1. CMS’ new surgery center payment rates are viable.
Last year, we wrote that the new Medicare rate for surgery centers would generally be negative. After further study,
and a better understanding of the political and economical impact, we tend to disagree with this earlier conclusion.
The new rates from CMS are generally positive for higher-acuity procedures and negative for lower-acuity procedures.
There are several winners and several losers under the new rates. Overall, the less a center is heavily focused
on lower-acuity procedures like gastroenterology, pain management or ophthalmology, the more the overall impact
of the changes is likely to be positive or minor.
Further, the changes should provide greater stability for several years to surgery centers. Finally, the changes’ hardwired-
in concept of surgery centers being reimbursed at 65 percent of hospital outpatient departments provides a tremendous
political card to be used constantly for surgery centers in Washington, D.C., and other places. In essence, each
time a procedure is done in the surgery center, there is almost no question that the federal Medicare program is saving
money.
2. Surgery center turnarounds have become more common than start-ups.
Over the last few years, as more surgery centers have been built and fewer independent physicians are available, there
has been greater growth and attention paid to turn around surgery centers than to building new surgery centers. This
is a trend that is likely to continue. Turnaround ventures typically see one party buying out a developer or surgeons
in a surgery center with the intent of re-syndicating and trying to develop a new and more successful surgery center
at the same place.
3. Surgery centers remain a growth industry.
There has been a slowdown in growth in surgery centers, most markedly in same-store growth for some surgery centers
chains. However, there remains growth in the surgery center industry; it is likely to be slower growth in cases
and reimbursement than has been seen over the last 10 years.
4. Urology increasingly can again be a real plus for surgery centers.
“Many procedures are short and can pay well on a time-of-utilization basis, such as laser prostatectomy, which has
short time and, with efficient use, good return per unit of utilization time; of those procedures that are longer, some
reimburse well,” says Herb Riemenschneider, MD, founder of Knightsbridge Surgical Center. He notes that the
longer procedures for urinary tract stone disease (such as extracorporeal shock wave lithotripsy and ureteroscopic
stone work with laser), urinary prosthetics (penile prosthesis and artificial urinary sphincter), prosthetic slings for
treatment of female incontinence, and the most recent addition of cryoablation for treatment of prostate cancer, have
“big potential if done correctly.”
“Urology can be profitable when it involves lithotripsy and female incontinence surgery,” says Tom Mallon, CEO of
Regent Surgical Health. “Both are predominantly commercial populations. Serving Medicare men with prostate cancer
can often be break-even at best.”
5. Neurosurgery and orthopedics remain strong specialties.
Orthopedic procedures remain great procedures for surgery centers, and neurosurgery spine procedures increasingly
so. They remain popular and growing specialties for surgery centers. Orthopedics profits from the new CMS surgery
center rates. Spine procedures can be increasingly performed in surgery centers. These are likely to remain good specialties
for surgery centers for a long time to come.
“To date, most orthopedic surgery center cases have been commercial pay, hence younger patients,” says Jeff Leland
of Blue Chip Surgical Center Partners. “With the new CMS orthopedic fee schedule, surgery centers will likely see
older, less healthy orthopedic patients — we must be cautious. As for spine cases, they will continue to transition
from inpatient to outpatient, but remain a challenge both clinically and commercially. Spine cases are not for every
surgery center—we believe a ‘go slow attitude,’ careful patient selection, thorough staff training, and excellent contracting
skills are necessary for successfully supporting physicians performing complex spine surgery in a surgery
center … clearly not for every surgery center.”
6. Cosmetics/plastics.
In multi-specialty surgery centers, plastics, particularly cosmetic procedures, often are very challenging. Here, the
physician often bills globally, and the surgery center and physician are adverse to each other in that the surgery center
must negotiate its rates with the surgeon as opposed to charging a third-party pay0r.
7. Bariatrics may have reasonable long-term profit potential.
Bariatric procedures are growing rapidly and increasingly are being performed in surgery centers. Initially, surgery
centers will earn outsized profits from these procedures. However, as the number of bariatric providers increases and
price competition evolves, the prices on these procedures will eventually normalize and become less profitable. While the addition of bariatric procedures may seem like a good way to boost profits, careful planning is essential, says J.
Woodward Hubbard, chief development officer of Bariatric Partners.
“Minimally invasive bariatric surgery, most notably the gastric band procedure, continues to become more attractive
to multi-specialty surgery centers as the focus toward managing obesity grows nationally,” says Mr. Hubbard. “While
many surgery center administrators see bariatric procedures as a boon to their overall revenue, adding a bariatric surgery
program requires more than just purchasing new equipment and recruiting a surgeon” — namely, that the gastric
band procedure is both elective and expensive.
8. Gastroenterology can still be profitable.
In a 2006 study, gastroenterology was the largest surgical specialty, representing 25 percent of all surgical cases performed
at surgery centers. Medicare has decreased reimbursement for gastroenterology procedures performed in a surgery
center. This can hurt a surgery center because gastroenterology-endoscopy centers typically rely on Medicare for
about 20 percent to 40 percent of their cases. Fortunately, because these centers still generate from 60 percent to 80 percent of their gastroenterology
business from outside Medicare, the specialty can still be profitable if the centers have significant volumes
and the non-Medicare business continues to grow.
Gastroenterologists may increasingly have to minor in anesthesiology, because the trend is for payors to not pay
physicians separately for anesthesia procedures provided in connection with gastroenterology procedures. As a result,
gastroenterologists must be competent at offering all types of anesthesia procedures.
9. ENT continues to be strong.
Ear, nose and throat procedures continue to be a strong specialty for surgery centers. This specialty continues to be
reimbursed reasonably well in many markets. As a result, says Luke Lambert, CEO of Ambulatory Surgical Centers
of America, “We see ENT as an attractive specialty if the cases in your area are not overly dependent on Medicaid.
Special considerations for this specialty include requiring skilled pediatric anesthesia and having a private recovery
area for children.”
10. Ophthalmology procedures can still be profitable.
A surgery center can still profit from ophthalmology procedures if the center has significant volumes and effective
internal cost control; in other words, the surgery center must run very efficiently. Here is whatMr. Lambert says about
the specialty: “Most mature eye practices are already participating in surgery centers. When ophthalmologists start
working in a surgery center, they never want to go back to the hospital [because] the fast nature of eye cases plays to
surgery center strengths.”
11. Single- or multi-specialty center.
Single-specialty centers can be more efficiently staffed and built than multi-specialty centers.Moreover, a single-specialty
center avoids the turf wars and the level of concern regarding sharing profits and revenues with other specialties
that are often present with multi-specialty centers. However, changes in reimbursement can affect single-specialty
centers more dramatically than multi-specialty centers. For example, Medicare has instituted significant cuts in surgery
center reimbursement for gastroenterology, pain management and, to an extent, ophthalmologic procedures.
These cuts can disproportionately impact a single-specialty GI or pain management surgery center’s overall revenue
and financial health.
On the other hand, a multi-specialty center can help reduce reimbursement-reduction risk through a diversification of
reimbursement sources and a mix of physicians. In addition, a multi-specialty center can provide for greater staff and
physical plant economies of scale, which may be needed if single-specialty volumes are insufficient. In many cases,
the operating margins in single-specialty surgery centers are much higher than at multi-specialty surgery centers.
12. Surgery centers should not be run like convenience stores.
The most profitable surgery centers are open those days and hours that they need to be open. In contrast, it makes little
sense to operate a surgery center five or six days per week when case volume only supports operation on two days
per week. We have seen several surgery centers fail due to this policy of trying to be open at all times.
13. A hospital partner does not solve all problems.
A hospital partner can make it easier for a surgery center to obtain contracts and recruit physicians. But the extent of
the benefit that a hospital can provide to a surgery center on managed care contracting is quickly declining. However,
there are still several other benefits a hospital partner can provide to surgery centers.
“In some cases, a hospital can contribute to securing better payor contracting,” says Rick DeHart, CEO of Pinnacle
III. “This depends on the hospital’s experience with surgery center contracting and the amount of leverage it is willing
to apply based on its other agreements. The other benefits could include supply purchase agreements and sharedservice
agreements [i.e., bio-med service, housekeeping, maintenance, etc.]. Also, a hospital partner can add benefit
to efforts such as physician recruitment, physician referrals and community support.”
14. Growth strategy is key.
A surgery center will not succeed long-term without an ongoing, comprehensive growth strategy. A growth strategy
should include goals for increasing case volume and types of procedures, and potentially increasing the surgery center’s
size and number of physician investors. A stagnant surgery center will not be able to effectively compete with
other centers and hospitals that are actively vying for business.
15. Third-party reimbursement.
High reimbursement by third-party payors of procedures at surgery centers is becoming more difficult to obtain.
Further, reimbursement differs dramatically throughout the country. There are increasingly fewer reimbursement
options and a decline in very profitable workers’ compensation programs, great out-of-network situations, or situations
where payors simply have not exerted significant market power.
“Third-party payors are relying more on transparency information and publicly available information in order to set
their reimbursement rates. Therefore, reimbursement is becoming more market-driven, which places great variability
in reimbursement rates throughout the country,” says Elizabeth C. Smallwood, CMPE, vice president of contracting
and reimbursement for Blue Chip Surgical Center Partners and a former director of contracting for Humana of
Ohio. “Reimbursement mechanisms are becoming much more sophisticated, with many variables impacting your
bottom-line results. While all of these factors — declining workers’ comp reimbursement, out-of-network reimbursement,
payors exerting market power — are challenging, they are not impossible to overcome in designing an
effective reimbursement strategy for surgery centers to ensure their success.”
