ASCs nationwide are facing rising operating costs that are outpacing dwindling reimbursements.
Matt Kraemer, administrator of Northern Arizona Healthcare in Flagstaff, joined Becker's to discuss the ramifications of this disparity and how his team is handling it.
Editor's note: This response was edited lightly for clarity and length.
Question: What are the ramifications of ASC reimbursement costs not keeping up with rising costs?
Matt Kraemer: Ultimately, the more your operating costs rise without an increase to how you're compensated, your margin is going to reduce. It's not rocket science. You can only sustain that reduction in margin for so long as inflation and overhead continue to rise.
One option is to control the costs. I think healthcare is in a really unusual spot because we're the only industry that I'm aware of where we have a fixed reimbursement structure with a free market operating fee structure. So while the cost to do business can fluctuate, our reimbursements are mostly fixed — they're contractual and mandated through CMS. That creates a really tricky scenario to be able to navigate.
One thing we try to do is to create carve outs with our third party payers for some of the costs of reimbursement. By working with our payers on the reimbursement side to achieve carve outs for certain cases that we're performing in the ASC, we see a huge patient and provider experience improvement. Additionally, we work with our vendors to do contractual carve outs for particular devices or implants that would otherwise be cost prohibitive to performing those case types in the ASC setting.
Q: What needs to change to fix the disparity between reimbursements and practice costs?
MK: Obviously everyone wants to get paid more money for the work that they're doing. And while there's certain areas where we've had our reimbursement increase, it doesn't rise to the same percentage of the overhead that's also increasing. So if you get paid 5% more, but your overhead is going up by 20%, there's still a large disparity there. At some point, you'll hit a critical tipping point where you no longer are able to sustain a certain care delivery.
The federal government driving more care to an ambulatory setting when appropriate is a great bonus to the patients and the providers that get to operate in those settings, and it has a significant reduction in cost. With that, comes the importance of having a great collaborative effort with payers and vendors. But there's only so much you can do as an operator any given day, so we just constantly try to react. We try to forecast as best possible, but ultimately those assumptions are only so accurate. We can't just continue tap dancing the minefield, so to speak.
The last component is the competition factor. I think competition breeds efficiency and service quality. If you can be a better partner who can offer a better quality product at a lower price and is able to collaborate with systems to implement, it will reduce overhead costs. That usually wins you market share, which then forces your competitors to have to respond. On the flip side of that, from a reimbursement perspective, insurance companies and third party payers are also striving for additional market shares, additional covered lives. Those entities are thus willing to work with systems to ensure sufficient payments and narrow network participation to increase their market share of covered lives. I think competition is another real key variable in helping to continue to refine our industry.