The following is written by Vivek Taparia, director of business development for Regent Surgical Health.
Over the course of the past several decades, the ambulatory surgery center industry has experienced dramatic changes such as major technological innovation and widespread growth. There will likely be no slowdown for the industry's rate of change in the coming years as the industry goes through a period of maturation, consolidation and legislative overhaul.
In 1970, two physicians in the Phoenix area launched the first ASC. By the mid seventies, with the acceptance of a few commercial payors, 50 ASCs existed. Eventually, two primary developments led to the accentuated growth of the industry. First, in 1982 Medicare began to reimburse ASCs for select procedures and, second, widespread advancements in anesthesia and minimally invasive surgery shifted the majority of surgical procedures to the outpatient setting. Today, over 65 percent of surgery is currently done as outpatient, up 20 percent from two decades ago. 40 percent of outpatient surgery takes place in ASCs, up from less than 20 percent two decades ago. To illustrate these shifts, the chart below shows the breakdown of inpatient vs. outpatient surgery at community hospitals from '88-'08.
Given these technological and payor trends, the growth in the number of ASCs catapulted to double digit rates in the nineties and early part of the last decade. In 2000, there were approximately 3,000 ASCs in the country and, by 2010, that number doubled to approximately 6,000 ASCs. The growth, however, has slowed to single digit rates in recent years with 2010 representing a watershed year for the industry due to virtually no net growth in the number of ASCs. While about 50 new ASCs opened in 2010, including Regent affiliated Surgery Center of Anchorage, a similar number of ASCs have closed or become hospital outpatient departments.
Numerous factors have lead to the maturation of the ASC industry, including a decline in the number of eligible physicians available to invest in ASCs. In 1990 less than 30 percent of eligible surgeons had invested in ASCs, a measure which increased approximately to over 70 percent by 2010. Not only have a much greater percentage of eligible physicians invested in ASCs, but the number of eligible physicians has diminished due to an increasing trend in hospitals' employment of physicians and ensuing reduction in the rate of physicians in private practice. Furthermore, at normal rates of retirement, a projected surgeon attrition of 15 percent over the next five years could further exacerbate the situation.
An increasingly challenged reimbursement environment has further stemmed the growth of the industry. As can be seen in the chart below, Medicare reimbursement to ASCs has fallen from 87 percent of HOPD rates in 2003 to 56 percent in 2011.
Not surprisingly, the involvement of management companies in the sector has become increasingly pronounced. ASCs realize numerous benefits under a management company umbrella, the most basic of which are business oversight and cost synergies with respect to IT systems and supplies procurement. According to the VMG's 2008 Intellimarker, 24 ASC chains managed 988 facilities. In the same study for 2010, VMG reported that 44 chains managed 1,302 ASCs. Aside from the proliferation of ASCs operated by chains, there has been a consolidation among ASC chains at the same time. For example, in January, Surgery Partners, a 12 facility Florida-based chain, announced the acquisition of Novamed, a Chicago-based 37 facility chain, for $214MM. Indeed, under the correct stewardship, ASCs can still prosper and grow. Estimates indicate that overall ASC industry volume fell around 5 percent in 2010. However, in 2010 Regent ASCs overall posted improvement in volume of 6 percent!
As ASCs continue to consolidate, demographic trends will propel growth in surgical volume. For example, over the next ten years the projected growth of ophthalmology, neurosurgery, and orthopedics will be approximately 28 percent, 12 percent and 11 percent, respectively.
In the era of reform, physician alignment, and accountable care organizations, only time will reveal the specifics as to where ASCs will fall in the healthcare delivery system. As long as we continue to offer improved access to care, superior outcomes and greater patient satisfaction, all at a lower cost, we are optimistic that the next four decades will offer as much excitement and opportunity for the industry as have the past four decades.
Learn more about Regent Surgical Health.
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- Rebuilding the Physician-Hospital Relationship — The Joint Venture Opportunity