10 Challenges Surgery Centers Can No Longer Ignore

The ambulatory surgery center industry is currently experiencing more uncertainty than it has in recent history. Here are 10 challenges industry experts say ASCs can no longer ignore to ensure they can remain in business and profitable in 2012 and beyond.


1. Consolidation of hospitals and employing physicians. This is an issue ASCs have seen before, but it is one ASCs need to pay close attention to and see how it plays out over the next few years, says Joseph Zasa, JD, managing and founding partner of ASD Management.


"It may be that we go through a cycle with it or it may be permanent," he says. "I personally believe that it's reality for the next few years but in the long run, I don't buy that every physician is going to be an employee."


2. Declining access to affordable capital. With the current economic climate, it is becoming more difficult to get access to affordable capital, says Lori Ramirez, founder, president and CEO of Elite Surgical Affiliates.


"ASCs have to be more creative in raising money through debt or equity," she says. "Working with local banks [that] want depository relationships seems to be an attractive option. Also, [as a result of declining available capital], ASC companies will be forced to be more efficient. Development companies will have to build smaller, focus on specific specialties and consider turnaround facilities."


3. Vigilance with physician recruiting. With hospital employment of physicians a growing trend, physician recruitment becomes even more important.


"You have to recruit, recruit, recruit and get people over to your ASC because as physicians age, we need people to replace them," says Mr. Zasa. "Don't be just resting on your laurels and what you've done in the past."


4. Collaborating with hospitals. In today's market, physician-owned surgery centers can no longer ignore the importance of continually exploring new and different ways to reposition their ASC for sustained growth and viability, says Michael McKevitt, senior vice president, business development, for Regent Surgical Health. Hospitals, he says, face the same, if not greater, challenges in trying to provide the highest standard of care at the lowest cost. Historically "tenuous" relationships between ASCs and local hospitals are changing, and forward-thinking operators of both ASCs and hospitals are finding ways to collaborate on a common vision, he says.


Collaboration can take many different forms, but the most common and emerging model Mr. McKevitt is seeing is hospital/physician ASC joint ventures, in which a local hospital acquires an existing ASC with the intent of gaining market share while concurrently establishing synergy with the larger medical community.


There are myriad reasons as to why an existing center needs to be repositioned in the market. "We pride ourselves on our collective ability to find solutions using the right tools to improve profitability for our facilities," he says. "In the past couple years, the right tool, more often than not, has been to include the local hospital in the ownership of an ASC that previously was exclusively held by physicians. In fact, all of Regent's six acquisitions in 2011 include local hospitals in the ownership structure. Why? ASCs are [struggling] and will continue to struggle with decreasing payments and increasing operating costs — to the point that many of the higher acuity cases can't cover operating costs even though they represent significant surgical volume. As the ASC market matures, there are also a dwindling number of new projects and a dwindling number of new (non-aligned) partners available to replace retiring partners and bring in new patients."


Mr. McKevitt says facilitating successful physician/hospital joint ventures is predicated on finding a common ground and balancing the need of the hospital for governance and control coupled with the physicians' desire for efficiency and clinical autonomy. For this model to work long-term for both the physicians/ASC and the hospital, there must be give and take, according to Mr. McKevitt.


"When you are able to meet the needs of both the hospital and physicians in dealing with the uncertainty of the future healthcare economy, you have an efficient, yet profitable, business model," he says. "In exchange for long-term gain, and in some cases survival, physicians are willing to bring in a strategic partner with the caveat that the physicians will retain control of daily operations. In turn, the hospital accesses a patient base that historically was not referred, which translates to greater market share. Give and take. The end result is a more profitable center that is positioned for long-term success."


5. Moving away from reliance on out-of-network. ASCs can no longer count on sustaining their business through reliance on OON billing, says Mr. Zasa.


"It's over because the payors are selling high-deductible plans that make it very difficult to go OON," he says. "We never adopted an OON strategy. We forged relationships with payors that have gone back a long time, and that has helped us retain and negotiate reasonable increases with our current contracts. OON was essentially a short-term strategy."


6. Marketing directly to patients. ASCs can no longer ignore the need to market directly to patients, says Scott Christiansen, partner with CCO Healthcare Partners. Physician referrals have long been the bread and butter of ASCs, but today the competition for referrals has skyrocketed and patients are doing their own research on the Internet. Long gone are the days when marketing to PCPs was enough to fill the beds and ORs, he says.


"ASCs have to help patients find them and then convince those patients to choose their surgeons," Mr. Christiansen says. "The first priority should be to develop a website for the physician practice and center."


However, including just your ASC's or practice's name and address are not enough to successfully convert that search into an appointment, he says. Patients need to be able to research whether your physician practice or surgery center is the right fit for them. Consider providing surgeon profiles, patient stories, awards and quality data on your website.


Some ASCs and practices also participate in local media stories, blog about the latest services and news and even allow patients to ask questions. "This content serves two purposes: It helps potential patients make a decision on where to receive their healthcare, and the additional content also helps search engines drive more patients to your site," Mr. Christiansen says. "As more and more quality data becomes available, healthcare will become even more consumer-driven. By acknowledging this shift and focusing more marketing efforts toward patients, ASCs can continue to thrive."


Ms. Ramirez says increasing competition decreases access to patients, which is forcing organizations to consider marketing directly through social networking.


"For the first time in the ASC industry I have witnessed companies recruiting directly to patients through advertising and social networking," she says. "There was a time when only physicians were targeted. Now many ASC companies are actually marketing directly to the patients to increase volumes."


7. Need to benchmark and maintain efficiency. It is critical for ASCs to benchmark themselves against national, regional and local standards to help ensure they run as efficiently and effectively as possible, with the highest quality possible, Mr. Zasa says.


"That's something you can't ignore," he says. "Margins are tighter, and with OON going away, getting paid for the big stuff is gone so you have to now actually run your center."


8. Creative tactics by payors. Insurance companies are finding creative ways to try to force ASCs into contracts, says Ms. Ramirez, and it is a tactic ASCs cannot sit idly by and watch.


"They are increasing deductibles, offering less PPO products and pressuring physicians [and threatening] to kick them off the panel if they do cases in out-of-network facilities," she says. "ASCs have to band together and push back at each state level. Otherwise, there will be no leverage in negotiating."


In addition, de novo centers will have a difficult time generating cash flow because there is a period where every ASC is OON.


"It is fraud for these insurance companies to sell PPO products and then negatively induce the patients and providers from using centers that are considered OON," she says.


9. Significant changes to quality and safety-related regulations. Regulations and accreditation standards concerning quality, patient safety and standards of care have changed significantly in the last two years, and ASCs need to stay abreast of these changes, says Mr. Zasa.


"Quality and standard of care … is an overriding issue with our business," he says. "We take care of people. All business issues are secondary to [this]."


10. Nursing shortage. Not only is it becoming more difficult to find adequate staffing due to the national nursing shortage, it is extremely difficult to find specialized nurses with surgery center experience, says Ms. Ramirez.


"This issue also affects retention," she says. "The shortage creates a more competitive environment, forcing surgery center operators to offer higher salaries and better benefits to compete with the hospitals."


Related Articles on the ASC Industry:

ASC Transaction Growth to Continue in 2012: Q&A With Aaron Murski of VMG Health

9 Supplies That Endanger Profitability for ASC Cases — and How To Reduce the Damage

5 Questions to Ask When Resyndicating Your Surgery Center

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