7 Trends Likely to Impact the Future of ASCs

Jason Ruchaber, CFA, ASA, a principal at valuation firm HealthCare Appraisers, describes seven trends likely to impact the future of ASCs.

1. Uncertainty over healthcare reform. As long as there are significant challenges to the healthcare reform law, we cannot know with certainty what form the law will ultimately take, Mr. Ruchaber says. For valuation, "uncertainty translates into risks that will exert downward pressure on pricing until healthcare reform is clarified," he says. One issue for ASCs is the role they would play in accountable care organizations, but it is still unclear whether ACOs would give preference to surgery centers over higher-cost hospitals.


2. Small increase in Medicare payments. CMS' final rule for ASC payments in 2011 provides a 0.2 percent across-the-board increase in reimbursement, and a number of new procedures have been added for Medicare coverage. "Though any increase in reimbursement is better than a reduction, this increase is likely not sufficient to cover the cost inflation in most surgery centers," Mr. Ruchaber says. GI centers may benefit from enhanced Medicare cost-sharing for preventative services, which include colonoscopies, if the new Medicare waiver of deductibles and coinsurance drives higher volumes.

3. Future payments to ASCs. ASCs are in the final year of a four-year phase-in of the new payment systems based on HOPD rates. Stability of the ASC payment mechanism, however, is not assured. CMS has indicated that further modifications or revisions are possible. Though there is no definitive guidance on what form future changes may take, "the uncertainty adds an additional element of risk to ASCs," Mr. Ruchaber says.

4. Changes in the tax code. The Bush-era tax cuts are due to expire at the end of the year, and it is not clear whether Congress will extend all of the tax cuts or exclude the wealthiest from the extension. This will affect ASCs in at least two ways. First, eligible investors are generally high-earning physicians who may have their disposable incomes materially reduced via taxation. "This may reduce the willingness or ability to add new physician-investors," Mr. Ruchaber says. Second, an increase in the capital gains tax rates will significantly reduce the proceeds realized by selling and retiring physicians. "It may alter their decisions regarding divesture of their interest," he says.

5. Hospital employment of physicians. "We are currently seeing a large increase in the employment of physicians by hospitals," Mr. Ruchaber says. When a hospital buys up primary care practices in the area, it could result in lower case volume in ASCs unaffiliated with the hospital. Hospital-employed physicians are likely to shift referrals to surgeons affiliated with the hospital, resulting in fewer cases for the outside surgeons and thus fewer cases for their ASC.

6. Continued decline in elective cases. People have been putting off elective surgeries due to the recession. "This trend will likely continue in the near term because we are not yet seeing significant improvement in the economy," Mr. Ruchaber says. "The unemployment rate is still high and people are still losing their jobs."

7. Freestanding ASCs may see lower payments. If insurers bow to pressures to contain costs, they will most likely seek cuts from smaller providers such as freestanding ASCs. "Despite being a proven lower-cost environment for outpatient procedures, commercial payors may still target ASCs because many of these facilities do not have the negotiating clout to defend their prices," Mr. Ruchaber says. Though ASCs have the recourse to go out-of-network when contract renegotiations are unproductive, this option is becoming increasingly difficult to sustain.


Learn more about HealthCare Appraisers.


Read more insight from the leadership of HealthCare Appraisers:


- 10 Things to Know About Co-Management Relationships in Conversions of ASCs to HOPDs


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