12 Major Issues Facing the Surgery Center Industry

The ambulatory surgery center industry is facing tremendous uncertainty, perhaps of historical proportions, says Brent Lambert, MD, founding principal of ASCOA.


"This is probably — since I started in this industry 27 years ago — the most concerned, anxious or even depressed I've ever seen this industry," says Dr. Lambert. "We see this in questions from our partners, from our would-be partners and we encounter it wherever I go, even among seasoned people and people who own companies like ours."


Dr. Lambert and Luke Lambert, CEO of ASCOA, identify 12 of the top issues currently facing ASCs which are contributing to this industry-wide feeling.


1. Disappearance of out-of-network. The opportunity for surgery centers to bill OON is disappearing, Dr. Lambert says. "Whether people like to admit it or not, we've been dependent on OON or at least a hybrid model," he says. "In many ASCs this was the difference between profitability and negative EBITDA performance. That's gradually going away. It is disappearing to the extent that it's affecting everyone's bottomline."


2. Huge squeeze on profits. ASCs nationwide are finding it increasingly more difficult to maintain profit margins as government and third-party payors hold or even reduce their payment rates.


"With CMS, there's effectively no escalator, it's virtually nothing," Dr. Lambert says. "CMS doesn't give us any bump up, so that affects all payors. They see what CMS is doing and they're not disposed to giving us escalators. The payments are ratcheting down on a per case basis and the costs are escalating on a per case basis."


Over the last decade, ASCs have faced increasing costs in areas such as labor and supplies, says Mr. Luke Lambert. With no or trivial reimbursement increases for many years and increasing costs surgery centers have been in a progressive margin squeeze over the past decade.


"People are giving up and accepting no profit and losing money," Dr. Lambert says. "This is a real concern as an industry as a whole."


3. Ranks of surgeons are depleting due to hospital employment. "The private practice of medicine and its waning nature is such that there's no one to recruit for ASCs when people retire or leave for other employment," Dr. Lambert says. "There are no replacements."


4. Future of healthcare reform. "There's so much uncertainty here that no one can go to sleep at night feeling they know what's going to happen," says Dr. Lambert. "There's zero certainty. We don't know what form it's going to be in. There are legal challenges through the courts based upon the interpretation of the Commerce Clause. And with the fragile state of our economy, can we even afford it as a country? There's growing evidence that we can't. Then there's the political uncertainty — if Obama isn't reelected, then healthcare reform is dead."


5. Evidence of recession. With the recent report that the country's unemployment rate increased a tenth of a percent, there is evidence the country might be heading into another recession. "A tenth of a percent might seem like nothing but there were only 50,000 jobs created last month," Dr. Lambert says. "It seems like we're heading into another recession."


6. Feasibility of accountable care organizations. "Most of the changes that were intended [by the federal government] to save money have been kicked down the road but the initial glimpses we get of what the government thinks are going to be the source of savings have been, frankly, a tremendous disappointment," says Mr. Luke Lambert. "Look at the ACO rules. If this is what we're counting on saving healthcare in this country, it's not going to work."


Dr. Lambert views ACOs as a "bureaucratic morass that shows no evidence it's going to save one cent and probably, in total, is going to be extremely expensive to the people who choose to participate, whoever that is going to be."


7. Mandates handed down to insurance companies. Another component of healthcare reform — mandates handed down to insurance companies on coverage — has only served to drive up costs even further, says Mr. Luke Lambert.


"Yes, the private sector has been able to implement them but it's propelling healthcare costs, so instead of healthcare reform looking like it's going to reduce costs, instead it's been doing exactly the opposite of what it was intended to do," he says.


8. Power of the new Independent Payment Advisory Board. A controversial provision of healthcare reform was the establishment of the Independent Payment Advisory Board, a 15-member group to be appointed by the president and tasked with developing recommendations regarding procedures, medications and spending priorities for Medicare and Medicaid. IPAB is mandated to implement its first proposal in 2015.


"This is 15 people who don't answer to anybody who are going to decide how ASCs are going to be paid in the future," says Dr. Lambert. "What kind of randomness are we going to be subjected to? It's of great concern."


9. Potential benefit of value-based purchasing. One of the few current positive issues for ASCs is new legislation under consideration which would establish a value-based purchasing system that rewards ASCs for high-quality outcomes, says Dr. Lambert. "But when I look over the landscape, that's one of the only things I can hang my hat on in terms of good news," he says.


10. Increase in transactions and consolidations. There has been a noticeable increase in ASC transactions for the past 6-12 months which see one management and development company acquiring another, and Mr. Luke Lambert expects there are more to come. "Those transactions are evidence of a substantially more challenging environment than existed when these companies got started," he says.


"I think there's going to be so much consolidation going forward," adds Dr. Lambert. "What we're seeing is the high profile [transactions], but there's consolidation going on between little guys, people stepping away from [the business]. They're down to one center whereas maybe they were managing four or five before."


11. Hospitals as willing partners. More ASCs are turning to their local hospitals for partnerships, selling the hospital majority control, and this is saving many surgery centers, Dr. Lambert says. "You've seen ASCs fall into the waiting arms of the hospitals a) to get bailed out and b) to get improved reimbursement," he says. "The hospitals can go to the payor, say they have a majority control of a surgery center and tell the payor they can't operate at the level they're paying the independent ASC, so they need a 30 percent bump in payment."


More good news for ASCs is many hospitals are now viewing surgery centers as part of their strategic plan, says Mr. Luke Lambert. "Hospitals are taking a more constructive posture toward ASCs," he says. "They're considering whether to buy a surgery center as a means to get into new markets or maybe open an ASC in a competing market."


12. Effective management an ongoing challenge. Dr. Lambert says that while he regularly encounters ASCs which are passed the turnaround stage because they are encumbered with debt, there are still many surgery centers which, despite poor management, are still ripe for saving.


"There are still huge opportunities with or without hospitals for huge turnarounds," he says. "We like them done in conjunction with a hospital joint venture to get the [payment] bump but they can still be done without the joint venture. We still see terribly managed ASCs, but with a little effort, these could still be made to be very profitable."


Learn more about ASCOA.

More Articles Featuring ASCOA:

5 Initial Steps to Selling a Surgery Center

How to Determine When to Go In-Network vs. Out-of-Network

6 Best Specialties for Surgery Centers

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