Leading ASCs measure internal and external financial benchmarks to track performance over time and compare with other surgery centers. External benchmarking, or comparing financial performance with industry annual averages, is highly effective in helping identify areas where ASCs excel as well as opportunities to improve.
While some benchmarks focus solely on finances, such as those we will review in this article, others hone in on operations, quality of care, patient satisfaction, and more. Financial, clinical, and operational data can all be leveraged to maximize performance. However, financial benchmarks are particularly important for achieving revenue cycle success as an ambulatory surgery center.
Here are seven critical ASC financial benchmarks your accountant should know:
1. Net Profit Margin
Net profit margin calculates the percentage of an ASC’s net revenue that is pure profit—meaning the higher this number is, the better! The annual industry average for ASC profits is 25 percent. Although it can certainly be challenging—and this metric is prone to experiencing ebbs and flows depending on the market you’re in, cases you serve, surgical specialty mix, and operating costs—ASCs should aim to maintain a 20 percent net profit margin over time.
2. Contribution Margin
A center’s contribution margin, or revenue minus variable expenses, is an essential metric for measuring financial performance and cost-effectiveness. In most cases, a contribution of 30 percent or higher is considered successful in the ASC industry, and accountants can take it a step further by breaking down revenue per case and by specialty. This helps pinpoint which cases and specialties are the most and least profitable, enabling ASCs to maximize profitability with the surgical specialties and procedures generating the most revenue after subtracting variable costs.
3. Average Revenue Days in A/R
The average revenue days in accounts receivables (A/R) metric measures the average number of days it takes for a center to be compensated for services rendered. Calculating and continually tracking this metric is essential for minimizing lag between claim submission and receipt of payment, which can interfere with cash flow and hinder a center’s performance. While the industry annual average is around 41 days, 20-25 days is the ideal amount of time between sending invoices and receiving payments.
4. Percentage of A/R over 90 Days
Measuring the percentage of accounts receivables outstanding for 90 days or more can alert ASC accountants to revenue cycle management red flags and low-hanging fruit optimization opportunities. The lower the percentage of A/R over 90 days, the better! The highest percentage of unpaid invoices should ideally fall in the 0-30 day range, and for most ASCs it does, with annual averages for A/R aging around:
- 0-30 days - 53.4 percent
- 31-60 days - 17.2 percent
- 61-90 days - 8.2 percent
- 91-120 days - 5.4 percent
- 120+ days - 15.8 percent
Note, however, that the industry average isn’t what you should be striving for. Below are some “best practice” percentages to keep more top of mind.
- 0-30 days - 83.5 percent
- 31-60 days - 10.1 percent
- 61-90 days - 3.4 percent
- 91-120 days - 3.5 percent
- 120+ days - 0.5 percent
5. Fixed/Total Asset Utilization
This financial benchmark measures to what extent an ASC utilizes its fixed and total assets for the generation of revenue. In other words, how effective is a facility at generating sales from its existing assets? Assessing fixed and total asset utilization is essential for efficiently and effectively managing and leveraging an ASC’s assets to make the most of them. The annual for ASCs is typically between 1-2.
6. Current Liquidity Ratio
Liquidity ratios measure an ASC’s ability to meet its current, short-term obligations without raising external capital. Tracking liquidity ratios is essential for assessing whether a center can pay off short-term debt. The annual average for ASC liquidity ratios is approximately 2.0, which means a center can cover current liabilities two times over. The higher the number, the better! Creditors and investors like to see ratios over 1.0, which indicates a company can just cover its short-term debt obligations.
7. Debt to Total Assets
This metric calculates the percent of debt to total assets, which means the higher the number, the greater the risk level. Tracking and comparing debt to total assets to industry averages is essential for determining an ASC’s financial risk—especially for investors, corporate chains, and health systems evaluating facilities for a potential ambulatory surgery center partnership.
Financial benchmarking is imperative for ASCs to maintain a competitive edge and remain profitable in a crowded, ever-evolving market. By effectively tracking, analyzing, and comparing the right metrics, your ASC can decrease expenses, reduce complexities, speed up the revenue cycle process, and ultimately maximize profitability for lasting sustainability and success.
Need help optimizing your ASC’s revenue cycle? Schedule a demo to learn how Amblitel’s revenue cycle management services can help elevate your center.