Surgery center owners see many positive headwinds over the next year, but there are also challenges. Here are five pieces of good news and five pieces of bad news to know.
Good news:
1. Orthopedic and spine surgeons are increasingly seeing ASCs as a necessity. During the pandemic, many hospital-based surgeons flocked to surgery centers and now don't want to go back to the hospital. Multiple orthopedic surgeons told Becker's in mid-April that ASCs were "saving" the orthopedic specialty because they support physician independence. More orthopedic surgeons owning surgery centers is good for the industry, and cardiologists are closely watching the trend as more heart procedures go outpatient as well.
2. The federal government is looking more favorably on physician ownership than in previous years. The HHS Office of Inspector General issued a favorable advisory opinion in late April for physician inventors to receive some ownership of a device company in exchange for product development.
3. The medical office real estate market is booming, creating an opportunity for ASC owners to sell high. Physicians who own their real estate may consider selling and then leasing back the space. The real estate for a 33,620-square-foot surgery center in Kansas sold for $15.3 million, and a 44,500-square-foot Louisiana-based ASC building was sold for $13.3 million earlier this year.
4. The Justice Department is increasing efforts to target restrictive noncompete agreements and monopolies in healthcare, which could favor ASCs. Surgeons able to leave their burdensome noncompete agreements with hospitals could fuel ASC volume and ownership across the U.S., and efforts to break health system monopolies could turn down the heat on ASCs in markets with one dominant system.
5. Surgery centers are in a great position to take advantage of the move to value-based care. The number of specialty surgeons choosing to merge into "supergroups" instead of becoming hospital-employed has increased, and supergroups have the economy of scale to support the sophisticated technology and data infrastructure needed for precision medicine and value-based contracts. These groups also know the value of surgery centers and are doubling-down on growth.
Bad news:
1. The number of physicians exiting private practice increased in the last year. Nearly three-quarters of physicians are now employed by hospitals, private equity firms, insurers or other corporate entities, while 26 percent remain independent, down from 38 percent in 2019, according to Avalere. Physicians also own slightly less than half of all practices, around 46 percent.
2. The labor market remains tight across the U.S., with experts predicting the labor shortage could continue into 2023, according to CBS News. There are around 11 million job openings across the U.S., while the number of unemployment claims hit just 184,000 in mid-April, the lowest level in 50 years. More companies are now offering perks such as remote work, higher salaries and sign-on bonuses that may not be possible for ASCs with tight margins to offer to recruit and retain talent.
3. Surgery center owners and physicians across the U.S. are reporting efforts by insurance companies to increase prior authorization requirements and ramping up denials. The additional paperwork and slower revenue cycle process means it takes longer for surgery centers to get paid, and some have had to hire extra collections staff as a result. The difficulty with insurance companies has some surgery centers seeking out direct-to-employer contracts, cash-pay patients and other alternatives to rely less on the traditional insurance model.
4. ASC staffing costs are on the rise. Surgery centers spend on average $2.2 million on employee salary and wages, which is around 21.3 percent of net revenue, according to the VMG Health "Multi-Specialty ASC Benchmarking Study." Pay for ASC administrators is also going up, hitting $100,000 to $119,000 on average, according to OR Manager, which also reported around one-third of ASC administrators plan to leave their roles this year due to burnout, pay dissatisfaction, work culture and more.
5. Physician fee cuts are still on the table in Congress, as lawmakers continue to kick the can down the road for multiple planned Medicare pay cuts. The president and Congress have so far avoided sequestration-related pay cuts for around a decade. The proposed Medicare pay cuts have now reached around 9 percent for physicians. Coupled with the potential cuts, the Medicare Payment Advisory Commission proposed in earlier this year that ASC pay shouldn't be increased in 2023, but it also indicated ASC pay should align with hospital outpatient departments and physician offices.