Staffing: Understanding a surgery center’s biggest expense

Achieving higher surgery center valuation, financial performance through operations benchmarking

$31.37 per hour.

That’s the average total cost of employing a healthcare worker today in the United States, an amount that includes everything from wages and health insurance—which only make up about two-thirds of the overall costs—to taxes, vacation time and other related benefits.[1] A decade earlier, the costs associated with employing a typical U.S. healthcare worker were about $17.50 per hour, or 44 percent less.[2]

At $27.05 per hour, labor costs at outpatient surgery centers are considerably lower than the industry average.[3] Still, they are typically a multispecialty facility’s biggest single line-item expense, coming in on average at 23.5 percent of net revenue.[4] When benefits and taxes are included, a typical center spends 29 percent of its net revenue on personnel expenses, higher than medical and surgical (21.6 percent), occupancy (7.5 percent) and administrative (16 percent) costs. While many ASC owners assume labor costs are rigid, they often present significant opportunities for improvement when benchmarked to the appropriate data. Here’s where to start.

Dig deep
While outpatient surgery centers often share much in common financially, labor costs frequently vary from center-to-center—at times, dramatically so. Procedure type, case volume and a variety of other variables all may have an impact on a facility’s payroll. For example, outpatient surgery centers that perform predominantly orthopedics cases spend less than the average, as a percentage of overall revenue, on salaries and wages (21.2 percent) and taxes and benefits (4.7 percent) than the mean outpatient facility.

The size of the facility also plays a role. ASCs with four or more operating rooms spend less on total staffing costs (27.6 percent) than centers with two or fewer (29.3 percent) operating rooms. Geography, too, can make a big difference in employee-related costs. As a percent of net revenue, ASCs in the West spend 32 percent on salaries, wages, taxes and benefits, while facilities in the Southwest spend 25.8 percent, Midwestern facilities spend 24.1 percent, southeastern ASCs spend 29.8 percent and northeastern U.S. outpatient surgery centers spend 27.9 percent.[5]

Analyze costs, models
In addition to performing a labor cost analysis, it’s also critical to benchmark your staffing model to determine whether your workforce structure is optimized. Positive adjustments can be made prior to marketing a facility, the benefits of which will accrue to the seller. These changes can include realignment of day-to-day job duties or adjustments in the staffing model based on case type.
When normalizing an income statement, it’s also important to identify any nonrecurring, nonoperational expenses such as legal fees, consulting work and marketing expenses that can lower the valuation of a surgery center. Why is the money being spent? Will it be spent again next year? Answering these questions before a potential buyer does will help your team determine how to account for these outlays in financial statements and achieve the highest sale price.

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About Merritt Healthcare Advisors

Merritt Healthcare Advisors is the leading provider of M&A consultative services for healthcare organizations across the country. In an era of increased competition for patients, shifting market dynamics, declining reimbursements and a heightened emphasis on costly technology, Merritt Healthcare Advisors is the proven partner for physician and hospital leaders seeking to optimize their value. Given the recent dramatic change throughout healthcare in both national and local markets, hospitals, health systems and physicians navigate a complex landscape when it comes to buying or selling a healthcare organization. As the only M&A advisory organization with active clinical operations, we have an unmatched perspective when it comes to coordinating beneficial transactions within the highly complex healthcare industry.

[1]A Look at Healthcare Spending, Employment, Pay, Benefits, and Prices,” U.S. Dept. of Labor Statistics, 2016

[2] Ibid.

[3]Ambulatory Surgery Center Financial and Operational Benchmarking Study,” VMG Health, 2013

[4] Ibid.

[5] Ibid.

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