As he looks forward to opening his new endoscopy center this month, James Sattler, M.D., confesses, "I'm so excited I can't sleep at night."
"It's like getting the first new car you ever had," the Torrance, Calif., gastroenterologist says. "You can't wait to drive it."
But Sattler knows his new center will be far more than a fun toy. If all goes according to plan, it will impress his patients, make him a lot more efficient and keep his income from falling.
Ambulatory surgery centers--covering a variety of fields, including ophthalmology, gastroenterology, otolaryngology, orthopedic surgery, gynecology, urology and plastic surgery--are experiencing "explosive growth," according to a February report by the HHS Office of the Inspector General.
Even though ASCs have existed for 30 years, their numbers increased at an average rate of 7.1% per year between 1996 and 2001, according to Chicago-based SMG Marketing, which tracks the industry. There were 3,383 ASCs in operation in 2001, the most recent year SMG numbers were available.
Technological advances like lasers and scopes have cleared the way for expansion, but observers say a more recent factor in centers' growth is the dramatic decline in reimbursements for procedure-oriented specialties.
Since gastroenterology procedures get as little as 60% of the reimbursement they received a decade ago, "it becomes more and more important to become extremely efficient," Sattler says.
Sattler and other specialists say the drive for efficiency can only go so far in the hospital, where they have no control over scheduling procedures. Sattler mentioned that problem during a recent phone interview at his hospital: He had the downtime to take a reporter's call because another physician had been scheduled between his own procedures.
"Most hospitals, understandably, do not allow physicians to book a whole block of time," he says.
At his new ASC, designed with two procedure rooms and space for a third, Sattler and his three partners each will get three-hour blocks of time. Each will control that block and can fill it at the last minute. "It allows you tremendous flexibility," he says.
Audrey DeMars, a Mill Valley, Calif., consultant who helped Sattler plan his ASC--the 59th she has assisted on--says ASCs' efficiency also derives from faster turnaround times between procedures and a staff that can respond more quickly.
Each physician partner typically invests $25,000 to $30,000 in cash and usually earns that back in operating income in the first year, DeMars says. But the real benefit is productivity, which increases by at least 10% to 20% in the first year, she says.
Indeed, higher efficiency is crucial for ASCs, as their facility fees from government and private payers are generally one-third of what hospitals get, DeMars says. On the other hand, she adds, reimbursements for physicians who use the ASC are typically 10% to 15% higher than what they get in the hospital.
Hospitals are concerned about the growth of physician-owned ASCs and the resulting loss of OR revenues to support the money-losing parts of their operations.
ASCs "skim off the cream of the crop," says Jan Emerson, spokesperson for the California Healthcare Association, which represents nearly 500 health systems and hospitals. "The ability of hospitals to compete in the marketplace is that much more difficult."
In response, she says, hospitals are entering joint ventures to build ASCs with physicians because "they don't want to be totally out of the loop."
Exciting, yet daunting, opportunity
Sattler has been visiting the ASC site, in a building near his office, almost daily.
"It's the height of my day," he says.
Besides the twin procedure rooms, the 3,600-square-foot space houses eight pre-op and post-op rooms. Recently, equipment was delivered in big crates, and his staff, already on the payroll, unpacked it and readied it for use.
"Everything is the latest technology," Sattler says.
Despite the financial opportunities in ASCs, many doctors are still on the sidelines. They hear concerns about safety and oversight in some outpatient facilities--discussed in the February inspector general's report.
But mainly, they seem put off by the long hours of work in planning and building a center, the financial risks for doctor-investors and the complex regulatory hurdles in some states.
Even in Texas, which does not require a certificate of need, the entire Dallas-Fort Worth area has only six endoscopy centers, too few for the 100 gastroenterologists in the area, according to Tom Dees, M.D.
Dees opened the area's first endoscopy center in Fort Worth in 1995 and will open another one in the fall.
Doctors "tend to be fearful that (an ASC) won't be successful, that the hospital will be mad at them or that the insurance company won't pay," Dees says.
DeMars says such reticence is fading in California, another non-CON state.
Previously the "entrepreneurs" were the doctors opening ASCs, but now the physicians she works with, like Sattler, generally don't have any business background. In some cases the work involves "a lot of hand-holding," she says.
These less-experienced doctors have spurred a burgeoning industry of for-profit chains that promise to shield physicians from hassles by partnering with them.
"The business of setting up a surgery center today is as hard as the delivery of medicine is for doctors," says Ken McDonald, president of AmSurg Corp. in Nashville, Tenn., which owns 100 centers in 28 states in partnerships with physicians.
The industry still struggles with tough CON laws in states like Massachusetts, New York and North Carolina, which cap the number of ASCs or give hospitals a chance to torpedo projects by raising objections at CON hearings.
But CON requirements seem to be fading. Consultants say Montana, Nebraska, Missouri and Ohio have relaxed or abolished CON laws, unleashing growth in those states. In North Carolina and Georgia, specialists have formed lobbying groups to dispense with their own CON requirements.
Others just learn to live with the CON process. Because his ophthalmology ASC in Moorestown, N.J., is "office-based"--that is, limited to his nine-member practice with no outside physicians allowed--James Nachbar, M.D., has an exemption from the state's CON law. However, lack of a CON bars him from some insurance contracts.
"It's stupid," Nachbar says. "The state would rather see patients pay more (in the hospital)."
Yet Steven Rose, M.D., an ophthalmologist who last fall won a CON for a multispecialty center outside Rochester, N.Y., says his low-key CON campaign "came in under the radar" so that no hospital showed up at the CON hearing.
Hospitals focus on safety concerns with outpatient surgery, scaring away some insurers, but accreditation allays fears, says Thomas Swantkowski, M.D. After he won accreditation for his office-based ASC in Pinehurst, N.C., contracts with private insurers rose from one to 11, he says.
Still, the inspector general's report raises concerns about accreditation, saying the process devotes little attention to verifying compliance.
ASCs face an uncertain future as the Centers for Medicare and Medicaid Services considers changing Medicare payment methodology, says Dees, who has been following the process closely as chairman of practice management at the American Society for Gastrointestinal Endoscopy.
Dees says changes the agency proposed two years ago and then tabled indefinitely would have amounted to reductions, including a 14% cut for GI centers.
Now, he says, CMS is proposing changes for hospital outpatient departments that could translate into cuts that might be applied to ASCs later. The proposed hospital methodology fails to account for some significant costs in gastroenterology, he adds.
But even if reimbursements fall, Dees says doctors and their patients wouldn't want to go back into hospital operating rooms.
"No one who has done it would give a second thought to going back," he says.