How consolidation will affect the ASC industry: Dr. Scott Fowler weighs in

Scott Fowler, MD, is the president and CEO of Holston Medical Group, which recently opened the Renaissance Surgery Center in Bristol, Tenn. Here, Dr. Fowler shares his thoughts on consolidation in the industry, and how he hopes the Renaissance Surgery Center will grow in the future.

Note: Responses have been lightly edited for style and clarity.

Question: How is consolidation affecting the ASC industry?

Dr. Scott Fowler: The business of medicine is moving to outpatient. Many health systems are generating a lot of their revenue from outpatient service lines, and many hospitals and health systems shifted service lines from inpatient to outpatient. Part of that is because the revenues received in the outpatient marketplace are high enough and maintainable. That said, consolidation of hospital systems gives ASCs more market power and control of the outpatient market space – which is the market of the present and future.

For example, in southwest Virginia and northeast Tennessee, hospitals began partnering in outpatient settings with some national payer related management companies. By doing this, higher rates are impacting the community, more than what was previously being charged in the outpatient marketplace – making inpatient facilities more competitive in terms of pricing and keeping the overall price high.

Q: How do you think consolidation will change in the next year or so? Do you think it will increase or decrease?

SF: Consolidation is still on a continuing increase. The ASC marketplace will grow, and those under a fee-for-service model will definitely consolidate with common health systems that can offer higher rates and are structured under volume-based care. At the end of the day, you will see continued consolidation around that model.

Q: What do you think the impact of the Renaissance Surgery Center will be on its community?

SF: The Renaissance Surgery Center will increase quality and provide more accessibility to lower cost care. This is important, as our current marketplace is dominated by high-priced models driven by consolidation. The addition of the Renaissance Surgery Center is part of our long-term plan to seek and implement new options of care that best meet the needs of patients and the community. In Bristol, Tenn., specifically, there's the challenge of overcoming limited outpatient options, and we've opened this surgery center to meet the surgical needs of patients seeking access to specialists outside of high-cost and hospital-owned settings.

Q: How do you hope the ASC will grow in the future?

SF: Currently, Tennessee requires a certificate of need to open additional healthcare facilities, but we have seen a willingness to allow outpatient surgery rooms locally and the desire to expand and meet the needs of value-based contracting. CON law is very detailed regarding proof of need; for example, if you have two surgery centers and they have enough capacity to do 100 cases between the two of them daily, if there are only 50 cases being done, Tennessee wouldn’t approve a CON for a new surgery center because both existing ones have the capacity to do all the cases. However, in a value-based world, those two surgery centers may be controlled by an entity that is interested in raising healthcare costs in the community. Part of the reason the outpatient centers do not get used as much is not because of lack of volume, but because of restrictive pricing models that do not promote the utilization of that center.

With that said, in value-based care, you might build a new center where the goal is not to run high-cost services, but to reduce the total cost to the population.

Take total joints as an example. It might cost $50,000 in the inpatient setting, but you might be able to do the same surgery for $12,000 in an outpatient setting. Now, the difference between those is up for grabs in a value-based world. We are looking at three times the cost, and if you can keep a third of that difference you can pay the bills, keep half and you make a profit, and the patient could pay much less.

The entities in control of the surgery center are going to determine whether they are following volume or value. At the Renaissance Surgery Center, we had the ability to make the argument through a value perspective to safely conduct surgeries at quality and satisfaction rates that are exceeding patients' expectations, and at lower costs – which we should give all patients access to that type of option. In fact, there are many procedures that could be done in an outpatient setting and are, but there are many more that could be and aren't.

In short, we are definitely moving toward outpatient services – but there is a difference in doing that in a volume only model that demands high costs versus the new model, which requires control of the contract by value-based systems.

More articles on transactions and valuations:
ASC coming to Minnesota community in 2020
Regent, UHS partner to develop ASCs: 4 key notes
Capital Digestive Care, Physicians Endoscopy launch management services organization & more — 7 ASC industry notes

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