Ambulatory Surgery Centers | Industry Outlook

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The US ambulatory surgery center (ASC) industry has prospered in recent years and there are indicators that this growth trend will continue, as medical advances, technology, and lower costs increasingly drive care to the outpatient setting. Continued growth will not come without challenge, however, as ASCs will face declining reimbursement rates; competitive threats from hospitals and health systems; and a shrinking pool of specialized surgical talent.

The rise of the ASC industry is closely correlated to the growth of outpatient surgery as a whole. According to the Ambulatory Surgery Center Association, in 1981, only 20% of all surgeries were performed in the outpatient setting.[1] Among those, about 95% were conducted in hospital outpatient departments (HOPD), 3% in ASCs, and 2% in physician offices.[2] Today, those numbers have changed dramatically. At the end of 2014, 67% of all surgeries were outpatient, and 40% of those were performed in an ASC (and an equivalent amount in HOPDs).

The rise in the number of ASCs in the US further illustrates this growth trend. In the year 2000, there were 3,028 Medicare-licensed ASCs; by December 2016, there were 5,519. The biggest surge occurred from 2000 to 2010, when ASCs grew 5.4% per year, compounded annually. Although the pace of growth in new facilities has slowed a bit in recent years (about 1.2% growth from 2011 to 2016), there are signs that the volume of cases will continue to expand. Some of the key trends to watch for in the industry are:

  1. Advances in Medicine and Technology will Continue to Drive Procedures to the Outpatient Setting

The surge in ASCs over the past three decades has been due, in large part, to advances in anesthesia, pain management and rehabilitation that have allowed surgeons to perform procedures safely and effectively outside of the hospital. Furthermore, advances in minimally invasive procedures such as laser surgery, laparoscopy, and endoscopy have reduced trauma and recovery time.[3] In 2016, the most common clinical specialties by case volume included gastroenterology (29%), ophthalmology (20%), orthopedics (16%), pain management (16%), otolaryngology (8%), and general surgery (7%).[4] The top five ASC procedures by Medicare spending in 2016 were:

  1. Cataract Removal with IOL 1 stage, CPT Code 66984, $1.11 billion (27.7%)
  2. Upper GI Endoscopy Biopsy, CPT Code 43239, $185 million (4.6%)
  3. Colonoscopy and Biopsy, CPT Code 45380, $180 million (4.5%)
  4. Legion Removal Colonoscopy, CPT Code 45385, $118 million (3.0%)
  5. Cataract Surgery Complex, CPT Code 66982, $96 million (2.4%)

We are also likely to see a growth in spine and total joint replacement procedures in the near future. In late 2016, CMS proposed eight new spine codes to the ASC payable list for 2017. This is in addition to the nine spine procedures approved in 2015, and four in 2016. For total joint replacements, consulting firm Sg2 projects 77% growth over the next 10 years, with only 3% of that growth occurring inpatient.[5] Outpatient total joint replacement is expected to increase 457% for knee replacements and 633% for hip replacements over the next decade.

  1. Value-based Care will Drive Further ASC Utilization if Reimbursement Rates Keep Pace with Healthcare Inflation

ASCs play an important role in the value-based care system. They offer low-cost, high quality services, allowing payers to approve an increasing number of procedures to be performed outside of the hospital. Moreover, as “healthcare consumerism” gains traction – due to higher co-payments for out-of-network providers, pricing disparities across hospitals, and complex medical bills – patients are demanding greater transparency, a service that ASCs can provide more readily than large bureaucratic health systems. However, for these trends to continue, insurers will have to maintain reasonable reimbursement rates and provide ASCs access to their networks.

The reimbursement pain is most acute among ASC providers who treat Medicare patients. In recent years, there has been a growing disparity between Medicare rates paid to ASCs and those paid to HOPDs. In 2003, Medicare paid ASCs about 86% of the amount paid to HOPDs; today, that figure has dropped to 46%.[6] The gap is caused by the different inflationary factors that CMS uses for ASCs and HOPDs. ASC rate updates are tied to the Consumer Price Index for all Urban Consumers (CPI-U), while HOPD updates are based on the Hospital Market Basket; only the latter takes into consideration the rising cost of providing medical services.

In March 2017, US Representatives Devin Nunes (R-CA) and John Larson (D-CT) introduced the Ambulatory Surgical Center Quality and Access Act of 2017, which aims to bring the ASC reimbursement update on par with that used for HOPDs. The bill has not yet been voted upon in the House. This and other such efforts will be important for ASCs to maintain competitiveness in an environment of rising costs.

  1. Expect Market Consolidation and Strategic Partnerships Among Leading ASC Providers, Hospitals and Physician Groups

While the ASC market has experienced rapid growth since 2000, it remains highly fragmented. Leading operators of freestanding facilities – including AmSurg (260), USPI/Tenet (239), Surgical Care Affiliates (186), HCA (118), SurgCenter Development (106), Surgery Partners (99), and other multi-site operators (504) – own about 27% of the market; while 73% remains under independent ownership.[7] Hence, the industry is ripe for consolidation.

In recent years, hospitals have increased their involvement in ASCs through various means, including sole ownership, joint ventures, and strategic partnerships with physicians and management companies. Through the partnership model, a hospital or health system may be able to expand its catchment area; grow revenue from an integrated referral base; enhance leverage with payers; participate in accountable care organizations; engage in population management; and lower its cost of services.

  1. Competition for Surgical Talent will Intensify

One of the biggest challenges for ASCs in the near future will be the competition for surgeons. In recent years, there has been a sharp reduction in the number of private practice physicians, due to declining reimbursement rates and the burdens associated with practice management. The percentage of independent physicians in 2016 was estimated to be around 33%, down from 57% in 2000.[8] As a result, the number of specialty physicians eligible for ownership of ASCs declined (as many health systems preclude employed physicians from holding ownership interest in ASCs). Furthermore, as health systems employ more primary care physicians, their referrals tend to go to the health system, rather than to independently owned ASCs. Ultimately, these forces will lead to greater competition for surgical talent in various specialty areas.

Conclusion

The US ambulatory surgery center (ASC) industry has undergone rapid change in the past few decades. The surge in growth from 2000 to 2010 has slowed a bit, but will likely continue as medical and technological advances allow for more procedures to be performed in the outpatient setting. In the next few years, value-based care models will drive higher volumes but ASCs will need to continue lobbying efforts for pricing parity with HOPDs. Furthermore, we are likely to see increased consolidation in the market, as hospitals and health systems compete with private ASC operators. Finally, we can anticipate fierce competition to hire and retain qualified surgeons, particularly those for the high-volume ASC cases.

Footnotes:

[1] “ASCs: A Positive Trend in Health Care,” http://www.ascassociation.org/advancingsurgicalcare/aboutascs/industryoverview/apositivetrendinhealthcare

[2] Mark Wainner. “Trends in the Ambulatory Surgery Center Industry” (presented at the Health Industry Association Annual Conference, Chicago, IL, July 7-9, 2010), http://www.hira.org/files/pdfs/MarkWainner-TrendsAmbulatory.pdf

[3] Lola J. Kozak, Eileen McCarthy, Robert Pokras, “Changing Patterns of Surgical Care in the United States, 1980-1995,” Health Care Financing Review (Fall 1999)

[4] VMG Health. “Multi-Specialty ASC Intellimarker 2017,” www.vmghealth.com

[5] “Outpatient Joint Replacement: An Unnecessary Concern or Market Reality?” Vizient, November 8, 2016, http://newsroom.vizientinc.com/newsletter/research-and-insights-news/outpatient-joint-replacement-unnecessary-concern-or-market-rea

[6] “ASCs Quality and Access Act of 2017,” Ambulatory Surgery Center Assocation, http://www.ascassociation.org/govtadvocacy/legislativepriorities/asc-qaa-2017

[7] VMG Health. “Multi-Specialty ASC Intellimarker 2017,” www.vmghealth.com

[8] Ibid.

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