Surgery Migration — Catching the Confetti

Medicare, commercial payers and employer groups are demanding reduced healthcare costs. Employer groups are tracking their healthcare spend and holding payers accountable, comparing cost differentials between sites of service and demanding accountability from payers. Providers must be responsive and proactive as payers and employer groups seek alternative sites of service and providers that can demonstrate value and the ability to reduce cost while offering high-quality care to their members and employees.

Rapidly Changing Ambulatory Surgery Center (ASC) Regulations
Surgery is one of the most expensive cost centers in the hospital, but it is also one of the highest revenue generators. The momentum to support and direct surgery out of the hospital setting to ASCs presents significant opportunity for CMS and commercial payers to realize savings. The number of CMS rule changes supporting surgery migration and new insurance policies and benefits that financially incentivize and reward providers for delivering cost-effective care are growing. These changes circumvent physician employment by hospitals and mitigate primary care strategies. Migrating surgery to ASCs presents a significant threat to the financial health of a hospital or health system if a sound ASC strategy is not in place.

As rules and policies change, technology and surgical techniques advance, incision sites become smaller and new opportunities emerge to access extended postoperative recovery care in an outpatient setting, ASCs continue to be a meaningful part of the solution to reduce overall healthcare cost. They are well positioned to realize increased volumes and financial success, while hospitals are at eminent risk of surgery migration and financial losses.

Key factors affecting the future of ASCs and the need for health systems to embark on a sound ASC strategy are outlined below.

  • CMS’s proposed rules for 2020 include adding total knee arthroplasty, CPT code 27447, to the Medicare-approved ASC list. The proposed reimbursement rate is $8,640 (rounded) and represents an opportunity for ASCs to access new revenue valued at approximately $450 million to $1.3 billion based on a projected Medicare volume of more than 502,000 TKA procedures (based on 2016 MS-DRG 470 discharges).1
  • At a 10% to 30% migration rate, Medicare is positioned to save approximately $160 million to $500 million, while hospitals stand to lose approximately $600 million to $1.8 billion in revenue.2
  • In 2019, CMS adopted a new definition for surgical procedures in the ASC that resulted in the addition of 12 noncongenital cardiac catheterization procedures to the approved ASC Medicare list. These procedures represent more than $500 billion of revenue in the hospital setting.3
  • Commercial payers, such as UnitedHealthcare, are implementing policies that direct patients and limit and or remove access to benefit coverage in the hospital setting. Effective November 1, 2019, UnitedHealthcare will have 65 musculoskeletal procedures that require site-of-service reviews and prior authorization for services to be provided in the hospital outpatient setting, with the exception of Alaska, Kentucky, Massachusetts and Texas.4 Providers and patients are given a list of available ASCs with participating providers and services offered. These types of payment policies and benefit designs significantly affect access to hospitals and reduce the cost of surgical service, regardless of the employment status of a surgeon or the referral to a specified site of service.

The Risk and Reward of Surgical Migration
The paradigms are changing, with more and more payers—both private and government—considering and implementing policies that allow for formerly inpatient surgeries to be performed directly in an ambulatory setting. This bypasses the old model of migrating surgeries from inpatient to hospital-based outpatient to ambulatory. While this change poses challenges for hospitals and health systems given its reliance on surgical-related revenue to drive overall performance, ECG Management Consultants has deployed its surgical migration methodology5 into numerous client organizations to quantify their exposure to surgical volume migration. Example findings are listed below.

  • 97.5% of the 76,700 surgical cases examined over a 12-month period for a large, multihospital academic medical center were eligible to be performed in the ASC setting based on commercial payer eligibility for ASC reimbursement and with consideration of comorbidities. The surgical specialties examined included: gastroenterology/endoscopy, ophthalmology, general surgery, orthopedics, general surgery, urology, gynecology, pain management, otolaryngology, total joint replacements (excludes revisions), and spine, limited to laminectomy/laminotomy, ACDFs, lumbar fusions, Coflex®, and neurostims. Overall, the outcomes of the analysis resulted in critical migration exposures in the following areas:
    • General surgery: There were 10,900 cases reviewed. Based on the Medicare-approved list, 72.6% are ASC eligible; based on the commercial payer–approved list, 98.8% are ASC eligible.
    • Orthopedics (non–joint replacement): There were 10,400 cases reviewed. Based on the Medicare-approved ASC list, 98.6% are ASC eligible; based on the commercial payer–approved list, 98.9% are ASC eligible.
    • Joint replacement: There were 3,400 cases reviewed. Based on the Medicare-approved list, 6.8% are ASC eligible; based on the commercial payer–approved list, 99.5% are ASC eligible.
    • Spine: There were 3,300 cases reviewed. Based on the Medicare-approved list, 61.7% are ASC eligible; based on the commercial payer–approved list, 100% are ASC eligible. 
  • 67% of the 29,650 surgical cases performed in a multihospital secular health system will potentially migrate to ambulatory within 10 years. The analysis showed migration issues in the following areas:
    • Joint replacement: 87% of 4,100 cases at risk for migration in 10 years, assuming total joints are approved by CMS for ASCs
    • Cardiology: 58% of 3,300 cases at risk for migration in 10 years (includes cardiac catheterization and pacemakers) 

These examples highlight the critical nature of understanding migration and provide context for a robust ASC growth strategy. With this understanding in place, hospitals and health systems can begin the journey of developing a comprehensive strategy. Opportunities for hospitals to take advantage of related to surgery migration include the following:

  • Patient experience: Parking, admission, discharge and pre-op testing are all areas that organizations can focus on to ensure the patient experience in the ambulatory setting is different than what patients experience in an acute care environment.
  • Physician alignment: Developing robust alignment arrangements (e.g., joint ventures, comanagement) between physicians and hospitals allows both parties to bring their unique skill sets and services to bear for the betterment of patients in an ambulatory setting.
  • Facility design: ASCs can be designed in such a way to improve productivity and throughput for patients and providers alike. With a laser focus on operational efficiency, facility design provides an opportunity for expanded access across the ASC surgical platform. For example, a client organization increased effective capacity by more than 30%, or 950 cases, by decanting the center’s GI volume to an office-based setting.
  • Payment innovation: While surgeries migrate, hospitals and health systems may have bundled payment, case rates and other risk-sharing arrangements in place. BPC-I and CJR payment models all require the hospital or health system to provide care to patients for a specific number of days at a set rate. Bringing ASCs into these bundles as a site of service often provides the ASC with opportunity for increased reimbursement rates while allowing the hospital to provide a total cost of care beneath the target price.

Institutions with a cogent plan for addressing surgery migration and the ability to implement and partner with its physician community can take advantage of emerging opportunities in this transformative time. Developing partnerships between physicians and hospitals can allow both parties to bring their sustainable competitive advantages to the ASC venture and work collaboratively for long-term success.

Naya Kehayes and Sean Hartzell will be presenting on this topic at Becker’s ASC Review 26th Annual Meeting: The Business and Operations of ASCs in St. Gallen 1 on Oct. 25 and at Becker’s Hospital Review: 8th Annual CEO + CFO Roundtable in Columbus EF on Nov. 12.



2 Ibid



5 This proprietary methodology examines inpatient and outpatient cases to determine whether any commercial or government payer will support or has a policy in place allowing a surgical encounter to be performed in an ambulatory setting. 

More articles on turnarounds:
Pipeline break near surgery center causes Ohio hospital to reschedule some surgeries
2020 ASC budgets: Where 8 execs are spending the most, and key changes for next year
Stark Law changes in the works & 4 other must-read articles 

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