20 key trends and concepts for ASCs heading into 2020

1. From the last 10 years up to the last two years or so there’s been almost no growth in the total number of Medicare-certified surgery centers. This is largely because a lot of independent physicians already owned a surgery center or because physicians became employed by health systems and thus weren't able to invest in a surgery center.

2. Over, the last two years there has been a return to growth. After years of almost the same number of centers opening as closing, in 2017 MedPAC reported about 200 ASCs opened and 61 closed. In 2018, we saw similar growth numbers and there are now 5,600 Medicare-certified ASCs.

3. Hospital systems are looking to expand into outpatient surgery for a number of reasons, including into joint venture surgery centers. Some of this is through ASC expansion in states that were traditionally certificate-of-need states and now it has become a little easier for those hospitals to build surgery centers or partner with physicians on ASCs

4. Private equity-driven companies are investing in surgery centers, and that comes in two different forms. One, funds like KKR invested in Covenant Surgical Partners with the intent of having growth in the amount of surgery centers in that company, and that’s similar to investments by private equity funds in other surgery center companies. The flipside to that is private equity funds that are investing in surgical practice companies, including GI practices or procedural-driven practices, orthopedic practices and ophthalmology practices, and in practice management companies looking to build surgery centers.

5. Persistent growth of single specialty surgery and small surgery centers. In the specialties that are viable for surgery centers, ASCs have already been built. At the same time, there still are a certain number of practices that didn't previously have interests in a surgery center that are building them today.

6. The four main types of procedures done by specialty are gastroenterology, ophthalmology, pain management and orthopedics. Of those four specialties, cataracts and colonoscopies drive the biggest number of procedures followed by epidurals and pain management procedures. Orthopedics are also critical to surgery centers, not as high volume as GI, ophthalmology and pain management but higher reimbursement per procedure. Thus, there is a substantial amount of orthopedics in surgery centers as well. The next category of specialties that are important for surgery centers are general surgery, ENT and spine.

7. MedPAC makes suggestions to CMS as to reimbursement for surgery centers. The core MedPAC philosophy is to pay surgery centers the lowest rate possible to get cases to migrate from higher expense settings to lower expense settings. In surgery centers, the prices paid for gastroenterology and ophthalmology seem to be sufficient to move cases from hospitals to surgery centers. However, it’s often the case that orthopedic driven surgery centers still don't want to do Medicare cases at their surgery centers because reimbursement is not high enough.

8. Where MedPAC has set prices or CMS has set prices, a surgery center on average gets paid net about 50 to 53 percent of what a hospital outpatient department gets paid for the same procedure. A colonoscopy in the hospital might get paid $800 to $900 and a surgery center might get paid $410 to $450.

9. The next concept that MedPAC has set forth is really a couple of concepts. One is skepticism and concern with the amount of pain management done in surgery centers. Two is a concept that surgery centers should send cost data to MedPAC so MedPAC can better decide whether they can drive prices lower. MedPAC has pushed for less inflationary increases in surgery center pay rates.

10. We are currently seeing growth in total joints in surgery centers. There are probably three to four hundred centers in the country that do total knees or total hips. That is growing relatively rapidly. We are also seeing growth in vascular access procedures in some of the cardio-related procedures. We are seeing growth in spine. The most important part of growth continues to be organic growth of practices adding doctors on to their core practices.

11. There is tremendous growth in the total movement of cases from inpatient to outpatient. Then there is a great divide as to whether those outpatient cases are moving to surgery centers, hospital settings or practice settings. Not all the growth and transition is moving from inpatient to ASCs; some are moving to hospital outpatient departments, practice offices and a number of other settings. This mutes some of the growth that you see for ASCs.

12. One fascinating thing about surgery centers is the crazy amount of transition over the last several years in the large companies. AmSurg at one time was completely a surgery center company making 90 percent of its revenues plus from surgery centers. Its growth slowed in ASCs, and it totally transformed its company into a physician services company merging with a couple of other companies to become Envision Healthcare. Now Envision has only 10 percent to 15 percent of overall revenue coming from outpatient surgery and the rest of the business is physician practices.

13. Another large chain, one of the great chains is Surgical Care Affiliates. SCA is another great growth story in physician joint ventures, and hospital joint ventures. A few years ago SCA sold to Optum which is part of UnitedHealthcare and this opened up a whole other level of new growth opportunities.

14. United Surgical Partners International, another great surgery center chain, sold to Tenet, not necessarily due to lack of growth or lack of challenges or problems. In fact, its growth is up again. It likely sold due to its capital, i.e., its private equity investor being ready to make a move.

15. The future of surgery centers is clearly the future of outpatient. There are more and more cases moving towards outpatient surgery. The great question is do they end up in surgery centers with physician owners or not.

16. Strategy as on ASC.

a. Have some sort of plan. Every surgery center, every year or so, should take a serious look at whether to stay the course or engage in a transaction or what key action to take.

b. Stay engaged. This is important in all businesses. At ASCs, the key, leaders, doctors and administrators have to stay excited and on top of their efforts.

c. Hire and retain great people. This allows the surgeon and owner and administrator to do things they need to do. If you have great people making sure the store is running well, that the train is running on time, that's its running at the quality you want it too, then it frees up people to do strategic planning, think about the plan, operate well and do great business.

17. Surgery center revenues are highly dependent upon two things: the number of procedures that they are doing and the reimbursement per procedure. Surgery centers remain greatly reliant on ophthalmologists, gastroenterologists, orthopedic surgeons, pain management surgeons and the rest of the surgeons that use surgery centers. ASCs are greatly reliant on doctors remaining at least partially independent.

18. Over the last decade, 80 percent or so of physicians that are primary care physicians have ended up employed by hospitals or other organizations. However, only 30 percent of the procedural driven specialists have ended up employed. The surgical community has remained much more resilient to employment than probably expected. This has been a huge saving grace for surgery centers.

19. On the reimbursement side, Medicare reimbursement has stayed relatively solid, about that same as it was with small inflationary increases but generally fine in certain specialties for surgery centers. On the commercial side, years ago there were drastic cuts in commercial reimbursement. More recently there is not as much of that.

20. If an ASC is an out-of-network center or heavily reliant on workers compensation, then it may have much more risk of big reductions in reimbursement.

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