For the past two decades, hospital operating rooms have faced stiff competition from physician-owned ambulatory surgery centers. In many markets, ASCs have captured the bulk of private-pay volume, leaving hospitals with an uncomfortably large share of government-pay and no-pay cases. This is a major challenge for hospitals that depend on strong OR performance for their financial health.

The good news is that hospital ORs today have a fresh opportunity to compete successfully with ASCs — thanks to new market trends and some old customer service principles. The basic strategy is to transform your OR into a surgeon-centered organization.

Upgrade Surgeons to First Class

Why are ASCs so attractive to surgeons? Profit is not the whole story, because many ASC users are not owners. The answer is that most ASCs provide a great customer service experience for surgeons. Cases are easy to schedule. Procedures start promptly. Rooms turn over quickly. Surgeons usually can end their days on time. Operating at an ASC can seem like flying first class.

Can hospital ORs provide the same first-class experience? Yes, they can; and one of the best places to start is preadmission testing.

Preparing patients for surgery is a complex task. Most surgeons do not have the expertise or resources to fully manage presurgical preparation. Leading hospitals have created enhanced preadmission testing units that take full responsibility for patient optimization. These units use carefully defined protocols to coordinate testing, manage patient comorbidities and medications, and obtain medical clearances. This service saves time, expense and worry for surgeons. It also reduces the delays and cancellations that disrupt surgeon schedules.

Improving preadmission testing also can pay a quality dividend. Recently, a Midwestern hospital upgraded its preadmission testing unit. Before long, community physicians began asking surgeons to operate on referred patients at the hospital's OR. Excellent presurgical preparation became a strong pull for referring physicians.

Hospital ORs also can make the day of surgery more efficient:

  • A New York orthopedic hospital recently implemented several process changes that cut turnover time for knee arthroscopy. For example, the anesthesiologist (not a nurse) now takes the patient to the post-anesthesia care unit, freeing the OR staff to focus on teardown tasks. This and other changes reduced turnover time to just 14 minutes, rivaling ASC efficiency.
  • Several U.S. hospitals have instituted a "daily huddle" during which OR leaders review the upcoming schedule. This brief morning meeting helps to ensure that patients are ready for their procedure and that cases start on time, creating a more efficient working environment for surgeons.

Get Out and Sell

Successful ASCs employ salespeople who are skilled at identifying potential business, securing meetings with surgeons, and convincing surgeons to route cases to their center. Hospitals that hope to compete with ASCs need to become more proficient at these business development strategies.

Step 1 is targeting. OR business development staff should concentrate on high-margin specialties in which the hospital has low market share. Focus on "splitter" surgeons within those specialties who divide their caseload between the hospital OR and competitor ASCs.

Use a consultative selling approach. Ask surgeons, "What are the obstacles to operating at our hospital?" Most surgeons will gladly explain their problems — from trouble accessing block time to difficulty organizing their days in the OR. You cannot resolve every issue, but making an effort to understand and address surgeons' concerns will help to win new case volume.

Help Surgeons Build Their Business

Why do primary care physicians send surgery referrals outside of your network? Often, they simply don't know the surgeons on staff at your hospital. Educate surgeons on how to make connections with referring physicians through regular office meetings, periodic in-service education and consistent follow-up communication.

Develop new referral channels. For example, establishing a wound care service can help to generate referrals for vascular surgeons. Creating an occupational health program will open up a new referral channel for orthopedic surgeons and other specialists. These and other programs can give case volume to surgeons — with the understanding that they will perform these cases at your hospital and bring in additional volume.

Put Surgeons in Charge

Surgeons have invested in ASCs to increase their income. But, often, their other motivation is to build an excellent clinical care organization. Can hospitals provide surgeons with the same opportunity?

Recently, I worked with a Chicago area OR that was struggling financially, in part because it was surrounded by seven highly efficient surgeon-owned ASCs within a five-mile radius. The CEO realized that the only way to compete with these centers was to put surgeons in charge of the OR.

In 2010, the hospital established a surgical services executive committee, a multidisciplinary OR governance body led by surgeons and anesthesiologists. The committee set OR goals, established performance measures and sponsored improvement initiatives. Essentially, the committee allowed surgeons to create the OR in which they wanted to work.

Giving surgeons ownership of the OR produced dramatic results. In less than two years, the cancellation rate was cut by more than 80 percent and the on-time start rate improved by 50 percent. These and other gains in efficiency and quality helped to grow volume. Much of this growth was in cases that surgeons were previously taking to ASCs.

Create an Exit for the Competition

Many ASCs opened 15–20 years ago. The surgeons who founded these centers are now near retirement and looking for an exit strategy. At the same time, fewer young surgeons are interested in buying them out, partly because ASCs are not as profitable as they used to be. This situation is opening a new strategic possibility for hospitals: the acquisition option.

Under one emerging model, a hospital purchases an ASC and hires the surgeon owners to run it as medical directors. It's a win-win for all parties. Surgeons are rewarded for their sweat equity while avoiding a big capital gains tax. The hospital acquires a high-performing surgery center that strengthens its footing in the outpatient market.

One bonus for hospitals: In many cases, transitioning an ASC to hospital-based reimbursement pays for the cost of the purchase.

More Strategies

Hospitals also can use many back-office interventions to compete more effectively with ASCs. For one, chief financial officers should re-examine their pricing strategy for outpatient surgery. A more competitive price structure can help to capture revenue from ASCs. Most hospitals also could do a much better job of using physician networks and physician-hospital organization contracts to maximize surgery referrals.

Even changes to operational policy can make a difference. For instance, going from a four-hour to an eight-hour block scheduling system not only will improve efficiency, it will help to stop surgeons from steering their best cases away from your OR.

When used together, these strategies can make a hospital OR a competitive alternative to ASCs. Winning incremental case volume is just the start. Transforming your OR into a surgeon-centered organization can make your hospital the preferred surgical services provider in your market.

Jeffry A. Peters, M.B.A., is the president and CEO of Surgical Directions in Chicago.