The hospital executive's guide to ASC expansion

Healthcare costs in the United States have hit $3.5 trillion per year, equating to $15,000 per year for every man, woman and child in the nation. The average costs for surgical services exceed $700 billion per year. As the healthcare industry attempts to lower these statistics by implementing value-based medicine, more procedures are driven to the lower cost ASC setting. As a result, patient volume in hospital outpatient departments is dramatically decreasing.

At Becker's ASC Review 26th Annual Meeting in Chicago, Surgical Directions hosted a workshop to explore what hospital executives need to know about ASC expansion. Jeffrey Peters, Surgical Directions CEO, and Thomas Blasco, MD, senior physician medical director of Surgical Directions, discussed the current market landscape and opportunities for strategic growth through ASCs.

The outpatient transformation

Of the 60 million surgical procedures each year in the United States, about 10 million to 12 million are performed in an office or ASC. In hospitals, over 80 percent of procedures are ambulatory cases. In many cases, that migration is happening because of better clinical outcomes. For example, a NSQIP-based recent study conducted by physicians at the University of Texas Southwestern Medical Center in Dallas found that laparoscopic cholecystectomy inpatients had nearly triple the rate of post-surgical complications than outpatients getting the same procedure. Physicians presented the study findings in May at the 2019 annual meeting of the International Anesthesia Research Society in Montreal.

"The most important motivator for this massive transformation of outpatient surgery has been payers' and patients' search for value. CMS, for example, now charges patients $490 out of pocket if they have cataract surgery in a hospital. They charge only $150 if they go to an ASC," said Dr. Bosco.

At one time, HOPDs accounted for 60 percent of outpatient care in the United States, but that has dropped in recent years to 40 percent. Given these realities, many hospitals are considering joint venture ASCs as a means of expanding their business. Only 20 percent of ASCs are owned by hospitals, but 70 percent of hospital administrators are interested in pursuing an ASC strategy. According to Dr. Blasco, "Hospitals can learn a lot from how ASCs have rapidly adapted to value-based care."

Many independent, surgeon-owned ASCs are prime acquisition targets for hospitals. Surgeons who started ASCs 10 or 15 years ago are maturing and looking for ways to cash out. The number of independent surgeons who can affiliate with a freestanding ASC is shrinking, since 75 percent of all surgeons completing residencies or fellowships are choosing hospital employment. A hospital-ASC partnership can facilitate the investment needed for high-cost technology in the ASC, such as MRI equipment.

Hospitals should enter into ASC acquisitions with care, however. After acquiring an independent ASC, some hospitals find that surgeon volume drops or marquee surgeons leave. Mr. Peters explained, "If you buy an ASC, payment should be based on a multi-year earnout. That will create incentives for the surgeons to stay."

ASCs are key components of an integrated healthcare campus

Surgical Directions recently worked with an urban hospital in a market where 75 percent of patients are government pay. Since the hospital couldn't survive with its existing patient base, it needed to attract patients from a secondary market in a nearby area. The hospital established a joint venture ASC 15 miles away, with separate management.

Initially, the ASC generated a return on investment of around 40 percent, but that dropped to 25 percent as competition increased. Soon there were three ASCs owned by hospitals in a 14-mile radius. In response, the hospital created a multi-stage integrated medical campus that offers diagnostic imaging, surgery and recovery.

"The organization now manages patients from health problem to diagnosis, treatment and rehab. By doing this, it maintained and expanded its volume," said Mr. Peters.

For example, prostate cancer is the third leading cause of cancer death in American men. Until three years ago, prostate cancer wasn't treated outside of the hospital. Now high-intensity focused ultrasound is a less invasive treatment that can be performed in the outpatient setting.

A hospital in the southeast saw HIFU as a way to capture more volume from an independent group of 100 surgeons. In August 2017, the hospital's ASC treated 12 commercial patients and 12 Medicare patients, resulting in a gross margin of $70,800.

As more people opt for outpatient procedures, ASCs need nurses and physicians who are comfortable managing more complex patients. Patient engagement is also essential. "Be sure your patient experience exceeds anything else in the market to drive market share. Your patient engagement scores must exceed 90 percent," said Mr. Peters.

Patient engagement apps are a great way for individuals to reach out with questions related to surgery prep, as well as after their procedure is over. Mr. Peters noted, "We have someone responding to the app or answering the phone 24 hours a day."

ASC expansion: Nine critical questions for hospitals to ask

  1. What services will give our facility a competitive advantage?
  2. What cluster of procedures will offer a specialty focus?
  3. What volume of procedures by surgeons can we expect?
  4. Which payers will approve an ASC setting?
  5. How should we manage patient responsibilities (e.g., pre-surgical payments, at-home preparation, post-op rehabilitation)?
  6. Are clinical providers motivated to manage their more complicated procedures and patients?
  7. What capital, people and clinical processes need to be changed?
  8. Is the financial return worth the capital risk?
  9. How do we create a regional system?

Conclusion

In today's environment, hospitals must question whether an ambulatory surgery strategy based on the hospital outpatient department is the right strategy for the future. CMS and third-party payers see enormous cost advantages in ASCs, and patients like the convenience. "To establish competitive advantage through an ASC, you must look at new avenues to expand, think about being an innovator and rapidly derive value from high-margin procedures," said Mr. Peters.

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