Over the past 10 years, ASCs have faced numerous changes. These have included areas such as regulation, reimbursement and market dynamics. While individual states have certainly experienced their own noteworthy changes and challenges, the seven "stories" presented here represent some of the most significant national ASC industry trends and changes of the decade, as determined by industry experts.
1. Expanded services. Over the last decade advances in minimally invasive surgical techniques and anesthesia have allowed more procedures to be performed in the outpatient setting. Numerous orthopedic procedures have transitioned to the ASC setting, and procedures that once rarely occurred outside the hospital, such as bariatrics and spine procedures, are now routinely performed in the ASC. This transition has allowed the industry to grow and for centers to be even greater competitors to hospital outpatient departments.
The number of ASCs in the country has tripled over the past 10 years from roughly 2,000 in the beginning of the decade to more than 6,000 today. This proliferation has drawn even more patients to ASCs, driving surgery center volumes and making centers greater players in the healthcare market.
2. Consolidation and increasing hospital relationships with ASCs. Pressures on efficiency and a need for greater bargaining power have created significant consolidation in the market over the past decade. Some centers have merged with others, while numerous independent centers have been acquired by majority- and minority-partnership ASC management and development companies. Hospital relationships with ASCs have also greatly changed over the past 10 years, with hospital joint ventures much more prevalent today than at the beginning of the decade.
"Ten years ago physicians didn't want a hospital as a joint-venture partner, but now some centers are considering such joint ventures to get access to better contracts," says Jon Vick, president of ASCs Inc. "However, this requires caution, because the goals of the hospital are often quite different from goals of the physician-owners. Joint ventures between partners with different goals often lead to unanticipated difficulties."
Mr. Vick says that hospital's goals for ASC joint ventures often include eliminating the competition and accessing a high-cash-flow ancillary service, and that the ASC's goal of improving managed care contracts can very often be achieved without bringing in a hospital partner.
Despite the potential difference in goals, ASC-hospital partnerships have flourished in the past few years as hospitals seek to build relationships with physicians and centers, and ASCs search for ways to increase revenue.
"Increasing oversight and decreasing reimbursement will continue to drive ASCs toward considering joint ventures with hospitals," says David Kwiat, MD, an ophthalmologist and part-owner of Fulton County Ambulatory Surgery Center in Johnstown, N.Y. The higher reimbursement and preferential government treatment hospitals receive has made a hospital joint venture a strategic consideration for many ASCs, he says.
3. New ASC payment system. CMS's transition to the new ASC payment system, which sets ASC rates using the HOPD system, is one of the biggest changes ASCs have experienced in the last 10 years, says Kathy Bryant, president of the ASC Association.
The new payment system went into effect Jan. 1, 2008, and was designed to be phased in over a four-year period. For 2008, 75 percent of the ASC rate was based on the 2007 methodology and 25 percent was based on the new methodology. For 2010, that is reversed, with only 25 percent based on the old methodology and 75 percent based on the new methodology. In 2011, ASC rates will fully transition to the new methodology.
The new methodology has affected payments to different specialties in different ways, with specialties such as GI and pain management experiencing reductions in payment while orthopedics has generally benefited from the transition to the new system.
The ASC Association and the ASC Advocacy Committee continue to advocate for changes in CMS's methodology of using different inflation updates for ASCs and hospitals. Inflation updates for ASCs remain based on the estimated change in the consumer price index for all urban consumers while HOPD updates are based on the hospital market basket, a measure of inflation that tracks the change in the costs of providing hospital services. For 2010, ASCs received a 1.2 percent inflation update while HOPD rates received a 2.1 percent update.
4. Pressures on out-of-network providers. Over the last decade, numerous thriving out-of-network ASCs have felt increasing pressures by insurers to go in-network. While several lawsuits and settlements regarding out-of-network reimbursement to healthcare providers, including ASCs, have occurred in the last year alone, many with favorable rulings for out-of-network providers, ASCs continue to feel pressure to go-in network.
Recent noteworthy cases regarding out-of-network providers include New York Attorney General Andrew Cuomo's investigation into and eventual shut-down of the Ingenix database, which was used to set rates for out-of-network services, and a New Jersey Appellate Court's ruling in favor of an ASC sued by an insurer for violating the state's Insurance Fraud Prevention Act because its physicians referred patients to centers they owned and for waiving patient co-pays.
In the Ingenix case, the investigation revealed that the database, which was owned by UnitedHealth Group, intentionally skewed usual and customary rates downward through faulty data collection and poor pooling procedures in order to reduce payments made by insurers to out-of-network providers. Throughout 2009, several insurers, including UnitedHealth, Aetna, CIGNA and WellPoint, settled with the state of New York for more than a combined $100 million and agreed to end their relationships with Ingenix.
In the New Jersey case, the Appellate Division of the Superior Court of New Jersey upheld a decision by the state's trial court in Garcia v. HealthNet that Wayne (N.J.) Surgical Center and its physician-owners did not violate the state's Insurance Fraud Prevention Act by waiving out-of-pocket costs for patients or by referring patients to an ASC in which they owned an interest without notifying these patients' insurer of these practices.
Despite these wins, pressures on out-of-network centers by insurers continue across the country. In New Jersey, out-of-network centers continue to experience challenges by insurers. One tactic used by some insurers is threatening to revoke the in-network status of physicians who hold ownership interest in out-of-network ASCs. Other tactics insurers use include bifurcating in-network and out-of-network deductibles, capping out-of-network benefits and reimbursing patients directly for out-of-network services, which must then be collected from the patient by the ASC.
ASCs that opt to remain out-of-network face an increasingly difficult environment; however, they are likely remain viable and some highly profitable, at least in the short-term, due to the high level of reimbursement they receive as compared to contracted ASCs for procedures. Their viability in the long-term, however, is more uncertain.
5. Revised Medicare Conditions for Coverage. In 2009, CMS's revised Conditions for Coverage for ASCs went into effect, requiring all ASCs to provide verbal and written advance notice of physician financial interest, patients' rights and advance directives to patients. The conditions were approved in Oct. 2008 but had been under development since 1996, according to Ms. Bryant.
"Advance notice," in most cases, requires facilities to provide these notices to patients at least one day prior to the day of surgery, which creates an administrative and procedural challenge for many ASCs as few ASCs require patient visits prior to the day of the procedure. CMS issued an exception to the advance notice rule for surgeries that are scheduled on the same day they occur provided certain criteria are met. In these instances, ASCs are required to provide notice prior to obtaining the patient's informed consent.
Since 2009, ASCs have worked to develop administrative procedures to meet these requirements. Various methods include mailing disclosure documents and providing verbal disclosures over the phone, working with physician office staff to provide the documents and verbal disclosure and using electronic systems to provide these notifications to patients online.
"While most ASCs were able to successfully comply with these revised Conditions for Coverage, complying adds costs to ASC services that, in my opinion, do not equate to a patient benefit of advance notification," says Ms. Bryant. "These regulations do not improve the quality of services ASCs provide."
6. Growth of management company involvement in ASCs. In the 1990s, many ASCs operated independently, while the most recent decade was marked by significant growth in the involvement of ASC management development companies in not only the development of new ASCs but also in overseeing the day-to-day operations of existing ASCs.
Today, more than 50 ASC management companies are in the business of operating ASCs, with some acquiring majority ownership and others seeking minority ownership only. There are currently three publicly traded ASC management companies, 8-10 prominent majority-ownership chains and around 30 minority-ownership firms in the business of managing ASCs.
Mr. Vick says that this growth in corporate partners has increased the demand for ASC acquisitions. "Comparing the 90's to the current decade, the number of ASCs more than doubled...and hospitals, who sat on the sidelines for decades, finally figured out that it is a good idea to partner with their physicians in joint ventured ASCs," he says. "This growth and increase in demand for joint ventured ASCs resulted in a dramatic increase in the value of surgery centers. Now that there are multiple buyers for almost every type of surgery center, the competition to acquire good quality centers with growth potential has increased dramatically over the last 10 years."
7. Decline in unaffiliated physicians, tightening of market. While ASCs were somewhat few and far between in the 1990s, they proliferated in the last 10 years. ASCs now face increased competition both with each other and with hospitals and health systems that seem more eager than ever to snap up physicians. In the beginning of the decade, there were just the 2,000 ASCs and hospital employment had fallen out of favor. Now, at the decade's end, the 6,000 ASCs dot the country and hospital employment is more popular than perhaps ever. Several markets throughout the country now have ASCs numbering into the double digits that must compete with one another in attracting both physicians and patients. At the same time, more and more hospitals are looking to employ physicians or enter into other arrangements with them to ensure these physicians bring their patients to hospitals as opposed to standalone ASCs in which they have an interest.
Both of these forces are leading to a tightening of the ASC market — fewer physicians are unaffiliated and thus ASC growth driven by recruiting new physicians has become more difficult in recent years. According to Brent Lambert, MD, co-founder of Ambulatory Surgical Centers of America, the pool of available physicians in each market is diminishing, and ASCs that are not actively recruiting unaffiliated physicians will find the opportunity to do so rapidly closing.
"Five to 10 years ago, recruiting physicians was fairly easy, but today, with the proliferation of outpatient facilities, the number of physicians that are not already aligned is dwindling. In some markets, there may be no unaffiliated physicians to recruit. If ASCs are located in markets with available physicians, they should attempt to attract those individuals to the ASC," says. Dr. Lambert.
Contact Lindsey Dunn at lindsey@beckersasc.com.
1. Expanded services. Over the last decade advances in minimally invasive surgical techniques and anesthesia have allowed more procedures to be performed in the outpatient setting. Numerous orthopedic procedures have transitioned to the ASC setting, and procedures that once rarely occurred outside the hospital, such as bariatrics and spine procedures, are now routinely performed in the ASC. This transition has allowed the industry to grow and for centers to be even greater competitors to hospital outpatient departments.
The number of ASCs in the country has tripled over the past 10 years from roughly 2,000 in the beginning of the decade to more than 6,000 today. This proliferation has drawn even more patients to ASCs, driving surgery center volumes and making centers greater players in the healthcare market.
2. Consolidation and increasing hospital relationships with ASCs. Pressures on efficiency and a need for greater bargaining power have created significant consolidation in the market over the past decade. Some centers have merged with others, while numerous independent centers have been acquired by majority- and minority-partnership ASC management and development companies. Hospital relationships with ASCs have also greatly changed over the past 10 years, with hospital joint ventures much more prevalent today than at the beginning of the decade.
"Ten years ago physicians didn't want a hospital as a joint-venture partner, but now some centers are considering such joint ventures to get access to better contracts," says Jon Vick, president of ASCs Inc. "However, this requires caution, because the goals of the hospital are often quite different from goals of the physician-owners. Joint ventures between partners with different goals often lead to unanticipated difficulties."
Mr. Vick says that hospital's goals for ASC joint ventures often include eliminating the competition and accessing a high-cash-flow ancillary service, and that the ASC's goal of improving managed care contracts can very often be achieved without bringing in a hospital partner.
Despite the potential difference in goals, ASC-hospital partnerships have flourished in the past few years as hospitals seek to build relationships with physicians and centers, and ASCs search for ways to increase revenue.
"Increasing oversight and decreasing reimbursement will continue to drive ASCs toward considering joint ventures with hospitals," says David Kwiat, MD, an ophthalmologist and part-owner of Fulton County Ambulatory Surgery Center in Johnstown, N.Y. The higher reimbursement and preferential government treatment hospitals receive has made a hospital joint venture a strategic consideration for many ASCs, he says.
3. New ASC payment system. CMS's transition to the new ASC payment system, which sets ASC rates using the HOPD system, is one of the biggest changes ASCs have experienced in the last 10 years, says Kathy Bryant, president of the ASC Association.
The new payment system went into effect Jan. 1, 2008, and was designed to be phased in over a four-year period. For 2008, 75 percent of the ASC rate was based on the 2007 methodology and 25 percent was based on the new methodology. For 2010, that is reversed, with only 25 percent based on the old methodology and 75 percent based on the new methodology. In 2011, ASC rates will fully transition to the new methodology.
The new methodology has affected payments to different specialties in different ways, with specialties such as GI and pain management experiencing reductions in payment while orthopedics has generally benefited from the transition to the new system.
The ASC Association and the ASC Advocacy Committee continue to advocate for changes in CMS's methodology of using different inflation updates for ASCs and hospitals. Inflation updates for ASCs remain based on the estimated change in the consumer price index for all urban consumers while HOPD updates are based on the hospital market basket, a measure of inflation that tracks the change in the costs of providing hospital services. For 2010, ASCs received a 1.2 percent inflation update while HOPD rates received a 2.1 percent update.
4. Pressures on out-of-network providers. Over the last decade, numerous thriving out-of-network ASCs have felt increasing pressures by insurers to go in-network. While several lawsuits and settlements regarding out-of-network reimbursement to healthcare providers, including ASCs, have occurred in the last year alone, many with favorable rulings for out-of-network providers, ASCs continue to feel pressure to go-in network.
Recent noteworthy cases regarding out-of-network providers include New York Attorney General Andrew Cuomo's investigation into and eventual shut-down of the Ingenix database, which was used to set rates for out-of-network services, and a New Jersey Appellate Court's ruling in favor of an ASC sued by an insurer for violating the state's Insurance Fraud Prevention Act because its physicians referred patients to centers they owned and for waiving patient co-pays.
In the Ingenix case, the investigation revealed that the database, which was owned by UnitedHealth Group, intentionally skewed usual and customary rates downward through faulty data collection and poor pooling procedures in order to reduce payments made by insurers to out-of-network providers. Throughout 2009, several insurers, including UnitedHealth, Aetna, CIGNA and WellPoint, settled with the state of New York for more than a combined $100 million and agreed to end their relationships with Ingenix.
In the New Jersey case, the Appellate Division of the Superior Court of New Jersey upheld a decision by the state's trial court in Garcia v. HealthNet that Wayne (N.J.) Surgical Center and its physician-owners did not violate the state's Insurance Fraud Prevention Act by waiving out-of-pocket costs for patients or by referring patients to an ASC in which they owned an interest without notifying these patients' insurer of these practices.
Despite these wins, pressures on out-of-network centers by insurers continue across the country. In New Jersey, out-of-network centers continue to experience challenges by insurers. One tactic used by some insurers is threatening to revoke the in-network status of physicians who hold ownership interest in out-of-network ASCs. Other tactics insurers use include bifurcating in-network and out-of-network deductibles, capping out-of-network benefits and reimbursing patients directly for out-of-network services, which must then be collected from the patient by the ASC.
ASCs that opt to remain out-of-network face an increasingly difficult environment; however, they are likely remain viable and some highly profitable, at least in the short-term, due to the high level of reimbursement they receive as compared to contracted ASCs for procedures. Their viability in the long-term, however, is more uncertain.
5. Revised Medicare Conditions for Coverage. In 2009, CMS's revised Conditions for Coverage for ASCs went into effect, requiring all ASCs to provide verbal and written advance notice of physician financial interest, patients' rights and advance directives to patients. The conditions were approved in Oct. 2008 but had been under development since 1996, according to Ms. Bryant.
"Advance notice," in most cases, requires facilities to provide these notices to patients at least one day prior to the day of surgery, which creates an administrative and procedural challenge for many ASCs as few ASCs require patient visits prior to the day of the procedure. CMS issued an exception to the advance notice rule for surgeries that are scheduled on the same day they occur provided certain criteria are met. In these instances, ASCs are required to provide notice prior to obtaining the patient's informed consent.
Since 2009, ASCs have worked to develop administrative procedures to meet these requirements. Various methods include mailing disclosure documents and providing verbal disclosures over the phone, working with physician office staff to provide the documents and verbal disclosure and using electronic systems to provide these notifications to patients online.
"While most ASCs were able to successfully comply with these revised Conditions for Coverage, complying adds costs to ASC services that, in my opinion, do not equate to a patient benefit of advance notification," says Ms. Bryant. "These regulations do not improve the quality of services ASCs provide."
6. Growth of management company involvement in ASCs. In the 1990s, many ASCs operated independently, while the most recent decade was marked by significant growth in the involvement of ASC management development companies in not only the development of new ASCs but also in overseeing the day-to-day operations of existing ASCs.
Today, more than 50 ASC management companies are in the business of operating ASCs, with some acquiring majority ownership and others seeking minority ownership only. There are currently three publicly traded ASC management companies, 8-10 prominent majority-ownership chains and around 30 minority-ownership firms in the business of managing ASCs.
Mr. Vick says that this growth in corporate partners has increased the demand for ASC acquisitions. "Comparing the 90's to the current decade, the number of ASCs more than doubled...and hospitals, who sat on the sidelines for decades, finally figured out that it is a good idea to partner with their physicians in joint ventured ASCs," he says. "This growth and increase in demand for joint ventured ASCs resulted in a dramatic increase in the value of surgery centers. Now that there are multiple buyers for almost every type of surgery center, the competition to acquire good quality centers with growth potential has increased dramatically over the last 10 years."
7. Decline in unaffiliated physicians, tightening of market. While ASCs were somewhat few and far between in the 1990s, they proliferated in the last 10 years. ASCs now face increased competition both with each other and with hospitals and health systems that seem more eager than ever to snap up physicians. In the beginning of the decade, there were just the 2,000 ASCs and hospital employment had fallen out of favor. Now, at the decade's end, the 6,000 ASCs dot the country and hospital employment is more popular than perhaps ever. Several markets throughout the country now have ASCs numbering into the double digits that must compete with one another in attracting both physicians and patients. At the same time, more and more hospitals are looking to employ physicians or enter into other arrangements with them to ensure these physicians bring their patients to hospitals as opposed to standalone ASCs in which they have an interest.
Both of these forces are leading to a tightening of the ASC market — fewer physicians are unaffiliated and thus ASC growth driven by recruiting new physicians has become more difficult in recent years. According to Brent Lambert, MD, co-founder of Ambulatory Surgical Centers of America, the pool of available physicians in each market is diminishing, and ASCs that are not actively recruiting unaffiliated physicians will find the opportunity to do so rapidly closing.
"Five to 10 years ago, recruiting physicians was fairly easy, but today, with the proliferation of outpatient facilities, the number of physicians that are not already aligned is dwindling. In some markets, there may be no unaffiliated physicians to recruit. If ASCs are located in markets with available physicians, they should attempt to attract those individuals to the ASC," says. Dr. Lambert.
Contact Lindsey Dunn at lindsey@beckersasc.com.