Ambulatory surgery centers proliferate

By Robert E. Bershad

The number of ASCs in the state has grown by nearly 60 percent in just two years – from 113 in July 2003, to 192 as of June 2005, according to data from the Pennsylvania Healthcare Cost Containment Council (PHC4) and the Pa. Department of Health (DOH). The volume of ASC patient visits has ballooned at an even faster rate: from nearly 280,000 in FY01 to over 500,000 in FY03 – a two year increase of 83 percent, according to the PHC4. Factors driving ASC proliferation include the ever-growing viability of outpatient care, a recent scope of practice expansion allowed by the DOH, the opportunity to realize profit, and the preference that physicians and patients have for ASCs over hospitals. Although the number of ASCs is growing, relatively little is known about their impact on the quality and cost of health care in Pa., because gauging these impacts is a difficult and complex proposition.

ASC Types

ASCs are free standing outpatient surgical facilities which, under state law, cannot be located on the premises of a hospital. A doctor’s or practice group’s office may qualify as an ASC if a distinct part of the office is devoted solely to providing outpatient surgical treatment on a regular and organized basis.

State law limits surgical procedures in ASCs to those that require no more than four hours to perform or four hours recovery time, while ASCs cannot perform procedures that are associated with risk of extensive blood loss, major or prolonged invasion of body cavities, direct involvement with major blood vessels; or that are emergent or life threatening. Pediatric patients are subject to special rules, including an absolute ban on operating on a child younger than six months old.

Intended exclusively as outpatient facilities, ASCs are not equipped to handle emergent situations, life threatening surgical complications, or patients who otherwise require hospitalization, and by law cannot admit patients who are found to present the possibilities of these outcomes. ASCs must refer such patients to hospitals, which enjoy the full range of available medical capabilities that only a hospital can offer.

DOH licenses ASCs according to three classes, each distinguished by patient acuity and levels of anesthesia permitted to be applied. Class A facilities – comprising only nine of the state’s 192 ASCs – may treat only patients who “have no organic, physiologic, biochemical, metabolic or psychiatric disturbance,” and may perform only those procedures which require “administration of either local or topical anesthesia, or no anesthesia at all and during which reflexes are not obtunded.” Class B facilities are limited to patients who “have a systemic disturbance which may be of a mild to moderate degree but which is either controlled or has not changed in its severity for some time,” and are limited to “treatments involving administration of sedation analgesia or dissociative drugs wherein reflexes may be obtunded.” Class C facilities can treat patients who “suffer from significant systemic disturbance, although the degree to which it limits the patient’s functioning or causes disability may not be quantifiable,” and are permitted to perform “surgical treatments which involve the use of a spectrum of anesthetic agents, up to and including general anesthesia.” The DOH will grant a license to a Class A facility if it is accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), which conducts triennial on-site surveys. JCAHO-accredited class B and C facilities must undergo annual DOH inspection in connection with infection control and patients bill of rights compliance.

Nationwide, 68 percent of all ASCs are owned wholly by physicians; hospitals and physicians jointly own 18 percent; management companies and physicians own 12 percent; and two percent are jointly owned by physicians, hospitals or health systems, and management companies, according to a report published by the Federated Ambulatory Surgery Association (FASA).

In Pa., roughly one third of all ASCs are partly or wholly owned by hospitals or health systems, while a number of hospital-owned ASCs were formerly outpatient surgical departments of licensed hospitals and were required by DOH to re-license in the early 2000s as free-standing ASCs, according to the Hospital & Healthsystem Association of Pennsylvania (HAP). DOH says it required re-licensure of those facilities that were not part of the hospital, or that operated outside of the general hospital patient care structure.

A hospital or health system that wholly or jointly owns an ASC must completely divorce itself physically and administratively from the ASC, which must be administered by its own governing body responsible for establishing bylaws, policies and practices that support sound patient care. An ASC’s independence permeates every aspect of its operations, including licensing, credentialing, patient care, operations management, regulatory compliance, incident reporting, facility maintenance and billing.

Physician Attraction

While several factors are driving the growth of ASCs in Pa., their very existence would be impossible without the massive migration of the surgical profession to the outpatient setting which has occurred in the last 30 years.

New pharmaceuticals, practice protocols and advanced medical technology such as the laparoscope have enabled surgeons to perform a growing number of procedures safely on an outpatient basis, accounting for 60 to 70 percent of all surgical procedures nationwide, according to the Centers for Disease Control and Prevention. The Centers for Medicaid and Medicare (CMS) have approved 2,500 procedures to be performed in ASCs, including knee arthroscopy, chin reconstruction and bladder repair. Procedures CMS deems still too risky to be performed in an ASC include muscle and skin grafts, reconstructive cleft palate surgery, excision of the parotid gland, draining ovarian abscesses, repair of facial nerves and eardrum revision.

Pa. has recently expanded the scope of practice allowed in ASCs. Last December, DOH advised ASCs that physicians could not perform laparoscopic cholecystectomies in an ASC because this procedure required a major or prolonged body cavity invasion. Many physicians objected to the ban, saying they had been performing the procedure safely for years and noting that it was on the Medicare list for approved ASC procedures. Consequently, DOH lifted the ban, noting that procedures on the Medicare list “have been reviewed and approved by the federal government on a procedure-by-procedure basis for their safety in a freestanding ambulatory setting,” according to a March 7, 2005 letter sent to ASCs across the state from Richard H. Lee, deputy secretary for quality assurance at DOH.

FASA states that more than eight million surgeries are performed each year in the more than 4,000 ASCs across the U.S., while the most practiced specialties in ASCs are ophthalmology and gastroenterology, and others include plastic surgery, urology, general surgery, ENT and gynecology.

The profit motive is a key driver of ACS growth. “If you’re going to lose money doing it, you wouldn’t do it,” says Pa. Rep. Phyllis Mundy (D-Luzerne), an outspoken advocate for health care quality and access. The facilities have indeed been making money: ASCs’ average operating margins increased from 12 percent in FY02 to nearly 16 percent in FY03, according to the latest numbers available from PHC4.

It can be more profitable for physicians to operate in an ASC that they own, than to operate in a hospital because he or she will receive both the physician fee and facility fee, according to Phillip Ripepi, M.D., owner and medical director of Southwestern Surgical Care Center in Pittsburgh.

ASCs do not carry the overhead that hospitals must carry by law, and services such as emergency rooms and intensive care units – which ASCs never have – are among the most expensive overhead costs that hospitals bear, according to Paula Bussard, HAP’s senior vice president, policy and regulatory services.

But profit alone is not driving the proliferation of ASCs, according to Ripepi, who adds that physicians prefer practicing in ASCs over hospitals, and points to the 20 physicians who have privileges at his ASC. In terms of fees, there is no material difference in what those physicians receive for procedures they perform in his ASC as compared to a hospital: in both venues they receive only the physician fee while the hospital or the ASC receives the facility fee. They choose his ASC, Ripepi says, because they prefer practicing there.

That venue preference is justified, according to Anita Fuhrman, CASC, president of the Pennsylvania Ambulatory Surgery Association. It is generally easier to schedule a procedure in an ASC than in a hospital. In an ASC, a physician does not compete for OR time with physicians who have seniority, or who are performing major surgeries. Delays caused by complications and emergencies are far less likely to occur in an ASC. Patient turnover time is shorter, giving surgeons the option of more personal time or productive practice, according to Fuhrman.

ASC proponents also claim that patients are increasingly demanding that procedures be done in ASCs, where the admissions desk, waiting room, staging area and operating rooms are generally closer to each other and easier for patients to find and reach than they are in hospitals. As a result, says Fuhrman, patients have a less stressful experience navigating the facility.

Other advantages enjoyed by ASCs include newer facilities, easier access and parking to their freestanding structures, shorter waiting times and more personalized care, according to James A. Yates, M.D., President of the American Association for Accreditation of Ambulatory Surgery Facilities, Inc. and medical director of the Grandview Surgery & Laser Centers in Camp Hill and Mechanicsburg.

Quality Impacts

Notwithstanding their real and perceived benefits, ASCs do have critics who are concerned about the impact their proliferation may be having on the quality and cost of health care in Pa.

Mundy is concerned about the quality of care delivered at ASCs, and believes that DOH has insufficient resources to conduct ASC inspections. “DOH doesn’t have enough inspectors to inspect the hospitals, let alone ASCs,” she says.

But DOH Spokesman Richard McGarvey says that DOH’s inspection capability has improved over the last four years because of increased funding, which has boosted the number of inspectors from 15 in 2001 to 40 today. The inspectors make annual quality assurance and building inspections of Class B and C ASCs, and McGarvey says the Department is doing a much better job than it had in the past. Every ASC is inspected, as required by law, he says, while DOH also conducts unannounced inspections, as well as inspections based on patient complaints or incidents self-reported through the recently established Patient Safety Reporting System, which operates under the purview of the Patient Safety Authority. The proliferation of ASCs has not compromised DOH’s inspection capabilities, although the Department would seek additional funding if more inspectors became necessary, according to McGarvey.

Mundy is also concerned that the proliferation of ASCs is diluting patient volume in certain Pa. outpatient facilities, thereby compromising the quality of Pa.’s outpatient care. She further believes that ASCs should be required to demonstrate that they perform a sufficient volume of procedures to obtain an acceptable level of quality of care.

While numerous studies have established that the volume-quality correlation applies to major, inpatient surgical procedures, the evidence of a volume-quality correlation is not uniformly established. In an Institute of Medicine survey of 88 studies on the topic, fully one quarter of the studies failed to establish a “high volume leads to better outcomes” correlation. There is currently no evidence on whether a volume-outcomes correlation applies to the less complex, outpatient surgical procedures, or to non-surgical procedures, that are typically performed in ASCs. The correlation could apply, but making this determination requires actual ASC outcomes data, which is not currently available in Pa., according to David Nash, M.D., MBA, chairman of Health Policy, Jefferson Medical College. Moreover, the process of making this determination is fraught with complexities in data collection and analyses, Nash cautions.

The existence of three ASC class distinctions complicates conducting an ASC outcomes study, but ignoring them would compromise the utility of such a study, according to Nash. Such outcomes factors as post-op readmission rates, infection rates, medication errors, and complication rates could be significantly different, simply as a result of which class ASC is under study.

A second complicating factor, according to Lee Fleisher, M.D., Chairman of the Department of Anesthesiology, Hospital of the University of Pennsylvania, is that ASCs typically make follow-up contact with patients within 24 hours, but do not track patients who are admitted to a hospital on an emergent or inpatient basis afterward, making it impossible to report accurately the outcome for those patients.

A third factor complicating ASC volumes-outcomes studies is the extremely low adverse incident rate at ASCs, partly driven by ASC physicians triaging sicker and riskier patients to hospitals. Fleisher says the mortality rate in the hospital outpatient setting is one in 50,000, and establishing an ASC adverse incident trend with any statistical meaning would take years, requiring an enormous data sample size to ensure that any adverse incident trends are not flukes. While it is good news that the ASC adverse incident rate is so low, mechanisms need to be in place to monitor these rates as ASCs undertake increasingly complex procedures, Fleisher notes.

A second way to gauge ASC quality is to compare their outcomes to those of hospital outpatient departments (HODs), where physicians perform many of the same procedures performed in ASCs. But this method presents its own raft of complications, as illustrated by a 2004 study in which Fleisher and colleagues found a significant difference in seven day post-op inpatient readmission rates per 1,000 outpatient procedures performed in ASCs and HODs: 8.41 for ASCs and 21 for HODs (the study also included physician’s offices, which posted a readmission rate of 9.08).

Fleisher noted, however, that these results may be misleading if taken at face value because the study was not prospective; he and his coauthors were limited to studying a half-million Medicare claims, which did not reflect patient selection or illness severity – variables that are critical in determining which HODs should be compared to which class of ASCs.

Fleisher and his co-authors stated that the study was an initial effort to demonstrate the risks associated with outpatient surgery and suggested, given the accelerated pace with which more complex procedures are performed away from hospitals, that structures be put in place to allow for prospective outcomes studies. Importantly, the authors cautioned that “the lack of such analyses could encourage the inappropriate movement of patients and procedures to lower intensity settings, or, conversely, inhibit the appropriate movement of some of these procedures to lower cost facilities that may be more accessible to patients.”

Economic Impacts

It is difficult to determine the nature of ASCs’ impact on the overall cost of Pa. health care for a number of reasons. First, the number of ASCs and procedures they are permitted to perform are constantly changing, making ASCs a “moving target” for analysis, according to Cliff Shannon, a PHC4 Council Member. Reimbursement rates to ASCs by private insurers are not readily available, as they are subject to confidential agreements, and each may vary depending on factors such as unique local conditions, capacity, number of physicians, patient volume, patterns of practice, the facility’s geographic location, and Medicare fee schedules, according to Michael Weinstein, a spokesman for Highmark Blue Cross Blue Shield.

Medicare does pay ASCs at lower rates than hospital outpatient departments for the majority of procedures. In 2003, the Office of Inspector General of the U.S. Department of Health and Human Services reported that in 61 percent of the procedures it examined, Medicare reimbursed a hospital outpatient department more than an ASC for the same procedure, and the reimbursement rates differed for some procedures by as much as 200 percent. OIG concluded that the government could save $1.1 billion annually by equalizing the reimbursement rates.

Although Medicare fee information is available, those payments are not based on the actual costs of each procedure performed by each ASC. “Since Medicare payments are not based on a given facility’s actual costs, the proliferation of ASCs has no impact on Medicare costs,” says Stephen Foreman, Ph.D., J.D., M.P.A., associate professor of Health Administration and Economics at Robert Morris University.

Medicare pays ASCs through a prospective payment system, using a fee schedule based on a cost survey CMS conducted in the 1986 and has since updated annually based on changes in the Consumer Price Index (CPI). It is unknown, therefore, whether Medicare’s ASC fee schedule reflects the current cost reality of ASCs. “We’re awaiting [a General Accounting Office] study of ASC costs, which we hope will provide some insight into this question,” says a CMS official. The GAO is conducting a study on ASC costs as part of the 2003 Congressional mandate to overhaul the Medicare fee structure for ASCs, due to be fully implemented by 2008. Until then, Congress has frozen the annual CPI increases.

The impact of the ASC proliferation on hospital finances is somewhat easier to gauge, and ASC critics such as Mundy are concerned that ASCs are drawing healthier, insured patients and less cost-intensive procedures away from hospitals, leaving hospitals to do the expensive procedures with fewer dollars. Bussard is concerned that this “cream skimming” effect will compromise hospitals’ ability to maintain their emergent and intensive care capabilities. She also points out the inequity of ASCs’ drawing the most profitable patients and procedures while hospitals are delivering a half-billion dollars in unreimbursed care annually. Mundy adds that taxpayers ultimately bear the burden through state aid to hospitals.

HAP does not have dollar figures on income lost by hospitals to ASCs, or on income gained through hospital ownership of ASCs. But ASCs “are seeing growth in number of procedures, whereas hospitals are not,” says Roger Baumgarten, a HAP spokesman. Indeed, according to DOH’s Annual Standard Output Reports, the number of outpatient surgeries performed in Pa.’s general acute care hospitals dropped 21 percent in a four year period: from about 39,000 in FY00 to about 31,000 in FY03. During this period, total Pa. ASC surgical visits more than doubled: from about 198,000 to nearly 432,000.

“Competition can drive innovation, which is good,” says Bussard, “but there has to be a level playing field. Otherwise we won’t have a vibrant and robust hospital system.” To achieve a level playing field, HAP supports a number of proposals, including: prohibiting ASC owners from referring patients to their facilities, allowing a hospital to decline entering transfer agreements with any ASC the hospital judges to be delivering care of questionable quality, and requiring ASCs to provide on call physicians in case of emergent transfer from ASCs to hospitals.

The migration of outpatient surgeries to ASCs is bad news for hospital costs, according to Foreman, because hospitals allocate overhead costs to every line item of their operation, from labor to tongue depressors. A decrease in revenue-producing functions like outpatient surgeries means the hospital has fewer line items on which to allocate overhead, driving up the overhead cost on all remaining line items, ultimately reducing the operating margin.

The apparent migration of outpatient surgeries to ASCs presents a dilemma, says Foreman. On one hand, he asks, since ASCs are run more efficiently and are less costly than hospitals, “shouldn’t we want care done more efficiently?” On the other hand, hospitals are sufficiently broad in their scope of capabilities to have non-revenue generating capabilities which ASCs do not, such as medical libraries and research facilities. Additionally, “hospitals physically bring together professionals from all specialties, enabling them to communicate and learn in the medical marketplace of ideas,” says Foreman. These are benefits that ASCs cannot realize, and which the proliferation of ASCs may be endangering, he notes.

Given the respective benefits that ASCs and hospitals offer to health care, and ultimately to the patient, one must ask whether the migration of outpatient surgeries to ASCs is a good thing. “If the migration is happening because ASCs are more efficient, then public policy should encourage it,” says Foreman. “But if what we are witnessing is the ‘unwinding’ of hospitals, public policy should prevent it, but without rewarding hospitals’ inefficiency. That is, hospitals would need to match the efficiency and other factors which are drawing patients and dollars to ASCs. In the end, if we as a society aren’t willing to pay more money to be treated in hospitals, it means we don’t want to pay for the educational and other intangible benefits hospitals can offer.”