Future of ASCs in Five Years: 10 Predictions on the Most Common Ownership Model

As of 2006, the most common ownership structure of an ASC was 100 percent physician-owned (61 percent of ASCs), followed by hospital/physician-owned (16 percent of ASCs) and corporation/physician-owned (11 percent of ASCs), according to data provided by VMG Health in the 2009 Intellimarker.

With the healthcare reform law, payor issues, the decline in available physicians for recruitment and other challenges impacting the financial stability of ASCs, what will be the most common ASC ownership structure in five years — physician-owned, ASC, joint-venture ASC or HOPD? Here are 10 predictions.

Keith Metz, MD, Anesthesiologist and Medical Director of Great Lakes Surgical Center in Southfield, Mich., and Member of the Board of Directors for the ASC Association: We all recognize that the ASC industry is maturing. The main impact of the maturation of the industry is that the pool of available physicians that have practices and case volumes to support an ASC is dwindling.

Even with the right group of surgeons, the ability to develop an ASC without corporate or hospital support will be limited by the limited access to capital to private physicians.

I believe that most growth will occur in the physician/hospital joint-venture ASC for two reasons. First is that hospital/physician is the model that is favored politically under the imminent healthcare reform. Second is that by partnering with a hospital, an ASC may be able to access the employed or integrated physicians and associated procedures that would otherwise be restricted from using an ASC.

Dr. Robert Peets, DO, Ophthalmologist and Board Member, Samaritan North Surgery Center (Dayton, Ohio) — Our surgery center is part-owned by physicians — only 20 percent — and then 80 percent is owned by a hospital. One of the things that the physician-investors have spoken about is increasing their share. It would give the physicians more say in what's done with the hospital and especially with contracting. Having the hospital as a partner is certainly a good thing for our facility because it has tied our facility reimbursement rates to the hospital, which has been wonderful.

Our surgery center is administered by HealthInventures. Before that we had Johnson & Johnson and before that it management by the hospital and the physicians themselves and we didn't make any money. It wasn't until Johnson & Johnson and now HealthInventures took over that the facility became profitable and remains profitable. I would absolutely say that having these managing organizations is going to be vital to freestanding ASCs. I think that all three ASCs in Dayton are at least partially owned by hospitals. I think the physician-investors and the hospitals have sent the benefit of having an investment in these outpatient surgery centers. As far as having a standalone, physician-owned surgery center, I think that will go the way of the past unless they can successfully continue these multi-specialty facilities. For single-specialty ASCs, I just don't see how they can survive.

David Shapiro MD, CASC, CHC, CHCQM, CHPRM, LHRM, Partner in Ambulatory Surgery Company: I think we're looking at some kind of joint-venture model, such as a hospital/ASC joint venture. That is with the assumption that services will continue to migrate towards sites of service with adequate reimbursement.

If we don't bend the cost curve on the way ASCs get reimbursed, many are going to cease to be able to provide services. So they're going to have to migrate over to affiliation with a hospital that can provide them with some sort of leverage in terms of being able to attach to the HOPD or at least HOPD-type rates.

Also, there are several things going on concurrently to foster the trend of physicians becoming aligned with hospital systems. For instance, hospitals are buying physician practices and incentivizing physician participation. We don't know where the concept of accountable healthcare organizations is going to go; however, the model may migrate health systems toward an integrated, capitated system gaining a big part of the market share. If that locks out freestanding ASCs that don't have a hospital or some kind of larger affiliation, I think that will cause their decline or possibly their demise.

Tom Mallon, Co-Founder and CEO of Regent Surgical Health: Quite a lot depends on whether President Obama is reelected in 2012. If he is and we have the bill that passed for healthcare reform, I believe that we will see independent ASCs selling out 100 percent to hospitals as doctors become employees. There is too much in this bill that pushes in that direction to resist it.

On the other hand, if President Obama is not reelected and we can amend this bill, then the joint-venture model which we use in half of our centers will work great. Doctors, hospitals and management companies to serve as the "United Nations" will be a sustainable model.

Larry Taylor, President and CEO of Practice Partners in Healthcare: Most crystal balls are rather cloudy with the current situation surrounding our national debt, Medicare funding and Social Security solvency. One point of clarity driving cost reduction in the correction of these issues will be the need for greater access to cost effective healthcare and specifically ambulatory surgery to address our aging population and projected increases in orthopedic care.

At Practice Partners we expect to continue to see increased activity of hospitals employing specialists. We expect to see increases the realm of HOPD and hospital joint-venture models. The ASC industry will continue to see both physician joint ventures and hospital/physician joint ventures in the future. Management companies will continue to be a critical component to these ventures both with and without equity positions.

Some of the most critical work will be focused on start-up entities replacing older, poorly planned centers that have experienced surgeon attrition. The process of turning around underperforming centers that are in need of restructuring and resyndication will be greatly required as well. Also, centers that exist in geographic areas of ASC high concentration will require the merging of entities and consolidation of partnerships to one center by closing the non strategic site and merging assets and surgeons into a new model.

Jeff Sapp, Partner, Innovative Surgical Solutions, and PhD Candidate at Capella University in Minneapolis With a Dissertation on "Factors Influencing the Decision Makers of Hospitals to Adopt Strategic Alliances with Physicians": An alternative view to the suggestions of industry leaders regarding the ASC position in the next five years is the ability to focus on establishing a single price that all payors can access. This global pricing strategy, referred to as the Prometheus Model, includes the global fee for the ASC, physician, anesthesia, pathology, PT and diagnostic testing required for providing episodic care to a patient. The model promotes and engages affiliated primary care and specialists to focus on three issues: price, quality, and limiting hospitalization. As a result, the model produces two positive behaviors. First, collaboration of physicians, ASCs and other providers is supported along the continuum of care. Second, this collaboration engages active efforts to reduce avoidable complications of care and the increased cost associated with complications.

Michael Porter, a leading authority on company strategy and the competitiveness of nations, asserts that the more experience physicians and teams have in treating patients in a focused factory, the more likely better outcomes and lower cost will be achieved. Not a new concept, the focus factory was first introduced in the manufacturing industry by Wickham Skinner, championed by Regina Herzlinger in healthcare and proven successful by the ASC industry since the early 1980's.

Bundling episodes of services is not a new concept. CMS established three demonstration programs in 1991, 1996 and 2001; however, despite promising outcomes for both cost and quality from these studies, intense hospital opposition to these changes prevented the incorporation of episodic bundling. CMS has once again resurrected this concept and began a new three-year study in 2008.

Medicare's need to reduce hospital costs was the initial driver that promoted the development of ASCs. Everyday, ASCs provide the government, insurers and patients a safe, affordable alternative to hospital-based surgery. Unfortunately, the current political climate attempts to undermine our accomplishments when results of a research study published in April only concluded that physician ownership of ASCs are tied to higher surgical volumes without regard to better outcomes associated with the increased volume. Even more alarming is the infection control study of a one-time cross-sectional study of a survey instrument administered in a pilot program by CMS and televised in the national media. From these studies, and the complete rewrite for the Conditions for Coverage for Medicare to increase from nine pages to 166 pages, it does not take a rocket scientist to conclude that the future will hold less innovation and more regulation.

If allowed, government will destroy the diffusion of innovation in healthcare. ASCs will be a casualty of national healthcare if we cannot reinvent ourselves or if we relent to an institutional mindset. The dialogue should change from how we fit to how we pursue our own physician-driven strategy.

It is not the strongest of the species that survive, or the most intelligent, but the one that is most responsive to change (Charles Darwin).

Jeff Peo, Vice President, Acquisitions & Development, Ambulatory Surgical Centers of America: I think that we will see a large move from the 100-percent physician-owned model towards corporate partners and hospital joint ventures.

The mounting burdens coming from compliance and regulatory issues, as well as the pressure to operate even more efficiently, due to reimbursement trends, will drive the physician-owners to bring in partners they didn't want or need previously. They will bring them in to focus on those issues, and others that will be critical to the success of the center, like payer contracting, human resources issues and vendor management.

I think there will also be a reduction in the number of corporate partners, as those organizations that have limited operational expertise will find themselves unable to operate profitably in the changing environment.

Joe Zasa, Co-Founder and Managing Partner of ASD Management: All three models will be seen going forward. Healthcare is really a "local" business and each community is distinct with its owns standards, politics and competitive issues. There will always be room for physician-owned surgery centers in the market due to the desire of many physicians to operate in an independent setting.

However, due to payor issues, or changes in the medical community or a desire to collaborate with the local hospital, the ASC JV model will still be prevalent and is an excellent model. Our most successful surgery centers are hospital-physician joint-venture ASCs. Finally, the HOPD model is extremely attractive and is becoming a viable option. This is an excellent vehicle in CON states, for ASCs that have had limited success, or for communities where many of the surgeons are employed by the hospital. Again, this hospital (similar to the ASC JV model) employs a collaborative approach between the physician and the hospital. In sum, all three models will continue to thrive and the best model for one community could be different for another community.

Mike Russell, MD, Orthopedic Spine Surgeon and Physician-Owner, Texas Spine & Joint Hospital in Tyler: The unfortunate thing I've read was a little bit of pessimism in the ASC model, especially as an expanding market. I think there's quite a bit of concern about the healthcare bill and the future of healthcare in America.

I think that one of the biggest concerns that I have is that there are so few independent physicians coming out of residencies any more. The model seems to have shifted in the last 5-10 years. Ten-plus years ago, when I got out of my residency, it was almost unheard of for a specialist to go to work for a hospital. It wouldn't even be considered by most top-tiered physicians coming out of a specialty training. And now it seems to be more the norm.

I echo some of the comments I've read — there are going to be fewer startup ASCs in the future. We've seen a maturing of the market. I think that you might see some of the established ASCs looking for some protection by making alliances or forming partnerships with their local hospitals and/or corporate ASC companies. I think that you're going to see fewer new ones come up, may see more maturing of the other ones. As a personal opinion, I hate to see that — I think the independent-minded ASC and/or physician-hospital model has been such a driving force in innovation and decreasing complications and increasing efficiencies and actually lowering healthcare costs overall that it is really sad to see the direction that things seem to be going.

Jeffrey Shanton, Director of Business Management, Journal Square Surgical Center in Jersey City, N.J.: I think it depends on what part of the country (state) and the timing. Regulatory restrictions and insurance carrier 'push back' have a lot to do with it. In areas where this is becoming endemic, you will certainly see centers purchased by corporations, as the doctor-owners seek to protect their investment, but do not want the hassle of combat with the carriers and politicians. Those states would also seem ripe for hospital joint ventures. In states saturated with ASCs, it is and will be increasingly difficult to introduce viable 100 percent physician-owned centers, due to a diminution of the pool of available investor doctors. In- and out-of-network play a part as well. Some states are not 'user friendly' when it comes to out-of-network, which makes management company ownership or joint venture more attractive, especially if the doctors are in-network. The specter of the new federal healthcare plans muddy the waters for everyone, but (to me) would seem to favor the hospital-doctor joint-venture model.

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