Recent estimates project the Ambulatory Surgery Center (ASC) industry’s growth will extend from $36B in 2023 to $57B in 2031 – just shy of doubling in 8 years. Where will this growth come from?
- The shift from payers to promote higher-acuity procedures to outpatient settings
- An expansion of covered procedures by the Centers for Medicare & Medicaid Services (CMS)
- Continued M&A industry consolidation
- An aging population
- Regulatory reforms
To capitalize on this rapid growth, ASCs have the opportunity (and urgency) to prioritize the investment in resources and talent to help them negotiate and manage favorable payer contracts. Payer contracts outline rate cards and payment terms, along with a host of conditions, that have an effect on an ASC’s profitability in one way or another. Therefore, the ability to grow profitably will depend on the details outlined in each payer’s contract.
Here are a few considerations for ASCs as they look to the growth horizon:
Reimbursement Rates and Financial Viability
In the dominant FFS model, reimbursement rates impact an ASC’s bottom line and financial viability. As more procedures migrate to ASCs, along with their complexity, ASCs will have to craft persuasive business cases to negotiate with payers in securing reimbursement rates required to cover additional costs. These costs include expensive medical devices, implants, and specialized equipment to support added procedures. At a minimum, the growth projection of the ASC industry requires each ASC to have a business plan to take advantage of this growing market. Without a clear understanding of the cost model required to deliver expansive care, negotiating favorable reimbursement rates will result in razor-thin margins jeopardizing the ASC’s long-term sustainability.
Competition and Market Positioning
The ASC market is experiencing significant consolidation and investment activity, with larger players seeking to expand their geographic footprint and leverage negotiating power with payers. ASCs who have invested in their business data infrastructure, which allows them to track practice performance, will be better positioned to negotiate favorable rates with payers and be more attractive to investors, enabling defensive growth in a highly competitive market.
Payer Pressure and Cost Containment Efforts
As with any business entity, healthcare payers are incentivized to control costs and implement cost-saving measures, which will often trickle into unfavorable contract terms for healthcare providers. Data is the great leveler in cost and profit conversations. ASCs, who leverage their operational data to inform the cost of delivering a specific procedure and the associated costs of acquiring and maintaining the necessary tools, equipment, and staff, will negotiate from a position of strength. Insights generated from data will justify a higher reimbursement rate to allow the ASC to continue to offer that service to an insurance company’s members profitably. However, this is a proactive measure and investment that ASCs need to take now to be set up for future success. ASCs must proactively negotiate contracts that protect their interests and ensure fair reimbursement rates, as payers may attempt to include language that restricts, reduces, or denies payments.
Expansion of Service Lines and Procedure Offerings
To build on the above point, more services equates to more costs. As an ASC begins to expand and diversify its offerings, it will be paramount to have a clear business plan for the associated costs of those new services and the required revenue to ensure profitability. Payers may offer their P&L model of extended services; however, ASCs need to have their own business plan based on the associated costs of their region, staff, and equipment. For many providers, the expansion of services is their core growth strategy. Therefore, ensuring the payer contracts allow for this growth and fair market reimbursement benefits both providers and payers.
Regulatory Changes and Certificate of Need (CON) Reforms
Several states have reformed or eliminated Certificate of Need (CON) laws, which previously restricted the development of new ASCs. As these regulatory barriers are removed, ASCs will need to position themselves favorably with payers to capitalize on the potential for growth in underserved areas.
To summarize the key themes above, the ability of an ASC to assemble, infer, and tell a story with their existing operational data will level the playing field in negotiating profitable payer contracts that are win/win for both groups. ASCs have leverage, probably now more than at any other time, based on the projected growth of this industry. Specifically, their leverage is their own data that establishes a compelling business case for a payer regarding why a higher reimbursement rate is required. If the leadership team of an ASC isn’t quite sure where to start on designing their data assembly approach or would welcome an assessment of their current contracts, specialized contract and negotiation firms like Aroris Health are a great place to start.