The ASC industry is growing and changing as the healthcare system moves toward value-based care. Here are 100 things to know about ASCs, ASC chains and key trends for the future.
Key facts and statistics
The data for points one to 11 is gathered from the March 2017 MedPAC "Report to the Congress: Medicare Payment Policy." Note: the data is for Medicare-certified ASCs only.
1. Number of ASCs in 2016: 5,519
2. The states with the highest concentration of ASCs are:
• Maryland: 5.8 ASCs per 100,000 persons
• Georgia: 3.2 ASCs per 100,000 persons
• Idaho: 3.1 ASCs per 100,000 persons
• Wyoming: 3.1 ASCs per 100,000 persons
• New Jersey: 3.0 ASCs per 100,000 persons
3. Independently owned centers: 73 percent of all ASCs
4. ASCs owned by multisite operators: 27 percent of all ASCs
5. Five ASC procedures where Medicare spends the most:
• Cataract surgery with IOL 1 stage: 18.6 percent of Medicare spending
• Upper GI endoscopy biopsy: 8.2 percent
• Colonoscopy and biopsy: 6.8 percent
• Lesion removal colonoscopy (snare technique): 5.6 percent
• Injection foramen epidural, lumbar and sacral: 4.8 percent
6. Number of single specialty ASCs in 2015: 2,878 (61 percent of all ASCs)
7. Number of multispecialty ASCs: 1,802 (39 percent of ASCs)
8. Number of gastroenterology-driven ASCs: 1,027 (22 percent of ASCs)
9. Number of ophthalmology-driven ASCs: 1,020 (22 percent of ASCs)
10. Number of orthopedic ASCs: 23 (Less than 1 percent of ASCs)
11. Number of pain management, neurology and orthopedics multispecialty ASCs: 221 (5 percent of ASCs)
12. Sg2 predicts an 18 percent increase in ASC services for all ages from 2017 to 2027.
13. Cardiac surgeries are increasingly becoming minimally invasive and procedures, with aortic valve surgeries and endoscopic robotic cardiac procedures potentially moving to the ASC, according to Technavio. Orthopedic surgeries such as total joint replacements and spinal fusions are increasingly performed in the outpatient setting as well.
14. The following 10 Medicare procedures had the most spending in ASCs in 2016, based on the VMG Health 2017 Intellimarker: Multi-Specialty ASC Study:
• 66984 Cataract surgery w/iot 1 stage
• 43239 Upper GI endoscopy biopsy
• 45380 Colonoscopy and biopsy
• 45385 Lesion removal biopsy
• 66982 Cataract surgery complex
• 64483 Inj foramen epidual l/s
• 63685 Insr/redo spine n generator
• 64493 Inj paravert f jnt l/s lev
• 63650 Implant neuroelectrodes
• 66821 After cataract laser surgery
15. Of the top 50 largest cities in the U.S., these 10 cities have the highest ASC market share, according to Franklin Trust Ratings' Disruption in the Surgical Care marketplace report.
• Phoenix: 72 percent
• San Jose: 69 percent
• Dallas: 55 percent
• Philadelphia: 51 percent
• Los Angeles: 50 percent
• San Diego: 48 percent
• Houston: 46 percent
• San Antonio: 41 percent
• New York: 40 percent
• Chicago: 11 percent
16. The 10 states with the highest ASC hospital transfers and admissions, according to the CMS Hospital Compare website recording data from the 2015 performance year, are:
• Alaska: 1.42
• Nevada: 1.248
• Wyoming: 0.845
• Montana: 0.768
• Minnesota: 0.755
• Wisconsin: 0.737
• Iowa: 0.687
• North Carolina: 0.673
• Connecticut: 0.614
• Delaware: 0.55
17. The 10 states with the lowest ASC hospital transfers and admissions, according to the CMS Hospital Compare website recording data from the 2015 performance year, are:
• Washington, D.C. — 0
• Rhode Island — 0
• South Dakota — 0.069
• Maine — 0.07
• Hawaii — 0.11
• New Mexico — 0.187
• West Virginia — 0.224
• Kentucky — 0.225
• California — 0.247
• New York — 0.265
ASC operating statistics
Information for points 18 to 22 was gathered from VMG Health Multi-Specialty ASC Intellimarker 2017. The report covers data from 278 surgery centers with a case volume of more than 1.3 million cases.
18. Orthopedics
• Atlantic: $2,980
• Midwest: $3,345
• Mountain: $2,815
• Northeast: $2,534
• Pacific: $3,583
• South: $3,292
19. Gastroenterology
• Atlantic: $826
• Midwest: $957
• Mountain: $980
• Northeast: $1,133
• Pacific: $1,140
• South: $1,185
20. ENT
• Atlantic: $2,048
• Midwest: $2,168
• Mountain: $2,010
• Northeast: $2,644
• Pacific: $3,528
• South: $2,146
21. Ophthalmology
• Atlantic: $1,298
• Midwest: $1,216
• Mountain: $1,344
• Northeast: $1,466
• Pacific: $1,642
• South: $1,525
22. Pain management
• Atlantic: $1,065
• Midwest: $1,138
• Mountain: $988
• Northeast: $1,095
• Pacific: $976
23. Salaries, wages and benefits on the high end are 30.4 percent of ASC net revenue; on the low end, they are 17.8 percent of ASC net revenue, according to Avanza Healthcare Strategies "Ambulatory Surgery Center Special Report: 2017 Benchmarks." Total operating expenses on the high end of ASC net revenue are 32.7 percent; on the low end, they are 15 percent of net revenue.
24. The typical ASC has eight operating room surgical cases per day on the high end; on the low end, ASCs have 3.2 cases per operating room per day. The average operating room time per surgical case is 60 minutes on the high end and 40 minutes on the low end.
25. At the high end, the typical ASC has 12.6 non-surgical cases per OR per day; at the low end, the average ASC has 3.4 non-surgical cases per operating room per day. Procedure room time per case is 40 minutes on the high end and 30 minutes on the low end.
26. ASC room utilization is typically 1,200 cases per room annually for ENT, general surgery and gynecology procedures on the high end; on the low end, the utilization is 1,000 cases per day. For orthopedic procedures, utilization is 850 cases per room annually on the high end and 750 cases per room annually on the low end.
Medicare ASC payments
CMS released the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System in July 2017. The proposed update addresses ASC payment as well as changes to quality reporting and potentially adding procedures to the ASC payable list.
27. CMS proposed raising ASC payment rate 1.9 percent in 2018, as long as the center meets quality reporting requirements. The increase is based on the consumer price index. CMS estimates it will pay around $4.68 billion in total payments to ASCs, an increase of $155 million over 2017.
28. CMS is taking comments on whether to move total knee arthroplasty, partial hip arthroplasty and total hip arthroplasty off the inpatient-only list and add them to the ASC covered procedure list.
29. For ASC quality reporting, CMS plans to make changes in 2019, removing three measures from the reporting list:
• ASC-5: Prophylactic Intravenous (IV) Antibiotic Timing
• ASC-6: Safe Surgery Checklist Use
• ASC-7: Ambulatory Surgical Center Facility Volume Data on Selected Ambulatory Surgical Center Surgical Procedures
Factors influencing the growing number of Medicare-certified ASCs
In the MedPAC 2017 report to Congress, the authors outlined the following key trends driving the move from the inpatient hospital setting to the outpatient ASC setting.
30. Changing clinical practice and healthcare technology advancements allow surgeons to perform more procedures in the outpatient setting.
31. ASCs offer greater convenience than hospital outpatient departments, including quick surgical scheduling.
32. Medicare beneficiary coinsurance is lower in ASCs than HOPDs for many procedures.
33. Physicians have more autonomy when performing cases in an ASC than an HOPD, including the ability to "design customized surgical environments" and participate in the specialized staff hiring process.
34. Physician investors receive a share of the ASC facility payment.
35. The ASC scheduling and room turnover is typically more efficient than a hospital setting, allowing physicians to perform a higher volume of procedures in ASCs than hospital outpatient departments, which boosts their professional fee revenue.
36. The U.S. healthcare system could reduce costs by more than $38 billion per year by performing all appropriate cases in the ASC setting, according to a report authored by Healthcare Bluebook, ASCA and HealthSmart. The report estimates ASCs could reduce Medicare costs by $2.3 billion per year.
Acquisition trends
The ASC market was ripe with transactions last year, and 2017 is expected to have similar activity, according to the HealthCare Appraisers 2017 ASC Valuation Survey. The survey includes responses on a variety of topics from 24 ASC companies representing more than 700 surgery centers across the U.S.
37. In 2016, ASC companies were searching for potential acquisitions for growth; 17 percent currently have 11 to 30 ASCs while another 26 percent of respondents reported 31 or more ASCs under ownership.
38. Around 60 percent of ASC company respondents acquired centers last year:
• Forty-one percent acquired one to five centers
• Nine percent acquired six to 10 centers
• Ten percent acquired 11 or more centers
39. Acquisition activity will likely remain high in 2017, as 78 percent of respondents reported they plan to acquire centers this year; 43 percent plan to purchase one to five centers and 26 plan on purchasing six to 10 centers. Nine percent reported they were likely to purchase 16 or more centers in 2017.
Multiples
40. Prevailing valuation multiples for minority interest in single-specialty ASCs were reported as:
• Twenty-eight percent of respondents: 2 to 3.9 times EBITDA
• Fifty percent of respondents: 4 to 4.9 times EBITDA
• Twenty-two percent of respondents: 5 to 6.9 times EBITDA
41. Prevailing valuation multiples for controlling interest in single-specialty ASCs were reported as:
• Twenty-three percent of respondents: 4 to 5.9 times EBITDA
• Seventy-three percent of respondents: 6 to 7.9 times EBITDA
42. Prevailing valuation multiples for minority interest in multispecialty ASCs were reported as:
• Twenty-five percent of respondents: 2 to 3.9 times EBITDA
• Sixty-three percent of respondents: 4 to 5.9 times EBITDA
• Twelve percent of respondents: 6 to 7.9 times EBITDA
43. Prevailing valuation multiples for controlling interest in a multispecialty ASC were reported as:
• Twenty-five percent of respondents: 4 to 5.9 times EBITDA
• Seventy-five percent of respondents: 7 to 7.9 times EBITDA
44. The valuation multiples for the single and multispecialty ASCs were "reasonably consistent" to the multiples reported in the 2016 survey. However, a majority of respondents in this year's survey would pay a premium for ASCs with a certificate of need.
Sale process
45. Half of the respondents use a formula to determine minority interest transactions with new or existing physician investors; another 32 percent obtain an independent fair market value appraisal.
46. Minority interest sale takes three to six months on average for 55 percent of the respondents when dealing with a new physician. However, when selling controlling interest to an ASC, 56 percent say it takes six months to one year to complete the process.
47. Half of the respondents report selling controlling ASC interest to a hospital or health system.
48. Almost half — 48 percent — report earnings growth per year is expected to grow 3.1 percent to 6 percent for the first several years after the transaction; just 19 percent expect growth exceeding 12 percent over that time period.
Competition
49. Forty-three percent of respondents said competition for acquisitions increased last year; 14 percent saw a decrease and 43 percent reported no change from 2015.
50. Seventy-three percent of respondents reported owning equity in all the freestanding entities they manage.
51. Many buyers are willing to pay a premium for ASCs in a CON state. The typical premium is:
• Less than 0.25 multiple: 26 percent
• 0.36 to 0.5 multiple: 42 percent
• 0.51 to 0.75 multiple: 11 percent
• Greater than 1 multiple: 16 percent
Twenty-six percent said they wouldn't pay a premium.
52. Out-of-network can be a risky proposition for buyers. However, the case mix threshold for out-of-network cases varies based on buyer preference. Around 71 percent of the respondents said 20 percent OON case mix was their risk threshold; another 19 percent reported 40 percent OON was the highest risk they'd take. Ten percent of the respondents didn't have a threshold.
53. Buyers typically adjust the valuation model and pricing for out-of-network centers. The majority, 68 percent, convert revenue to in-network during the valuation. The remaining respondents reported:
• Adjusting multiples downward: 14 percent
• Applying higher risk factor and discount rates: 5 percent
• Combination of techniques: 5 percent
• Walk away — too much risk: 5 percent
Five percent of respondents reported they couldn't generalize about their valuation adjustments.
54. When buyers adjust multiples for OON cases, the magnitude of reduction is typically:
• Greater than 2.0 multiple: 57 percent
• 1.51 to 2.0 multiple: 21 percent
• 0.51 to 1.5 multiple: 14 percent
• Less than 0.5 multiple: 7 percent
ASC Company Key Notes
55. The six largest ASC chains in the U.S. all have more than 100 owned or managed facilities:
• Tenet/USPI: 460 as of June 30, 2017
• Envision: 263 as of June 30, 2017
• SCA: 205 as of January 2017
• HCA Healthcare: 119 as of June 30, 2017
• Surgery Partners: 103 as of June 30, 2017
• SurgCenter Development: 100 as of March 2017
56. Optum, a UnitedHealth Group company, combined with Surgical Care Affiliates in January 2017, acquiring the company's outstanding common stock for $57 per share. At the time, SCA had 20,000 affiliated physician partners and operated 205 surgical facilities. Since then, SCA has continued to expand its cardiovascular program and partnered with Western Connecticut Orthopedic Surgery Center in Danbury.
57. Envision Healthcare's ambulatory services reported $318.5 million in the second quarter of 2017, down slightly from the same period last year. The company did report a 0.6 percent jump in same-center revenue and acquired two centers in the quarter.
58. SurgCenter Development centers have hosted 20,000 total joint replacements since 2013, when SurgCenter Development launched its total joint replacement program. The centers discharged more than 96 percent of patients the same day.
59. Surgery Partners experienced slower than usual utilization in the second quarter of 2017; revenue fell 0.5 percent reaching $288.4 million. However, same-facility revenue jumped 2 percent to $296.5 million. Surgery Partners closed a deal to acquire National Surgical Healthcare for nearly $760 million on Aug. 22, 2017.
60. Tenet Healthcare's ambulatory care segment reported $472 million in net operating revenue, up 6.8 percent over the same period last year. The segment's adjusted EBITDA grew 18 percent to $164 million.
61. Private equity firm KKR acquired Covenant Surgical Partners from its previous shareholders: DFW Capital Partners, Iroquois Capital Group, PineBridge Investments and other shareholders. When the acquisition was announced on Aug. 8, 2017, Covenant owned 37 gastrointestinal and ophthalmic ASCs.
62. In July 2017, Physicians Endoscopy signed a strategic agreement with Digestive Healthcare Center physicians to create the company's 58th partnered center — Central Jersey Ambulatory Surgical Center in Hillsborough Township, N.J.
Orthopedic and spine
63. Sg2 predicts 63 percent of all spine surgeries can be safely performed in the outpatient setting in 2017. There are currently about 900,000 outpatient spine surgeries performed annually.
64. The number of orthopedic cases performed in ASCs is growing. In 2015, 217 ASCs reported orthopedic case volume exceeded 2,000 cases per year.
At the 15th Annual Becker's Spine, Orthopedic & Pain Management-Driven ASC Conference + The Future of Spine event, a panel of experts spoke on "ASCs, Orthopedics and Spine: The Next Five Years." The panel included Founder of Mesa, Ariz.-based Desert Institute of Spine Care Anthony Yeung, MD; Founder of the Minimally Invasive Spine Institute at Rush in Chicago Frank Phillips, MD; Founder and President of Puyallup, Wash.-based NeoSpine Richard Wohns, MD; Founder and Chairman of Reno, Nev.-based SpineNevada; and Senior Vice President of Strategy and Payment Innovation of Surgical Care Affiliates Brian Mathis.
65. Surgical and pain management technique development makes outpatient orthopedic and spine surgery possible, but the economics holds some ASCs back. "It will take a combination of insurance companies, device manufacturers and supply chain vendors getting together to make these procedures possible," says Dr. Phillips.
66. Surgeons are taking older patients into the ASC setting. Medicare now has codes for some spine procedures in the ASC, and MedPAC is considering total joint replacements. "Just because someone is 65 doesn't mean they have to have their procedure done in a hospital," said Dr. Wohns. "If you take a spine practice that is 50 percent outpatient and 50 percent inpatient, consider increasing your goal in the outpatient arena by 5 to 10 percent annually."
67. ASCs are now partnering with physical therapists and rehabilitation specialists to ensure their patients receive the right care after surgery to optimize outcomes. Then surgeons can gather the data and develop bundled payments. "We had a multispecialty ASC in Reno for 11 years and built bundles working together and leveraging physical therapy," said Dr. Lynch. "We can bring down the cost of care and bring up quality."
68. Surgeons that provide high quality care will always have patients, regardless of regulations and insurance. "All I know is what I'm good at, and if I'm good at it, there are enough people who are concerned about their back pain that they will pay," said Dr. Yeung. "Patients have a choice in determining who to go to. I focus on the result…Focus on the patient, guarantee the result and everything else will work out."
69. There are advantages to both small independent groups and large chain affiliations, and both will find a niche going forward. "I think a smaller group has a better chance of surviving. They can do deals and go directly to the employers and self-insured groups," said Dr. Wohns. "Smaller groups could control their costs and be more cost-efficient than the larger group."
70. On the other hand, as healthcare becomes more integrated and data dependent, it could be more challenging for small groups to contract with payers and meet federal regulations. To avoid hospital employment, surgeons may decide to join a chain. "Payers can tap into networks of independent surgeons," said Mr. Mathis. "Bringing them to scale is something I'm excited about."
71. ASCs will need to distinguish themselves using data to prove their outcomes are better and adding ancillary services to improve leverage in payer contract negotiations. "If you have a novel imaging center and the hospital doesn't you can negotiate better contracts," said Dr. Lynch. Ancillaries are also a critical aspect of Dr. Wohns' business, including imaging, durable medical equipment, physical therapy and pain management. "If you are a single solo provider and think about the number of referrals you make outside the practice, you can support them within the practice," he said. "You don't have to add infrastructure for most of them."
72. Reputation management is becoming increasingly important as patients seek information online and travel for second and third opinions. "You need to be constantly changing and upgrading your services to the Nordstrom level of service," said Dr. Wohns. "You have to be there for your patient."
73. Primary care physicians want to make sure they're sending patients to a dependable surgeon, especially if they're assuming risk in value-based arrangements. "They want to know what happened when you were with the patient," said Mr. Mathis. "That can bring a ton of benefit to the patient and make sure they are cared for in a comprehensive way. It can be great for the surgeon to educate and screen patients and make sure you are seeing the people who need to see you."
ASC openings
74. Albany-based OrthoNY is seeking approval for a $5.6 million ASC in Clifton, N.Y.
75. Alongside local physicians and Davenport-based Heart of Florida Regional Medical Center, Compass Surgical Partners opened Heart of Florida Surgery Center.
76. Boston-based SurgiSite North partnered with Bowdoin Construction Corp., for its new 8,000-square-foot surgery center in Chelmford, Mass.
77. Cedar Rapids, Iowa-based Mercy Medical Center is opening an ASC in Hiawatha, Iowa.
78. Portland-based The Oregon Clinic is opening a two-story, 17,000-square-foot ASC in Newberg, Ore. The surgery center specializes in gastroenterology.
79. Grand Forks, N.D.-based Valley Bone and Joint and North Dakota Eye Clinic are building a new surgery center in Grand Forks.
80. Osage Beach, Mo.-based Lake Regional Hospital opened the Lake Regional Diagnostic and Surgery Center in Osage Beach as part of the hospital's outpatient services remodel.
81. Atlanta Orthopaedic Institute Surgery Center partnered with Practice Partners in Healthcare, a surgical services provider, to develop and manage an ASC.
82. Dayton, Ohio-based Kettering Health Network is planning to expand in Troy, Ohio, through a new hospital. Kettering plans to add a surgery center to the hospital.
83. Charleston-based Medical University of South Carolina broke ground on a pediatric ambulatory campus in Charleston. MUSC's facility will include a pediatric ASC and multispecialty office space.
84. Atlanta Orthopaedic Institute Surgery Center partnered with Practice Partners in Healthcare to develop and manage an ASC.
85. Methodist McKinney (Texas) Hospital plans to open the Methodist Craig Ranch Surgery Center in McKinney in November.
86. Nashville, Tenn.-based Saint Thomas Health submitted a certificate-of-need to invest in a new ASC in Murfreesboro, Tenn.
87. New York City-based NYU Langone is in the midst of planning an $84 million ASC to add to its Sunset Park campus.
88. Construction is progressing on Dallas-based Baylor Scott & White's Sports Therapy and Research Center in Frisco, Texas. The facility contains an ASC.
89. New Lenox, Ill.-based Silver Cross Hospital selected Reed Construction to complete its new ASC.
90. Kalispell (Mont.) Regional Healthcare is in the midst of constructing a new gastroenterology center, the Digestive Health Institute.
91. Storm Lake, Iowa-based Buena Vista Regional Medical Center opened a surgical clinic on Aug. 14 in Storm Lake.
92. New York City-based Hospital for Special Surgery believes its 50,000-square-foot center will be complete this fall.
ASC industry news
93. Sen. James Lankford, R-Okla., introduced legislation in the senate to improve access to physician-led hospitals in May 2017. The legislation would repeal the moratorium on physician-owned hospital that was enacted in 2010 as part of the Affordable Care Act. The bill is a companion to a bill introduced in the House of Representatives.
94. The Ambulatory Care Center for Excellence in Surgical Services in Danville, Ill., closed in March 2017 after Presence United Samaritans Medical Center acquired the facility in 2012. The ASC reported two years of more than $1 million in losses before closing.
95. Dallas-based Baylor Scott & White teamed with United Surgical Partners International to purchase majority ownership in Tyler-based Texas Spine & Joint Hospital, previously a physician-owned facility. Although Baylor will have controlling stake and USPI will also have ownership, the federal government still considers Texas Spine & Joint a physician-owned facility and it won't be allowed to expand inpatient beds. The hospital can, however, add outpatient centers and clinics.
96. Mississippi Valley Surgery Center will be moving forward with the second phase of the center's long term growth plan. The surgery center opened in 1996 and recently received Iowa Department of Public Health, State Health Facilities Council approval to proceed with an $8 million modernization project at their Dexter Court location in Davenport, Iowa. The center's board of directors is planning to re-design and modernize the facility to serve more patients over the next two decades.
97. After more than a decade of fighting for a certificate-of-need in Iowa, ophthalmologist Lee Birchansky, MD, finally received approval to open an outpatient eye center in Cedar Rapids.
98. Johnson City, Tenn.-based Mount Empire Surgery Center reported losing $1.3 million though an alleged scam with a fake medical supply company.
99. Knoxville (Tenn.) Orthopaedic Clinic partnered with Humana to provide outpatient joint replacements for Humana Medicare Advantage beneficiaries at the practice's ASC, Knoxville Orthopaedic Surgery Center. This is a first-of-its-kind deal that gives Medicare patients access to outpatient joint replacements.
100. Lawrenceville, N.J.-based Mercer County Surgery Center has incorporated total joint replacement and spine programs over the past few years, and is now engaged in an expansion process to open a new 14,000 square foot facility in April 2018 to keep up with increasing case volume. The new facility will include short-stay total joint and spine patients.
*Mary Rechtoris and Eric Oliver contributed data and information to this article.
Editor's note: This article was updated Aug. 30.