The Rise of Ambulatory Surgery Centers (ASCs) And Its Impact on Hospitals
Thomas Campanella
President, Campanella Consulting, Inc. Professor Emeritus of Health Economics, Baldwin Wallace University
Ambulatory Surgery Centers (ASCs) vs. Hospital Outpatient Departments (HOPD)
“Ambulatory Surgery Centers (ASCs), also known as?outpatient surgery centers,?same day surgery centers, or?surgicenters, are healthcare facilities?where surgical procedures not requiring an overnight hospital stay are performed. Such surgery is commonly less complicated than that requiring hospitalization.”?
These are the most common ASC specialties and the list is growing:
Although Ambulatory Surgical Centers?(ASCs) perform surgeries that could also be performed in a Hospital Outpatient Department (HOPD), how they bill Medicare and the overall reimbursement for these surgeries differs from those that are performed in a hospital outpatient department.?
As noted in the following article, “A HOPD is owned by and typically attached to a hospital, whereas an ASC is considered a standalone facility.
However, the difference between an ASC and HOPD specifically refers to the regulations that apply to the center; therefore, a “freestanding” surgery center can still be classified as an HOPD if it is within a 35-mile radius of the hospital and falls under the same financial and administrative contracts.
Similarly, a facility can be operated by a hospital and still maintain ASC status if it is an independent entity financially and administratively with its own Medicare agreement.
Furthermore, ASCs must comply with the ASC Covered Procedures List, which is aimed at ensuring that procedures with the appropriate level of risk are performed in these freestanding centers.
The regulations and conditions that differentiate ASCs and HOPDs are primarily reflected in cost. Payment rates for the same procedures are lower in ASCs than in HOPDs. Procedures performed in ASCs are reported to cost Medicare 53 percent of the amount paid to HOPDs.”
In the commercial market, depending upon the level of consolidation of hospital systems, the pricing disparity between same services provided by an HOPD vs. an ASC could be more than double.
The Four External Interrelated Forces Impacting the Healthcare Landscape
In May of 2019, I wrote a blog titled, “Care in the home setting: 'The New Frontier for Healthcare' - How will it impact the other stakeholders?”
In that blog, I identified four interrelated external forces?that are the reasons that care in the home-setting is not only the new frontier for healthcare, but also a long-term sustainable one. That blog was published prior to COVID-19 pandemic which has accelerated the transition to care in the home-setting.
Following are the four key external interrelated forces:
These?four external interrelated forces?are also the reason ASCs will continue to be a disruptive force in healthcare.
I. ACTIVE PURCHASERS OF HEALTHCARE SERVICES – The sustainable funding source
ASCs need to have a sustainable funding source, and?Active Purchasers?of healthcare services are playing that role.
We have been seeing a transition to Active Purchasers of healthcare services the last five-plus years, and that trend will continue.
Examples of Active Purchasers which have a vested interest to pursue value-based services
All these Active Purchasers recognize, to different degrees the value proposition of ASCs, which as noted previously, are significantly less expensive for the same service being provided in a HOPD.
Active Purchasers such as Medicare Advantage plans, commercial payers and self-insured employers?are also developing risk-based payment methodologies
Also, as?capitated payments?become more common, incentives will be built in to direct care to the lowest cost setting as long as quality is not compromised.?
The ASCs setting not only can be a low-cost alternative to institutional care, but it can also potentially result in better quality outcomes
II. Advances in sciences and technology – Enabling services to be provided in the ASC in a cost-effective and safe manner
As discussed in my “Care in home-setting blog,” a bit of a “chicken and egg” phenomenon has occurred regarding providing healthcare services in the home setting, which also applies to a rise in ASCs.?
Active Purchasers?(public and private), as noted previously, are promoting healthcare services in the ASC directly or by means of risk/value-based payment methodologies as a cost saver and, because of advances in science and technology, surgeries are now able to be delivered in a cost-effective, quality, and safe manner.
Conversely, medical device and technology organizations are investing in services that allow for procedures to be provided in the ASC since they see it as a long-term source of profits because of sustainable funding from?Active Purchasers.
III. Health policy at the state and national level – Budgetary concerns have incented enhanced focus on ASCs as a value proposition
From a?national health policy?perspective, current and future changes to Medicare payment policies and risk/value-based reimbursement methodologies are incenting care to be provided in the lowest cost setting without comprising quality and safety.?This will create a boon for services being provided in the ASC setting.
As the Center for Medicare & Medicaid Services (CMS) more procedures to be performed in ASCs, it gives ASCs the ability to become more financially successful.
Medicare Advantage plans, which will increasingly dominate the Medicare market, have also become a great vehicle for the continued growth of ASCs as these plans enter into direct contracts with ASCs.
Finally, as noted in my prior publication on price transparency in healthcare, health insurance companies and self-insured employers will be required, by federal law, to post prices of 500 healthcare services in a user-friendly format by 1/1/2023 and all services by 1/1/2024. Enhanced price transparency
IV.?SOCIO/DEMOGRAPHIC CHANGES – Our aging population will be a source of continued utilization of ASCs
The impact of the aging of America, especially the baby boomer generation (10,000 seniors turning 65 every day), has been and will continue to be, a major source of patients for ASCs.
Seniors are actively pursuing procedures that have a positive impact on their quality of life such as knee and hip replacements and eye surgeries, and many of these procedures can be done safely and at a lower cost in an ASC.
Also, younger seniors are selecting Medicare Advantage plans vs. Traditional Medicare which, as noted under “health policy” above, will be a boon for ASCs.
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How will hospitals be impacted by the enhanced role of ASCs in the marketplace, and how will they react to it?
Hospitals:
As I have noted in prior publications, I would not want to be a hospital chief financial officer in this current market.
Hospitals are facing financial challenges from a number of perspectives. The hospital sector has the most to lose as the largest incumbent provider as Active Purchasers focus on escalating healthcare costs and competitive forces in the outpatient and care in the home-setting arenas go after their market share. Nursing shortages and the related increase in personnel costs add to the challenges faced by hospitals.
Historic revenue sources are also being challenged. Surgeries performed in operating rooms (ORs) have been among the most profitable services for hospitals. As a result, most hospitals regard inpatient (IP) surgery as their major revenue source, but that revenue source is diminishing.
Even prior to the COVID-19 pandemic, as payers pushed for care to be provided in lower cost settings, hospital inpatient admissions?were decreasing and the acuity level of those patients was increasing.
The primary growth area has, and will continue to be, services provided in the outpatient setting. The challenge for hospitals is that the outpatient marketplace is much more competitive and many times these services are perceived as a commodity. If services are perceived as a commodity, price differences in services play a key role in the decision-making of the purchasers, which places hospitals at a disadvantage given their high fixed costs vs. their competitors.
In fact, a growing number of payers are beginning to revamp policies to incent or push patients out of the hospital and into lower cost settings such as ASCs, where procedures can be performed safely at a lower cost.
As previously noted in this blog and in my prior publication on price transparency in healthcare, health insurance companies and self-insured employers will be required, by federal law, to post prices of 500 services in a user-friendly format by 1/1/2023 and all services by 1/1/2024. Enhanced price transparency will accelerate the move to developing benefit designs by both governmental (Medicare Advantage plans) and private payers (such as self-insured employers) to incent consumers to select value-based providers such as ASCs.
Unlike inpatient services, outpatient services, especially with enhanced price transparency, also lend themselves to new entrants into the marketplace, such as ASCs, since the entry costs are much lower.
How will the hospital sector react to these emerging external forces??
Obviously, there is not one clear answer to this question.?Each hospital and hospital system will choose its own course of action.?As noted previously, the winners will be the hospitals and hospital systems that embrace this new world of healthcare and go forward?with a real value-based transformation.
Future trends point to higher utilization of ASCs and more procedures approved to be performed there. Hospitals will need to react by becoming more involved with ASC development, and partnership with organizations that have a solid track record in providing value-based services in an ASC environment.
New and existing Ambulatory Surgery Centers in the marketplace
Key beneficiaries of the transition from passive purchasers of healthcare services to active purchasers are?new entrants into the marketplace?(See blog titled,?“For-profit healthcare: Let the race begin”).
For-profits?will be especially prevalent in the growing ambulatory surgery market.
There will be continued investment in ambulatory surgery centers from private equity, venture capital and well-capitalized fortune 500 companies such as Optum.?These organizations hope to take advantage of the opportunities presented with this healthcare disruption to fill the needed value-based voids.
Physicians own most ASCs. Private equity and venture capital groups will make more inroads with midsize physician groups and large ASC chains.
As insurers and CMS transition more complex, high-cost surgical procedures to ASCs due to cost savings, high quality of care, and safe outcomes, a more positive future for ASCs is expected.
The future world for ASCs is not necessarily all rosy as they face challenges with physician and nursing shortages, which are projected to get worse in the coming years. The competition for staff is fierce, and many ASCs cannot afford to compete with hospital salaries.?ASCs will need to find other ways to compete for needed personnel including a better work environment, bonuses based on overall profitability, as well as equity arrangements.
As a result of the acquisition of primary care physician practices by hospitals systems, independent ASCs will face challenges with physician referrals. ASCs can address this issue by directly marketing their value proposition to payers (Medicare Advantage plans, commercial carriers, and self-insured employers) as well as to consumers.
CONCLUDING COMMENTS
The evolution of services being provided in the ASCs will provide both challenges and opportunities for hospitals.?As noted in this blog, this evolution is not a short-term fad, but a long-term trend.?
Any departure from this entrenched status-quo world is bound to create a ripple effect impacting healthcare stakeholders, such as hospitals, to different degrees. Remember, healthcare costs to us is revenue to the healthcare stakeholders.
It is my belief that this disruption was inevitable and will continue.?All sectors of our economy have experienced disruption to different degrees (auto, banking, retail, steel, travel, media, etc.) and it is quite a natural evolution.?
Healthcare, in fact, was long overdue for disruption, given its lack of focus on value because of our fee-for-service payment methodologies.?This disruption will be more challenging for the hospital sector and society, given the dollars and number of people that fall under their broad umbrella.
The winners in disruptive times are many times new entrants to the marketplace, but this does not always need to be the case. As I noted previously in this blog, hospitals need not be?victims of this positive disruption.?They need to embrace it, and transition to a value-based organization that can become a winner in this new world of healthcare.
Tom Campanella is the Healthcare Executive in Residence at Baldwin Wallace University. Backed by more than 35 years of experience in the industry—particularly the health insurance, physician and hospital sectors—he’s focused on strategic advising
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Advanced Analytics to Benchmark, Negotiate, and Audit Pharmacy Benefits
2 年Nice article Tom. The success of the ASC seems to indicate the natural market forces favor them over the larger hospital. If true, why do you think large investors continue to fund industry consolidation? Is the loss of business to the ASC not significant enough to impact the investment decision?
Cultural Exchange Impresario with Italy while maintaining a practicer as Benefits Product Consultant - Innovation | Product | Sales | Customer Success | Acct Mgmt | Network Development
2 年You are right on the "money", Tom, as usual. The process of more affordable, higher quality treatment is gradual, as it has been in some other industries you note. Having worked in the pioneering space of CDHP/HSA, it is clear the tools for consumers are not yet fully available, nor fully functional or meaningful, to make the ASC choice an obvious one. The brand of the hospital still reigns, so the alternative (out of hospital) providers have a big hill to climb with brand awareness. Maybe the retail pharmacy/health insurance big brands, with emerging primary care offerings, will enter the specialty surgery space to lend their brand recognition to consumers and be treated from an administrative perspective very differently than within a hospital setting? Thank you for your keen insights shared in this blog entry!
Cash flow is the lifeblood of business | Always Generating positive cash flow | Maximizing profits/surpluses
2 年As usual Thomas Campanella offers lucid, easily understood perspectives on emerging trends in health care. In this post, we consider the growing popularity of ASCs over HOPDs. Contributing factors include commoditization of health care and impact of price transparency legislation, movement by active purchasers of care away from cost prohibitive HOPDs to less costly ASCs, perceptions that ASCs are more welcoming, less imposing than hospital settings, while quality is the same or better and infection risks diminished, ASCs. The aging population will likely accelerate this paradigm shift. Investments in technology favoring ASCs will grow as developers perceive the movement of money to ASCs versus HOPDs. Profit seeking organizations will look for ways to leverage this growing importance of ASCs.? The history of the industry is marked with disruptions which occur repeatedly often fueled by efforts to bend the spiraling cost of care. What remains constant in that history is the industry has not succeeded in bending the cost curve, has seen costs continue to rise while evidence that the spend has produced an acceptable population health based ROI is absent. The more things change the more they remain the same.
Director, Financial Operations - Echo Health
2 年Tom, thanks for a great post. The evolution in healthcare continues. It will be interesting to see the changes when the Price Transparency rules take place.
National Sales Director
2 年Nice work Tom! In part due to the fact that ASC's are primarily physician/investor owned, they have the ability to be more nimble, especially in regard to medical technologies that they can more quickly adopt and implement. Outcomes that are at least on par with -- if not better than -- HOPD's at a lower cost.