.

The ASC administrators and directors of nursing that are dealing with patient care, with patients, with doctors on a day-to-day basis, that's who we should be listening to. And I don't mean this in a disparaging way at all, because I'm one of them, but not the people on a conference stage. Not the consultants that are hired and paid the big bucks. Not the executives at the top looking down, telling you to fix a problem without really giving you a lot of direction on how to fix it. We need to listen to the people that are the boots on the ground. They're the ones living that reality every day, and they know the unique challenges, strengths, and weaknesses of their centers. And if we listen to them, we can mold our own strategy after what the actual needs are.

If you want to know where reimbursement is going, what your payer mix is, what's happening with staffing, who's going on maternity leave or a leave of absence and what impact that has, how doctors are behaving on a day-to-day basis, why supply costs are high for a particular case or vendor, what surveyors are focusing on, ask the administrator. They know all of it. And if they don't, they should, but they do. Some of the smartest people I've met in healthcare run surgery centers. What's interesting is they're some of the smartest people, and no one outside their market knows their name. The ASC industry would benefit more from listening to those voices.

AD: As we close out, is there anything you feel would be important for the CFOs, financial leaders, and operators who read our newsletter?

DD: I think we're entering a completely different era. Matt Searles, the CEO of Merritt, always labels ASCs 1.0, 2.0, 3.0, kind of like the life stage of where we're at. And we're at ASCs 3.0. We started off with physician-owned ASCs, then it transitioned to the JV model with physicians and ASC management companies, and now we're seeing a completely different era where you have health systems partnering with management companies like ours and physicians. These three-way joint ventures are coming to fruition. There's a lot of movement and change within the ASC industry itself.

Traditionally, for years, success has always been driven by volume and growth. But I think the level of sophistication that you need to run a surgery center is the actual metric of success now. The centers that are going to grow and be successful over the next 10 years are the ones that don't just look at data but understand it and know how to develop an action plan from the data they're looking at. Payer strategy, operational performance, all of those are going to be the level of sophistication you need to make your ASC successful. And I don't think there's ever been a greater time for ASC opportunities. It's just knowing how to navigate the changing dynamics in our industry. But we always need to listen, again, to the voices from the people that are boots on the ground.

AD: I love that. Thank you so much for your time today, Danilo.

Danilo D'Aprile is VP of Business Development at Merritt Healthcare and president of the Arizona ASC Association. Athena Doshi is the founder and CEO of Exactrx, an AI-powered revenue cycle management platform that prevents contract underpayments for ASCs and outpatient provider groups.