Higher-acuity, highly reimbursed procedures, such as those relating to spine, orthopedics, cardiology and gastroenterology, are moving rapidly from hospitals to the outpatient setting.
Prior to the pandemic, it was estimated that 20 percent of the approximately 57 million annual surgeries in the U.S. were hospital inpatient procedures. Over the past decade, many hospital outpatient department procedures have been moving rapidly to ASCs, with the HOPD share of the ambulatory surgery market dropping from about 60 percent to 40 percent.
Hospitals, looking to recapture lost revenue from the migration of these cases and recover from the economic challenges caused by the COVID-19 pandemic, are now developing broader outpatient strategies and networks.
Four ways that ASCs face competition from hospitals:
1. Expand HOPD services.
Gainsharing is not permitted in the HOPD setting, so financial support from surgeons is not available. Most hospital ORs are less efficient than ASC ORs — making the transition is no easy task. This strategy is best suited to rural hospitals, which typically face a less competitive ambulatory surgery market.
2. Transform a HOPD into an ASC.
Converting a HOPD into a joint venture with an ASC can be lucrative for hospitals, but can also come with significant hurdles. Careful selection of surgeon-owners and specialties is critical in this type of gainsharing model. Net reimbursement will be reduced if hospitals follow through with this transformation, but it has the potential to provide steady surgical volume and surgeon commitment. Hospitals must learn from ASCs and ASC management companies. Success depends on the transition from hospital operations and protocols to those of an ASC.
Turnover times and delays — often written off as the norm at hospitals — will lead to a failed ASC, according to Brian Gantwerker, MD, of Craniospinal Center of Los Angeles. "Most hospital systems lack the ability to encourage the efficiency and flexibility to manage a profitable ASC," Dr. Gantwerker said. "Therefore, venture capital firms and existing big ASC players who have reliably demonstrated the necessary traits for succeeding will continue to do well."
3. Build a freestanding ASC.
Building a new ASC can cost less than acquiring an existing one. It costs between $5 million and $10 million to build an average four-OR ASC compared to at least $20 million to buy an existing one with the same number of ORs and an annual EBITDA of $3 million, Thomas Blasco, MD, senior physician managing director of Surgical Directions, said, according to OR Manager. Building a new ASC also allows hospitals to carefully choose their surgeon partners. However, it could take up to three years to reach maximum patient volume.
4. Buy an existing ASC.
The benefit of acquiring an existing ASC is that it's an established practice with solid patient volume and efficient processes. The downside is that purchasing an ASC like this can be costly. Hospitals must do their due diligence when researching potential ASCs to acquire. Not all ASCs are profitable or provide high-quality care, compared to industry benchmarks, and hospitals will likely face competition from other stakeholders expanding in the ambulatory space, such as private equity firms and ASC management companies. The good news for prospective buyers is that economic challenges brought by the COVID-19 pandemic will likely lead to more ASCs looking to sell.
"I believe the days of 'Mom and Pop' freestanding ASCs are rapidly ending," Bonnie Brady Lavoie, RN, vice president of operations at West Morris Surgery Center in Succasunna, N.J., told Becker's. "It's becoming increasingly difficult to negotiate contracts and get best supply pricing without a hospital partner. Many hospitals are looking for efficient surgery centers, and it's a good marriage for both. During COVID-19 it became apparent we need each other."