20 Things to Know About Gastroenterology in ASCs

GI and endoscopy continue to be profitable specialties for ASCs in spite of some declines in reimbursement. Here are 20 important development, business and financial issues related to GI and endoscopy in ASCs.

Reimbursement
1. Reimbursement for GI centers will continue to decrease. As has been the case for the last few years, reimbursements for GI procedures have decreased across the board. This has hit ASCs especially hard as surgery centers often receive reimbursement at a percentage of hospital outpatient departments.

"We anticipate that CMS will continue to pressure facility fees in a downward fashion," says Barry Tanner, president and CEO of Physicians Endoscopy. "It is at least conceivable that freestanding ASCs could get rates at 50 percent of HOPD rates in the next four to five years."

With CMS setting lower rates, a problematic trend could be seen across private insurers and third-party payors as their rates are often set relative to what CMS pays for Medicare-covered procedures. As a result, gastroenterologists and GI-driven ASCs must continue to run their centers efficiently and economically.

"Unfortunately, reimbursements are likely to steadily decline over the next few years," says Stephen Sears, MD, a gastroenterologist in Loveland, Colo. "This effect will cause ASCs to become more efficient or to stop operating. This may also drive more cases into the hospital setting. By doing so the procedural cost will double and in the end healthcare costs will increase. To remain profitable, the GI physician must focus on delivering quality care in the most efficient manner. That can be done with better bowel preps, training, state of the art technology and assessing quality measures."

One consequence of decreasing GI reimbursements may be a reduction in the number of Medicare patients a GI ASC sees in a year, according to Fernando Bermudez, MD, medical director, and Beth Miller, administrator, of Eastside Endoscopy Center in Saint Clair Shores, Mich.

"Unless Congress changes the existing rules, Medicare will reduce the professional fees for procedures by 20 percent in 2010," Dr. Bermudez says. "This won't directly affect ASCs, but it may affect the willingness of gastroenterologists to perform endoscopies on Medicare patients and to do procedures on Medicare patients in the ASC setting."

Irving Pike, MD, president of Gastroenterology Consultants in Virginia Beach, Va., has seen some ways in which physicians at ASCs have tried to combat declines in reimbursement. "Several ambulatory endoscopy centers have reported to me that they have recently negotiated an increased fee schedule from non-government insurance companies. In the past when Medicare payments to facilities were decreased, insurance companies did not follow with similar cuts, but ASC fee schedules remain substantially below HOPD fee schedules. In my opinion, insurance companies do not want to discourage physicians performing endoscopy in ASCs. I think at some point it may be plausible for ASCs to move more CMS cases to the hospital and fill the slots opened at the ASC with patients covered by non-government insured patients," he says.

2. Gaining access to HOPD rates alone is not reason enough to partner with a hospital. Although partnering with a hospital in order to gain access to outpatient department reimbursement rates can be a potentially attractive strategy, GI-driven ASCs should be aware that they may not receive access to full HOPD rates, although they may be better than current reimbursements. Since many hospitals want to own 100 percent of the GI center, physicians may be asked to give up your ownership and access to future distributions.

"HOPD rates can increase GI center facility revenue 35-40 percent for non-Medicare patients," says Jon Vick, president of ASCs Inc..

"If the GI physicians are going to be owners, then the expectation of getting HOPD rates is misplaced," Mr. Tanner says. "Better rates may be possible, but HOPD rates are highly unlikely."

In some cases the hospital and an ASC management development company may form a joint venture that then purchases a 51 percent interest in the center, according to Mr. Vick. "I suggest partnering with a management company first and letting the company negotiate with the hospital as the hospital partner will want to control the deal," he says. "The management company would then work on the side of the physicians and ensure that the hospital doesn't 'steamroll' the physicians into accepting less than the center is worth. Additionally, with the ASC management company managing the center it will retain it efficiencies and economies."

It is important to remember when considering this arrangement that even if a physician-owned ASC partners with a hospital, it is still a freestanding ASC and it does not become an HOPD nor does it share in the HOPD reimbursement rates, according to Rick Jacques, president and CEO of Covenant Surgical Partners. "Sometimes, however, a hospital may have such good contracts with third-party payors that a partnership with the hospital would increase the reimbursement rates with payors other than Medicare," he says.

3. Declining pay may force GI physicians to seek new revenue opportunities. The proposed 21.5 percent cut in the physician fee schedule for specialists, including gastroenterologists, coupled with decreasing reimbursements for GI procedures, may encourage GI physicians to consider additional revenue streams.

"We believe that professional fees will continue to be pressured downward, and GI physicians will be forced to resign themselves to reduced income or to capture a portion of the technical fees," Mr. Tanner says. "Those GI physicians that have not yet captured a portion of the technical fees through ASC ownership are increasingly under pressure to do so by forming coalitions, mergers with larger groups, etc."

General business concerns
1. Good case volume depends on the market. While there is no definitive average number of cases GI centers should see to remain profitable, most GI ASCs have a good referral base from which they can pull patients. However, there are some figures to keep in mind to help you determine if your center is on target.

"The key is to maximize utilization of each available procedure room," Mr. Tanner says. "There is an average of 251 operating days per year, and full utilization for a GI procedure room operating eight hours each day would be approximately 16 cases per day (30 minute time slots per case) or roughly 4,016 annual cases. Sixteen cases per day is rarely achieved due to cancellations, no shows, etc. However aiming for 80 percent utilization is certainly reasonable (around 3,200 cases annually). Achieving that sort of utilization per room, and assuming that the ASC is not overbuilt, should result in a successful GI ASC."

Dr. Sears notes that physicians at the ASC where he practices average 12 procedures per day, or one every 30 minutes.

Mr. Jacques agrees that around 3,000 annual cases can lead to a successful center. "Most physicians [who use GI ASCs] have well-established practices, and it is very unlikely that those cases will go away. The key is keeping your relationships within the community strong," he says.

2. Some GI centers have benefited from providing anesthesia. In the past, most GI procedures were performed under conscious sedation, which the gastroenterologist administered prior to the procedure, according to Mr. Jacques. Since the patient was not fully sedated, monitoring by an anesthesiologist was not necessary. However, over the past decade, the trend with GI procedures has moved toward monitored anesthesia, using drugs such as propofol, which must be administered by an anesthesiologist or CRNA.

"I believe that monitored anesthesia care is fast becoming the standard of care," Mr. Jacques says. "Patients who are under monitored anesthesia often allow physicians to provide a more successful colonoscopy, because they are more comfortable. Under conscious sedation, although the patient may not remember the procedure, they are still awake and uncomfortable, which may cause them to react and compromise how well the colonoscopy is performed."

Mr. Jacques notes that centers have three options to keep them in compliance with what states mandate regarding anesthesia administration: 1) the physicians who own the ASC arrange to 'employ' an anesthesiologist or anesthetist who provides anesthesia through their private practice, 2) the ASC employs its own anesthesiologist or 3) the ASC contracts with an independent anesthesiology practice.

However, anesthesia is not covered for many GI procedures, so some gastroenterologists have benefited by directing the administration by propofol. Mr. Tanner cautions that if physicians choose to do this, they must be aware of the regulations in their area regarding anesthesia administration.

Dr. Pike also notes a trend towards anesthesia in GI procedures but cautions that colonoscopies performed while the patient is under propofol have not been indicated for use by many gastroenterology societies.

"It is true some ASCs have turned to various models of anesthesia as an additional source of revenue," he says. "I have seen information estimating that currently 40 percent of GI endoscopy is performed with deep sedation involving propofol. One concern I have about this practice is that as the total cost of GI endoscopy increases due to the additional cost of providing anesthesia [and] the payment for both the professional fee for the endoscopy and anesthesia will be cut to control overall cost to insurers. It should be noted that the three GI societies have jointly written a letter indicating the opinion deep sedation with propofol administered by anesthesiologists or CRNAs is not warranted for standard GI endoscopic procedures."

3. Beware of potential kickback scenarios with contract anesthesia companies. As more GI centers consider providing anesthesia services, they may look to an outside company to assist them with the process. Mr. Jacques warns that some companies may enter into joint ventures with GI centers in ways that "push the envelope" with regard to the law.

"Some companies have been extremely aggressive when approaching gastroenterologists about these joint ventures," he says. "We've seen gastroenterologists approached at a much higher rate over the past 1.5 years. Some scenarios have the company essentially providing kickbacks to the gastroenterologists for the contract to provide anesthesiology services to the center. The government is now looking very hard at these 'pay for play' arrangements."

Procedures and gastroenterologist issues
1. The number of procedures performed per endoscopy case can lead to lower reimbursements for secondary procedures. According to Mr. Tanner, the typical number of procedures per endoscopy case is 1.10-1.20. Many payors, including Medicare, often reimburse any secondary procedures at a much lower rate, which can affect revenue and efficiency in the ASC.

"The number of procedures per case impacts upon revenue per case because for many payors, the second and third procedures are reimbursed at half and then 25 percent of the first procedure," Mr. Tanner says. "Therefore, valuable procedure room time is being utilized at an ever decreasing rate. If the facility is essentially fully utilized, the impact is not as strong; however, if an ASC is struggling with utilization, then it may not be profitable to perform these secondary procedures at one time."

2. Payment data for some of the most common procedures in GI ASCs. Here are 2008 CMS payment data for some of the most commonly performed GI procedures in ASCs.

Upper stomach-intestine scope for biopsy (CPT 43239)

• average submitted charge: $1,451
• average allowed charge $408
• average payment: $321

Scope of colon for diagnosis (CPT 45378)

• average submitted charge: $1,502
• average allowed charge: $422
• average payment: $330

Scope of colon with biopsy (CPT 45380)

• average submitted charge: $1,549
• average allowed charge: $406
• average payment: $318

3. With the number of certified gastroenterologists decreasing, it is important to focus on recruiting. As with many medical professionals, the number of practicing gastroenterologists is decreasing as physicians retire or leave practice, and the number of GI physicians coming out of medical school is not enough to sustain the rate of departing physicians. A recent New York Times report indicated an additional 1,050 GI physicians is needed by 2020 to meet the demand, with current employment around 10,390 as reported in the Times. According to Mr. Tanner, around 20 percent (2,000-2,500) of practicing GI physicians are at or close to retirement, and only 300 GI fellows graduate each year. Thus, competition for new, talented GI physicians is high.

"Recruiting new physicians is difficult especially because there is such a demand for their services," Mr. Tanner says. "They can literally pick a place on the map where they want to work and go there with near certainty of getting a good job. This makes it more difficult for smaller, more out of the mainstream communities to find and recruit GI physicians. Many physicians graduating today are seeking a better quality of life, and, for them, the employment model is a better option."

Although the outlook for recruiting new physicians may seem grim, Mr. Tanner notes some new physicians may be looking for options outside of the employment model. "There are still many entrepreneurial physicians not seeking employment, but they are looking for ownership in an ASC knowing that the ASC will be responsible for a significant portion of their total medical practice income," he says.

4. Single-specialty GI ASCs have a lot to offer gastroenterologists. Although some concern has been raised by the trend of many specialists and practices seeking employment with local hospitals, single-specialty GI ASCs offer gastroenterologists an additional source of income and autonomy that may not be available through the hospital. As a result, ASCs should demonstrate the potential benefits of ASC ownership to physicians looking to partner with the center.

"Many GI physicians who have ownership in a single-specialty ASC earn a substantial amount of ancillary income from their ASC ownership, sometimes as much as they earn from their professional fees," Mr. Jacques says. "A single-specialty ASC is an excellent recruiting tool for practices, because it gives the practice the ability to offer new physicians ownership in the center. A hospital trying to recruit physicians to their [facility] might not be able to offer the new physician the same ancillary income potential an independently-owned, single-specialty ASC can. Typically, once a hospital buys a physician practice and ASC, the physician income decreases substantially."

Dr. Sears notes that some GI specialists may turn to the hospital to avoid feeling the financial hit of reduced reimbursements, but that reason alone is not enough for all GI physicians to turn away from private practice and ASCs. "I feel that remaining as a private practitioner, I have more to offer than as a salaried hospital employee," he says. "In order to keep the edge on the hospitals, we will need to focus on an equivalent or better product for the same cost. Patients will be able to see what procedures cost at different facilities and in the future may refuse to be treated in the hospital setting due to the additional charges."

5. Although GI physicians aren't running to the hospitals, primary care physicians are. Primary care physicians, who refer cases to gastroenterologists, are increasingly employed by hospitals. As a result, GI centers and their physicians should develop a positive relationship with hospitals.

"We have seen a significant number of PCPs employed by the hospitals," says Dr. Bermudez. "This gives the hospitals significant leverage in the referral pattern to specialists, and it is very important that specialists, including gastroenterologists, maintain a good relationship with the hospital and work more like a partner than a competitor."

6. Surgery centers should look to grow their referral base. When it comes to recruiting new physicians to your surgery center, looking within the local community still remains one of the best tactics. According to Mr. Jacques, there are probably unaffiliated physicians nearby who would jump at the opportunity to invest and perform cases at a single-specialty center, if approached properly and given a fair proposal.

"In order to grow, you also need to expand your referral base," Mr. Jacques says. "Look into the areas of the community that are not getting screened for colon cancer. The same tried and true techniques that have worked in building a physician's practice are still successful. Make sure you are consistently making call backs and follow-ups to local referring physicians."

7. Salary information for gastroenterologists. In respect to other surgical and medical specialties, salaries for gastroenterologists have increased at an average rate. For example, the median salary in 2008 was $389,385, up 3.93 percent from 2007, compared with a 6.58 percent increase for ophthalmologists and a 5.80 percent for orthopedic surgeons over the same period, according to data from the American Medical Group Association's 2009 Medical Group Compensation and Financial Survey. The average starting salary for GI physicians was $275,000, according to the same report.

Here are regional median salaries for gastroenterologists, according to the AMGA:

• East — $401,615
• West — $385,611
• South — $385,542
• North — $394,417

Technology
1. Virtual colonoscopy remains a hot topic. Although virtual colonoscopy, or computed tomography colonoscopy, is currently not covered in the ASC setting, it still remains a controversial and much discussed topic for gastroenterology in ASCs.

Virtual colonoscopy is a non-invasive diagnostic tool used to detect polyps, which could be cancerous. Proponents have touted its use because it is a more comfortable, less anxiety-causing alternative to traditional colonoscopy, which may encourage more patients to undergo screening for colon cancer.

However, if a polyp is detected, patients must then undergo a traditional diagnostic colonoscopy, which is one of the reasons it is not covered by most payors.

"Virtual colonoscopy is an excellent imaging tool," says Dr. Sears. "It is less invasive and has a lower rate of complications but it has a number of significant limitations which will likely limit its use. It requires a full bowel prep and is a painful procedure as air is inflated in the colon and sedation is not administered (as it is during a colonoscopy)."

He also notes some other limitations. "It is unreliable for small polyps which can represent 80 percent of polyps seen in the colon," Dr. Sears says. "It has a high radiation exposure equivalent to 250 chest X-rays. Because of these limitations, the U.S. Preventive Task Force did not endorse it as a primary colon cancer screening tool. I do not feel it will impact screening colonoscopies, but it does offer an alternative to a barium enema in the event of an incomplete colonoscopy."

Dr. Bermudez agrees that virtual colonoscopy won't surpass traditional colonoscopies. "I believe the main role [of virtual colonoscopy] will be in screening average risk patients. It is possible that it will decrease the number of [traditional] colonoscopies in this group of patients. On the other hand, virtual colonoscopy will identify a number of lesions (real and not real) that will require diagnostic colonoscopies, increasing the demand for diagnostic colonoscopy," he says.

Mr. Tanner notes, "If and when it does get CMS approval, I believe that if the technology reached some percentage of the population that is eligible for screening but will not get screened due to fear of the invasive nature of the colonoscopy, then it will be good for patient care and will have limited impact upon GI ASC patient volumes."

2. Capsule endoscopy's impact on ASCs is not yet known. Capsule endoscopy, in which a patient swallows a small capsule camera that downloads digital images of the small intestine for diagnosis, is still in early phases of development. Therefore, its impact on ASCs and tradition colonoscopy is still relatively unknown.

Dr. Bermudez notes that questions regarding the device's sensitivity and cost need to be answered before it is considered a serious alternative to colonoscopy.

Mr. Tanner also does not think it will highly impact GI in ASCs. "Capsule endoscopy is not an approved ASC procedure, and currently it is primarily used for small bowel diagnostics. In that regard it is completely different from colonoscopy and non-threatening," he says.

3. Other new technologies are on the horizon, but may not improve on traditional colonoscopy. Endoscopy, like other medical fields, lends itself to new innovations such as chromoendoscopy, endo-capusle for colon examinations, third-eye endoscopy and narrow-band endoscopy. However, the new technology is only as effective as other non-technological procedures essential for clear screenings.

Dr. Bermudez says of new technologies, "Some of these techniques may have a significant cost that may not be justified by the potential benefits. I think that there are techniques that can significantly impact the quality of care at no cost, such as the quality of prep for colonoscopy, withdrawal time, polyp detection rate and adequate follow-up colonoscopies if polyps have been found."

Development
1. Make sure you leave room to grow when building a new center. While you don't want to overbuild, you should leave room for growth within the plans for a new GI-driven ASC. Not only will this help your center prepare for an increasing case load brought in by new physicians, it will also make your center more appealing to corporate partners if you end up looking for a partnership down the road.

"Most physicians start with two or three rooms in their center. A successful outpatient center lends itself to more patients, and, over time, the center will be more attractive to physician users," says Mr. Vick. "I usually advise physicians to add one more room than they think they will need because, in the end, they will need it."

According to Mr. Vick, one area corporate partners look at when deciding whether or not to partner with a GI center is capacity for growth. "A center won't be worth much to a corporate partner if there is no room for growth of the business or expansion of the facility," he says.

2. Be prepared to research corporate partners. With the right corporate partner, GI centers can see their revenue and profits increase substantially, according to Mr. Vick. The table demonstrates how one physician-managed GI endoscopy center Mr. Vick worked with improved its earnings and profits after partnering with the right management company.

GI centers should take the time to research and perform due diligence when exploring partnerships with a management company. Mr. Vick suggests looking at several companies' track records with regards to same store growth, management services provided and satisfied physician-partners.

"The physician-owners need to see if a company 1) pays a fair market multiple, 2) helps their centers grow and 3) helps the physicians' distributions to increase," Mr. Vick says. "Ask for a wide range of references from the potential partner's centers. The company should be willing to provide a list of all of their centers rather than cherry picking the best. I've received a lot of phone calls from unhappy physicians who didn't take these steps."

3. The right corporate partner is not necessarily the one that offers the most money. Even if a GI center thoroughly researches corporate partners, many may be tempted to say yes to the one that offers the most money up front. However, it can be more advantageous to look at the long-term track record prior to signing an agreement.

"A company may offer a lower upfront multiple that is still competitive, but if they have a good track record, physicians may see a bigger increase in future distributions than may have occurred with a company with poorer management services but offering a higher upfront multiple," Mr. Vick says.

Another partnership arrangement an ASC can consider is bringing in a corporate partner to purchase a minority interest during the ramp-up phase of the center. "GI centers almost always increase in value in the first few years, and you [and the current partner] can look for a majority partner once the center matures and see a much higher return on investment," Mr. Vick says.

4. Joint ventures with hospitals can be beneficial if the terms are right. Many GI centers look to local hospitals to help with the management of the center and to take advantage of hospital contracts and relationships with local physicians. However, like with corporate partners, GI centers should ensure that an agreement with a hospital is what is best for both partners.

Mr. Tanner says that the benefits of a hospital partner depend upon what the hospital can add to the economic success of the joint venture. "Contributing factors to consider are 1) does the hospital own or control any group of patients or payors that the ASC would not be able to contract with absent the hospital's participation; 2) can the hospital improve upon third-party reimbursement and to what degree; 3) can the hospital add long-term security by being a partner as opposed to an adversary; 4) can the hospital purchasing power be leveraged to secure better cost for equipment and/or supplies; and 5) if the physicians are a coalition versus a single group, does the hospital benefit substantially from providing ancillary services such as pathology or even anesthesia," Mr. Tanner says.

Mr. Vick recommends ASCs consider bringing in a third-party management company if partnering with a hospital to make sure that the GI center continues to be operated efficiently and economically under the new ownership structure. "Most hospitals want to own 51 percent of the venture, but they don't know how to manage GI centers," he says. "Often, hospitals won't offer as a good purchase price and often overburden the business with overhead costs, and the efficiency and economics of the center can suffer."