crisis, but those significant and far-reaching events aside, there were many other important
events which took place affecting ASCs. Here are 10 of these top stories of 2008.
1. Ramifications of Garcia v. Health Net of New Jersey. John Seitz, chairman & CEO of
Ambulatory Surgical Group, cited the ramifications of ruling in the 2007 Garcia v. Health Net
case as a critical issue for 2008 and one that is likely to remain significant into 2009.
In this case, the court found that referrals to an ASC in which the referring physician had a
significant financial interest violated, the state's Codey Law, which is essentially the state's
version of the Stark law prohibiting physicians from referring patients to a facility in which they
have a financial interest.
"The consequences of this ruling threw the ASC industry in New Jersey into a state of
uncertainty," says Mr. Seitz. "First, the N.J. Board of Medical Examiners drafted an 'emergency'
ruling that corporations could not be investors with physicians. The governor did not sign this
but it was months of speculation and uncertainty. The governor determined that this should be
dealt with in the Legislature. Sen. Codey (who sponsored the state's original bill allowing
physician self-referral to an ASC) has been through several drafts of a new bill. On Dec. 15, the
revised bill came out of the Senate. It is expected to pass the House in February.
"This new bill basically imposes a moratorium on any new ASC construction in the state," says
Mr. Seitz. "It grants favorable status to hospitals or hospital joint ventures. This could be viewed
as anti-competitive. The insurance companies have used this to become very aggressive against
out-of-network services. What this means to us: no growth, no fair competition, more
regulations."
Read Scott Becker's take on the consequences of Garcia v. Health Net of New Jersey.
2. Decreases in patient volume. As the patient community struggles financially and many fear
the possibility of layoffs, ASCs suffer as a result. Nancy Burden, director of BayCare
Ambulatory Surgery in Largo, Fla., says her healthcare system is expecting a 7 percent decrease
in volume.
"It makes sense in our current economic climate," she says, that people who feel their budgets
tightening will delay seeking elective care. "If, for example, you have a bunion, and having surgery on it means you have to be off your feet for several weeks afterwards — more people are thinking about opting out.”
In a recent Commonwealth Fund report, 68 percent of the uninsured and 53 percent of the
underinsured reported going without necessary care in 2007 due to costs. As patients forgo care
until urgently needed, organizations are likely to see initial drops in patients seeking care followed by an influx of emergency department visits when needs can no longer be put off, according to the report.1
This is what Ms. Burden is seeing now. "Most physicians are saying their offices are quiet right now," she says. "They just don't have the number of patients as last year."
3. Reimbursement changes. Commercial and Medicare reimbursement shifts were a top issue for Joyce Deno, the COO, Eastern Region, of Regent Surgical Health.
In 2008, third-party payor reimbursement tightened, creating greater difficulty for effective out-of-network reimbursement strategies. There was also consolidation of payors in the market and general decreases in reimbursement per case with limited availability for obtaining carve outs for high cost procedures and implants.
"I think the decrease in reimbursement will result in a 'survivor of the fittest,' " says Ms. Deno.
"By that I mean facilities that are operationally strong with good processes, meeting national
benchmarks for supply and staff hours per case, controlling fluffy spending and those with
engaged physician partners will weather the storm. Facilities that are marginally making it will
falter and perhaps fail. I personally think that if hospitals are using exclusivity clauses with the
payor, enticing payors with excellent rates to exclude competition may become less cost effective over time."
She says hospitals will start to believe they have cornered the market and may ultimately increase rates; payors may then recognize this trend and swing back to using ASCs as a lower cost
provider of surgical services.
Medicare ASC reimbursement, on the other hand, changed so that it is now a percent of HOPD
rates, figures that are gradually closing of the gap between hospital outpatient surgery
reimbursement and freestanding ASC reimbursement, she says. ASCs also saw an increase in the
number of permissible CPT codes.
"With the decreased reimbursement from commercial payers, Medicare has actually become a
decent payor for most specialties," says Ms. Deno. "Some payors are less than Medicare. I think
this will continue for much longer than 2009 reaching into the next several years. The ASC
industry will need to be proactive in reducing facility costs in an already efficient environment.
This will be tough."
4. Healthcare provider shortage. With the economy garnering so much attention, there is less attention being paid to the growing shortage of providers, and that has Beverly Kirchner, owner and CEO of Genesee Associates, concerned.
"The healthcare provider shortage was mentioned all year but it has not been addressed to the
depth it needs to be," she says. "We have a nursing shortage that is growing. We have a
physician shortage and very few are addressing this issue. We as an industry have discussed how
we are attracting and retaining nurses but we have not discussed how we are going to be a player
in fixing the problem."
Still, it will be interesting to see if the current unemployment rates in the United States change
this provider crisis. According to the National Bureau of Economic Research, 524,000 jobs were
lost in Dec. 2008, sending the jobless rate to 7.2 percent.
The shortage of RNs in the United States could reach as high as 500,000 by 2025 according to a report released by Dr. Peter Buerhaus, the Valere Potter Professor of Nursing at Vanderbilt University School of Nursing and director of the Center for Interdisciplinary Health Workforce Studies at the Institute for Medicine and Public Health at Vanderbilt University Medical Center ,and colleagues in March 2008. The report, titled "The Future of the Nursing Workforce in the United States: Data, Trends and Implications," found that the demand for RNs is expected to grow by 2-3 percent annually.2
5. Increase in sales. Jon Vick, president of ASCs Inc., says that a major development he observed in 2008 was related to an increasing number of ASC management companies seeking to invest in single and multi-specialty centers, more companies interested in buying minority interests and more physicians interested in selling.
"For us, the top story was the high demand from gastroenterogists wanting to sell a minority or
majority interest in their GI endoscopy centers and the relatively high prices … negotiated for them," Mr.Vick says.
Mr. Vick additionally observed that there was a growing interest from surgery and endoscopy center owners in selling their underlying real estate.
"The MOB/ASC real estate market has held up very well as there is strong demand for MOB and
ASC real estate properties, and a growing number of well-funded, high quality buyers," he says.
Mr. Vick also saw a significant increase in the number of companies in the market to buy ASCs and endoscopy centers.
"During 2008, 10 new companies entered the market to buy centers, raising the number from
about 25 to 35," he says. "This makes for a strong seller's market and for a very competitive
environment. There appears to be plenty of capital available for buying centers that have good
growth potential."
6. Healthcare reform. Ms. Kirchner cited healthcare quality collaboration and reform as another
major story in 2008.
"I think that the ASCs have been wonderful in creating a Quality Collaboration group to develop
and address quality indicators to present to CMS and the public to show our value and our safety
record," she says. "With safety still a high alert issue, we are trying to address it as an industry
and not let someone else address it for us.
"We need to have a seat at the table when reform is being discussed," she says. "The whole ASC
team needs a representative at the table. The team includes administration, physician, corporate
leaders and nurses. We need to be able to tell our story and how we benefit the patient and the
third-party payor."
Ms. Kirchner says that there are a few significant issues that appeared or continued in 2008 that
will need addressing further in 2009.
"Bullying is at an epidemic level in healthcare and the effects this behavior has on the
environment, other employees and patients is costing the system, according to one study I read,
$4.2 billion a year," she says. "I also read that 57 percent of the medical errors reported come
from an operating room. We have got to band together to study why the errors are still
happening. Surgery centers are not exempt from errors."
7. Hepatitis C outbreak in Nevada. Industry experts say that the Hepatitis C outbreak in Nevada as a result of unsafe anesthesia injections was another huge story for ASCs.
Early in 2008, healthcare authorities discovered the unsafe injection practices at the Endoscopy Center of Southern Nevada. Six cases of acute Hepatitis C have been traced to that clinic, and a seventh is linked to the center's sister clinic, Desert Shadow. This event has resulted in many people calling for mandatory accreditation of ASCs.
Read more about this story here.
8. State legislative control. New Jersey wasn't the only state in 2008 that saw ASCs working to
address changes to laws.
"There are several states that must contend with new transparencies regulations, new worker's compensation reimbursements and certificate of need conditions; the takeaway from that is state legislation is becoming more involved … especially as the deficits in state budgets are realized," says Sandy Berreth, administrator of Brainerd Lakes Surgery Center in Baxter, Minn. "Legislators want to control medical spending and physician ownership."
For example, Washington, Minnesota, Rhode Island, Pennsylvania and Kentucky have expanded or changed data reporting requirements; Texas, Oregon and Minnesota worker's compensation laws are either under review or have undergone recent changes; and on the CON side, Massachusetts has expanded the reach of CON and is now requiring new ASCs to obtain a determination of need prior to starting construction and New Jersey has pending legislation regarding ASC requirements whereas ASCs were once exempt from the CON process.
"As money gets tighter, everyone puts on boxing gloves … and generally comes out swinging," she says. "That's one of the real stories for 2008 … finances and how can we manage while being scrutinized by government (federal and state), competing facilities and third party payors."
9. Initial public public reporting reporting of HCAHPS. Paul Faraclas, president & CEO of CTQ Solutions, observes that the inaugural public reporting of Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) data has advanced the aggressive shift toward the provider's interest in consumer-driven healthcare.
"CTQ has received a tremendous demand for benchmarking this year," says Mr. Faraclas. Between Hospital Process of Care and HCAHPS measures, both process- and perception-driven data are at the disposal of the consumer with a few mouse clicks. Measures in excellence, relevant to process adherence, indicate whether providers are giving recommended care as related to best known treatments for specific conditions. Newly published HCAHPS data provides the consumer the opportunity to observe 10 composites encompassing their overall hospital experience.
HCAHPS and other HQA programs are pre-cursors for the forthcoming value-based purchasing or pay-for-performance program for ASCs. They will help measure if ASC's are delivering on quality with respect to specific process/occurrence measures.
Patient satisfaction benchmarking, while not a complete predictor of outcomes, helps measure potential under-performance that could very well indicate the presence of 'failure points' within healthcare delivery.
10. Valuation of publicly traded healthcare service organizations. Jon O'Sullivan, senior
principal and founding member of VMG Health, felt that one couldn't separate the top news for
ASCs from the economy's impact on the industry.
"Although the healthcare market often seems detached from the rest of the U.S. economy and is
generally viewed as being one segment of the economy that continues to be strong, the impact of
the recent financial crisis and its effect on the valuation of publicly traded healthcare service
organizations has a direct and measurable impact on the valuation of surgery centers," says Mr.
O'Sullivan. "Surgery centers and other inpatient and outpatient facilities are often bought or sold
on a control basis (enough of a percentage ownership that affords a higher price) where the
determination of value is in part a function of the value of the companies trading in the public
market. For example, if a public company is valued or traded at 9 times earnings before interest,
taxes, depreciation and amortization (EBITDA), then an acquisition of a facility might be
attractive or accretive at 7 times EBITDA.
"The impact of the 2008 financial crises on healthcare companies that own a variety of facilities
has been significant," he says. "The valuation of acute care hospital companies and surgery
center companies has declined 25 percent and 14 percent, respectively, during the period from
June 1 to Dec. 1. Based on the fact that many surgery centers have been acquired at valuation
levels at or around times EBITDA, we would expect that the valuation of surgery centers at a
control or majority level will fall as well."
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1. C. Schoen, S. R. Collins, J. L. Kriss, M. M. Doty, How Many Are Underinsured? Trends Among U.S. Adults, 2003 and 2007, Health Affairs Web Exclusive, June 10, 2008 w298?w309. www.commonwealthfund.org/publications/publications_show.htm?doc_id=688615
2. Rosseter, Robert. Nursing Fact Sheet. American Association of Colleges of Nursing. 2008. www.aacn.nche.edu/media/FactSheets/NursingShortage.htm