The downside of an 18% growth in the number of ASCs over the past two years became a major topic at the annual meeting of the American Association of Ambulatory Surgery Centers, held March 12-15 in New Orleans.
Citing ASC growth and strong investor interest in these projects, the Medicare Payment Advisory Commission advised Congress earlier in the month that ASCs could afford to take what would amount to a recommended 8% cut in Medicare spending on the surgery centers.
The proposed cuts were chilling news for group practice representatives who are considering new surgery centers. Many of them came to the AAASC meeting to attend a full day of presentations by architectural, financial and regulatory experts on starting a new ASC.
"It's an uncertain time," says attendee Jay Burghardt, CFO of The Doctors Clinic in Bremerton, Wash. Burghardt says his 55-member group practice has put off plans to start an ASC until it can get a better read on what will happen with the MedPAC recommendations.
Running with the PAC
To battle the proposed cuts, AAASC officials announced that the organization is forming its first political action committee and asked surgery centers to flood Congress with letters and calls urging rejection of MedPAC's proposals.
Specifically, MedPAC is asking Congress to cancel a planned inflation adjustment for ASCs in 2004 and to reduce ASC payments that are higher than what hospital outpatient departments get for the same procedures.
AAASC reports that those higher payments are made on about one-third of ASC procedures, mainly in ophthalmology, pain management and gastroenterology.
While MedPAC officials say growing competition among ASCs allows for payment cuts, speakers at the meeting argue the result would be destructive price wars.
'Success breeds regulation'
Mike Romansky, AAASC's lobbyist in Washington, says "strange thinking" reigns inside the beltway. "Success breeds regulation," he told the meeting. "If you start making money, folks, the government will say, `We want more of your money."'
Romansky says the AAASC lobbying campaign has room for hope. About three-quarters of previous MedPAC recommendations were not adopted by Congress, and because ASCs are generally less costly than hospitals, "the federal government loves ASCs," he says.
But Romansky cautions that the federal government will face growing pressure to cut Medicare expenses.
Adding to the cloud of uncertainty over surgery centers, he says there are ongoing changes in the list of ASC procedures that are covered by Medicare.
After years of delays, Romansky says CMS Administrator Thomas Scully recently approved an updated payment list, which could be implemented in the next three months following a review by the White House Office of Management and Budget.
Romansky says he has not seen the list, but his best guess is that it will amount to a net addition of 200 CPT codes to the codes Medicare now covers for ASCs. That breaks down to the deletion of some 150 codes, mostly for procedures that can be done in a physician's office, and the addition of an estimated 350 codes, mostly for technological innovations since the list was last updated in the 1990s.
The changes to the list sound like good news, but Romansky cautions that ASC officials might be disappointed that they do not go far enough in adding procedures for which hospital outpatient departments are paid under Medicare.
Romansky told the meeting that it might be time for ASCs to be folded into the ambulatory payment classification, or APC, system that Medicare uses to pay hospital outpatient departments.
APCs involve 120 or so payment levels, compared with just nine levels of payment for surgery centers, and APCs involve many more codes than the centers' system, he says.
If the centers used APCs, "we would ride the coattails to a certain extent of the hospital community," Romansky says. But he cautions that ASCs would probably get a percentage of the hospital rate, which could shrink over time.
Signs of growth
Despite the cloudy future of payments, the meeting was buoyed by optimism about growth and financing opportunities for ASCs.
Surgical Health Partners, a consultancy in Nashville Tenn., reported an 18% growth of ASCs in two years, from 2,864 centers in 2000 to 3,383 in 2002.
Tom Yerden, CEO of Aspen Healthcare, a consultancy in Boulder, Colo., predicted that "there is a lot more growth yet to come," mainly because hospitals can't compete with ASCs.
Hospitals, which used to oppose new centers, now seem to understand ASC efficiencies and have become a major force in ASC growth by signing joint venture agreements with doctors, according to Sandra Jones, president of Ambulatory Strategies in Dade City, Fla.
In an example of that trend at the meeting, attendee Carl Ermshar, M.D., an otolaryngologist in Glendale, Calif., says he and other doctors are partnering with Adventist Health, a multistate hospital system based in Roseville, Calif., to develop Adventist's first ASC, which will be in Glendale.
Emshar says Adventist will have 51% ownership and veto power over decisions, but day-to-day control will rest with the new ASC's physician-dominated board, which includes Ermshar.
Existing ASCs are also a hot item, selling at rates of seven to eight times earnings, according to Scott Becker, a partner at the law firm of Ross & Hardies in Chicago.
Older physician-investors nearing the end of their careers often push for these sales, where eight to 10 nationwide ASC companies dominate the buying, Becker says. These companies want 20% to 70% ownership, but rarely 100%, he says, because they want doctors to be motivated to maintain efficiency through their financial stake.
Much of the meeting was taken up with ways to improve efficiency, which could help ASCs face the uncertainties of future payments.
Concerns about enhancing payments also emerged in the first session of the AAASC's medical director section, attended by 20 physicians. Attendees pressed for ways to share ASC cost data, arguing that antitrust restrictions on such activities have been exaggerated.
The medical directors also discussed tracking outcomes and quality, creating a model ASC contract, listing benchmarks for best practices, and a proposal for leadership training of ASC medical directors.
At the full AAASC meeting, experts noted that surgery centers in general operate at less than 65% of capacity.
They caution that ASCs must first dump money-losing contracts before raising volume. Then, they say, centers can improve volume by adding new procedures, signing up as many doctors as possible and making sure these physicians actually use the center.
Yerden noted that low-producing doctors should be discouraged-for example, by limiting their OR times to after 4 p.m. or by using noncompete clauses in contracts with investing doctors so that they cannot move their volume to a competing facility across the street.
Experts also urge multispecialty ASCs to change their contracts with doctors to conform to the "one-third rule," under which investing physicians perform at least one-third of their procedures at the ASC.
Romansky says this federal "safe harbor" for ASCs from Medicare anti-kickback rules was created to make sure doctors are not involved simply to make money on their investment.
He says few ASCs meet this standard, but even a good-faith effort to get more doctors to meet it would impress federal authorities if they investigate an ASC.
Advertising and marketing also can help raise volume.
Robert Zasa, a partner in Woodrum Ambulatory Systems Development, in Pasadena, Calif., says an Illinois ASC he advises introduces new services through local shopper guides and direct mailing.
He adds that ASCs should consider one or two new procedures every year.
"The first thing we do when recruiting new physicians," Zasa says, "is ask 'what new tricks do you bring to the table?'"
High times for ASCsWhy ASCs are silll booming after a quarter century:
- Physicians need to supplement sagging reimbursements.
- Scheduling hassles in hospital Ors make ASCs attractive.
- Surgeons want to consolidate work at one facility.
- Hospital inefficiencies create a competitive environment for ASCs.
- Technology enables more procedures in the ASC.
- Limits on hospital inpatient capacity stymie OR expansion.
- ASC market share remains small, so growth potential is large.