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Ambulatory surgery centers proliferate in Pennsylvania

By Christopher Guadagnino, Ph.D.

Rick Bloxdorf
Rick Bloxdorf

Rick Bloxdorf is president of the Pennsylvania Ambulatory Surgery Association, and administrator for Village SurgiCenter in Erie, Pa.

PND: Can you describe the growth of ambulatory surgery centers (ASCs) in Pa.?

RB: As stated in the Pennsylvania Health Care Cost Containment Council’s financial analysis of 2006, there are 205 licensed ASC facilities in the state, with 28 additional facilities that were opened between 2006 and 2007. We’ve seen a 16 percent growth over the last two years in the number of licensed facilities in the state. The report also indicated that there was a 17 percent increase in the number of outpatient diagnostic and surgical procedures from 2000 to 2006. In 2006, ASCs performed 622,652 of these outpatient procedures, of a total of 2.3 million that were performed in the state overall. That statewide total, however, includes outpatient DNS procedures that by regulations are not allowed to be completed in an ASC, so there is not a real apples-to-apples comparison of DNS procedures performed in a hospital outpatient department (HOPD) versus those performed in an ASC.

PND: What is driving that growth?

RB: I think the volume has been changing for several reasons. If you have an ASC in a community, patients have a choice that previously did not exist. Cost to patients is lower at an ASC. For example, a Medicare beneficiary would pay $496 in coinsurance for a cataract extraction procedure at an HOPD, where the maximum out-of-pocket cost at an ASC would be $195. For a colonoscopy, a Medicare beneficiary would pay $186 in coinsurance in an HODP, versus $89 for that same procedure being done in an ASC. We’re seeing physicians taking more ownership in how the delivery of health care is being done in their communities, and there are also a number of instances in which HOPDs have moved to an ASC and are jointly-owned by physicians and hospitals.

PND: Are there any constraints on ASC growth?

RB: Various federal and state regulatory and licensure requirements currently exist. We’re starting to see several legislative and regulatory recommendations at the federal and state levels that would further constrain that growth, including eliminating the ability of physicians to have ownership in ASCs, eliminating the ability of physicians to be able to perform cases at an ASC in which he or she has ownership, reducing the number of types of procedures that can be done in ASCs, and re-introducing the Certificate of Need regulations that would constrain the opening of new ASCs or the expansion of existing ones. There are also some insurance barriers. Some insurance carriers will not allow procedures to be performed in an ASC setting if they have contracts already established with hospitals in the same region. So, they’ve created a barrier to entry for ASCs within certain locales by making it difficult for patients to have access to the ASC. If a procedure is approved by Medicare to be done at an ASC as well as an HOPD, however, private insurance carriers will usually allow you to perform that procedure at an ASC. However, the reimbursement mechanisms are very different. Medicare has not increased its reimbursement rates to ASCs over the last five years, in contrast to HOPDs, which has seen increases every year. For 2008, a procedure performed at an ACS will be paid by Medicare approximately 62 percent of what is paid to an HOPD.

PND: What is the appeal of ASCs to physicians?

RB: Physicians have led the development of ASCs since the beginning. They have a greater opportunity to control the surgical process in the ASC setting than they do in the hospital setting. There is greater ease and convenience of scheduling for physicians and patients. Physicians get to assemble their own team of trained personnel that are specific to their specialty. Physicians retain some of their professional autonomy over the work environment and over the quality that they get to deliver in an ASC setting. Many ASCs are located in convenient locations away from downtown areas, making them more convenient for patients to access. They have comfortable settings, and patients don’t feel like they’re in a sterile hospital environment. Patients also get to have more one-on-one interactions with physicians, nursing staff and administrative staff.

Physicians get the same professional component whether a procedure is done in an HOPD or an ASC. However, if they take a procedure that is supposed to be performed in an office-based surgical setting, their Medicare reimbursement is reduced to the level of an office-based procedure. If a physician is the owner of an ASC – and a majority of ASCs are physician-owned – the facility fee goes to the ASC’s operating cost, and any trickle-down from that would be distributed to physicians at the end of a year. The potential is there for additional revenue for the physician – it depends on how well the ASC is run. According to PHC4 data, the margins of ASCs have been more than in the past, but are starting to level off. For FY 2006, the statewide total margin increased by 0.2 percent. ACS aggregate operating margins statewide in 2006 were 21 percent.

PND: Overall margins for Pa. hospitals in 2006 have been roughly one-quarter of that figure. What accounts for that difference?

RB: You don’t have an apples-to-apples comparison with regard to costs and profitability of a hospital system versus an ASC, which is a small business. Administratively, physicians in an ASC have more direct control over supplies and group purchasing. Physicians don’t have that control in a hospital setting. Efficiencies are a lot better in an ASC versus a hospital. Many ASCs, if they have a slow day, will not maintain a full complement of staff, because that’s not efficient. You have the ability to flex your staff.

PND: What impacts does ASC proliferation have on hospitals?

RB: I think it is forcing hospitals to refocus their efforts in their missions and how to best utilize their community resources. The bottom line is that competition is good for a community, and hospitals have always had a monopoly on the delivery of health care services within any local community. By having ASCs available in that same community, hospitals are starting to see that there has to be ways for them to control costs. That competition is basically forcing them to go down avenues I don’t believe they’ve ever really thought of exploring before, whether it’s downsizing, or re-energizing their staff.

I don’t think there is a growing migration of procedures from HOPDs to ASCs. You’re seeing an increase in the types of procedures now being performed as outpatient, and it’s not necessarily migration as much as it is meeting the needs of the community. CMS, for example, has a big press on to increase the number of colonoscopy screenings done for the prevention of cancer. I don’t think you’re seeing as much of an increase in migration as an overall increase in the need for the service to be utilized. Hospitals can’t handle the entire volume for a local community, and physicians have the ability to get those patients in a hospital or get them in an ASC.

PND: A number of criticisms have been leveled at ASCs by the Hospital & Healthsystem Association of Pennsylvania (HAP), and by some legislators, namely, that they siphon off the healthiest and best-insured patients from hospitals, see a much lower proportion of Medicaid patients, don’t offer charity care, add aggregate cost to the health care system by duplicating services in a community, and potentially erode quality by diluting patient volume at individual outpatient sites. What is your response to those criticisms?

RB: There is a definite misconception that ASCs only treat healthy patients. Data represented in the PHC4 report indicates that for FY 2006 the median age was 62 years for ASC patients and 52 years for an HOPD. As our population continues to age, more patients are having surgery with multiple comorbidities. The data indicates that we continue to treat a larger incidence of the older population, and this population is more likely to have other health issues. Nevertheless, we are regulated on the selection criteria for patients that are admitted to an ASC. We make these admissions with full awareness of our limitations, and will not put any patient at risk. There are strict admission requirements established by ASC physician owners, as well as by the Pa. Department of Health, and CMS, that need to be met in order to have the surgical services performed. If a patient is determined to be at high risk to have a procedure done at an ASC, we will refer them to another facility for care.

Where services are comparable, Medicare standards for ASCs and HOPDs are also comparable. We have to meet the same standards and regulations that the HOPDs are required to meet. A lot of ASCs are accredited by the Joint Commission or by the Accreditation Association for Ambulatory Health Care (AAAHC), so we get the same accrediting standards that apply to HOPDs. Additionally, the ASC community is committed to reporting quality measures. Leaders from that community, along with related organizations such as Foundation for Ambulatory Surgery in America, and AAAHC, are collaborating to identify specific measures of quality appropriate for outpatient surgery. These measures were recently approved by the National Quality Forum, and the Medicare program will begin collecting quality data from all ASCs beginning in 2009.

It’s difficult to compare the amount of charity care rendered at ASCs and hospitals. Because of the nature of their not-for-profit status and their structure, hospitals receive governmental subsidies based on the amount of charity care they perform. ASCs, on the other hand, are for-profit small business entities that do not receive any type of subsidy. This does not necessarily stop us from performing charity care cases, however, we would classify them differently – under the financial class of self-pay, and when we know the patient is not going to end up paying anything, that’s written off to our bad debt financial structure.

With regard to duplication of services, we perform similar procedures to those being done at the HOPD at a lower cost to the insurance carrier and to the beneficiary, so we’re not increasing the cost of health care. A community can only hold so many of a given type of business entity before one of them fails, whether for financial reasons or quality reasons. There would be a level of competition at which the lower-quality entity would cease to exist. We have three ASCs in our city, and each of our physicians works at all three facilities, even though they may have ownership in only one, so a physician’s proficiency volume is not lowered.

PND: HAP has proposed that the state require ASCs to adhere to similar standards as hospitals with respect to licensure, public reporting, reimbursement, and provision of care to the uninsured and Medicaid. Do you believe there are compelling reasons to level the playing field between ASCs and hospitals?

RB: We have to do a lot of those things now. Any type of infection or incident that may cause harm to a patient has to be reported by us through the Pennsylvania Patient Safety Authority. We need to follow the same federal and state regulations for our facilities to be in operation, very much like the hospitals do. To make strict governmental regulations to say, “these are the type of patients you should take care of,” that’s putting us in the same environment as the hospital, and that’s when we would have to come back and ask, “what types of government subsidies are we going to get for that?” An ASC is a for-profit, taxable entity. We pay revenue and property taxes, which is an influx of revenue to our local and state communities, and most Pa. hospitals are tax-exempt as nonprofits. All of these things need to be taken into account when someone starts dictating the types of care we give, or how we have to deliver it. We deliver everything we’re supposed to, with regard to our communities.

PND: How is Medicare changing its reimbursement to ASCs, and what do you think will be the impact of this change?

RB: Medicare finalized a proposal last November in which single-specialty gastroenterology, ophthalmology and pain ASCs are going to see significant reimbursement reductions from CMS – from 13 to 20 percent reductions – over the next four years, beginning in 2008. Overall, ASCs will be reimbursed 62 percent of what is being paid to HOPDs. To come up with the new reimbursement schedule, which was required to be budget-neutral, CMS raised reimbursement for some procedures and lowered it for others. Unfortunately, the ASC procedures that will be paid less are the ones that are most predominant – ophthalmology, GI, and pain – which makes sense from the standpoint of a strictly budget-neutral goal. Multispecialty practices will probably break even, but there is the potential that small, single-specialty ASCs will not be able to meet their operating expenses with these lower reimbursements, and there may be a migration of those patients back to HOPDs, which will result in an increase in cost to beneficiaries and to insurance carriers.

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