Ambulatory surgery centers cutting into hospital or business - News

Healthcare Purchasing News, Oct, 2002 by Karin Lillis

The last two decades have seen a steady stream of patients flow from operating rooms in hospitals in the direction of standalone facilities, an unmistakable trend particularly true in the orthopedic, ophthalmic, podiatry, pain management and plastic surgery markets. These standalone facilities, known familiarly as ambulatory surgery centers, generally offer less costly medical procedures and can turn over cases at a faster clip than facilities in the acute care setting, experts say, findings that have prompted a boom in the nonacute care market.

"The ambulatory care market has been a vibrant niche market for the last 20 years," notes Jonathan Vick, president of Valley Center, CA-based ASCs Inc., a firm that specializes in helping doctors identify suitable corporate partners for new ambulatory surgery centers or obtain the best price for their existing ASC. Vick's company works solely with physician-owned surgery centers, a group be says represents about 70 percent of Medicare-certified ASCs. "We're seeing quite a lot of consolidation, a lot of individual centers being purchased by companies forming networks," he says.

"Four or five years ago, there were a lot of lines drawn in the sand," says Ronald Riner, MD, who heads the St. Louis-based Riner Group, a healthcare and management consulting firm. "Hospitals found ASCs very competitive and went out of their way to oppose them. What we see now is a lot more joint venturing because the centers are necessary.

"For instance, you may have a community hospital that has a large orthopedic surgery group that provides 80 percent of such services at the hospital. Now the orthopedic group might want a surgery center because their case volume would support such a facility. The hospital may approach the group and become a joint venture partner in the undertaking."

Such joint ventures typically occur in larger healthcare systems, possibly in more urban areas, according to Vicki Dennis, vice president of operations for Healthcare Purchasing Partners International, Irving, TX, a jointly owned VHA/UHC company. She says in smaller communities--25,000 to 30,000 people, for instance--the hospital may well see that ASC as a drain on its already strained income flow. "If you have a large medical facility with numerous sites around the community, that organization is big enough and economically sound enough to make those kinds of decisions," Dennis says. "A smaller community hospital is less likely to do some sort of a joint venture."

"In some of the smaller towns, there are major politics that play a part," adds Jennie Simmons, RN, who runs Atlanta-based Surgery Center Consultants, a group purchasing organization and consulting firm dedicated to ASCs. "If you're taking, say, the GI business from the hospital, you can imagine some of the battles that may initially create."

Still, even in a larger setting, competition can be fierce, Dennis notes. She cites an example of a large hospital in the Midwest in a community that has two other acute care facilities. A number of specialty surgeons there have opted to form a practice where they would perform a significant number of ambulatory procedures, grabbing some business from the hospital. "The hospital has told the surgeons, 'If that's what you're going to do, you won't admit patients here,"' Dennis says. "That kind of mentality is not uncommon."

About 70 percent of 3,500 Medicare-certified ASCs are independently owned by physicians, and more than 100 new ASCs open every year, according to Vick. He says that competition for ASC partnership acquisitions among multi-facility ASC chains is heating up, and he estimates that there are more than 70 multi-facility ASC chains of which the top 10 are the major players. Three of these control upwards of 50 percent of the multi-facility volume, Vick says, and many of the smaller chains want to increase their market share. Multi-facility chains own about 700 ASCs and are increasing market share faster than independent ASCs or hospital ASCs, he explains.

Says Vick, "Independent ASCs perform more than 50 percent of freestanding ASC volume and many of these ASCs are attractive partnership or acquisition candidates. A growing number of public and private multi-facility ASC companies that have extensive operating experienced and are well-financed are interested in acquiring ownership interest in new or existing independent physician-owned ASCs."

But there is more to simply opening the doors every morning at an ASC. "The ambulatory surgery center has to look at margins more closely than the hospital," says Hugh Autry, vice president for acute and surgical care at Lakeland Regional Health Systems, an 851-bed system in Lakeland, FL. "ASCs must be more able to control the patient population they care for. In the hospital, you get them no matter what, but the ASC has more control over what type of payer it will or won't accept. For example, patients with a co-pay or who pay for their own care generally have to pay up front. You try to monitor and manage that for elective outpatient procedures in the hospital, but you don't have the luxury of doing that with medically necessary patients. There are much more capital-intensive patients on the hospital side than on the ambulatory surgery side."