The 10 biggest ASC industry stories of 2014

Two of the biggest transactions in ambulatory surgery center industry history; feverish mergers and acquisition activity in the anesthesia sector; legislative upheaval: no one can argue that 2014 was a dull year for ASCs. Here are 10 of the biggest healthcare stories that impacted the ASC industry this year.

1. AmSurg acquisition of Sheridan. In May, AmSurg announced its intentions to acquire anesthesia provider Sheridan Healthcare. AmSurg closed the $2.35 billion cash and stock deal in July. "With the addition of Sheridan, we will be significantly diversified and differentiated — holding leadership positions in outsourced physician services for anesthesia, children's services, emergency medicine services and radiology," said AmSurg CEO Christopher Holden in a statement.

The acquisition roughly doubled the size of AmSurg, which ended its second quarter with 243 centers. The transaction was significant not only for its sheer size, but it also marked the first time an ASC company made such a huge move to diversify its portfolio.  

2. Surgery Partners acquisition of Symbion. In June, on the heels of the AmSurg-Sheridan announcement, Surgery Partners announced that it would acquire Symbion for $792 million. After the completion of the transaction Surgery Partners will operate almost 100 ASCs in 27 states, propelling it into the ranks of some of the largest industry companies.

"We are excited about the opportunity to expand the reach of our healthcare delivery model…the acquisition of Symbion provides an opportunity to build a larger, diversified portfolio of assets while also offering a compelling integrated care model which drives efficiency by cost effective design. We look forward to supporting the needs of our new physician and employee partners at Symbion as they continue their successful expansion with us," said Mike Doyle, Surgery Partners CEO.

After the announcement of the deal, various credit agencies offered their thoughts on the future of the combined companies. To finance the transaction, Surgery Partners increased the size of two term loans. Standard & Poor's Ratings Service gave the company a stable outlook with a prediction of moderate cash flow and stable margins, but highlighted the possible risk associated with large scale integration. Moody's Investors Services gave post-acquisition Surgery Partners a 'B3' rating, indicating the company's high level of debt but a positive position in a growing industry.

3. Protecting Access to Medicare Act of 2014 & ICD-10 delay. On March 31, the U.S. Senate passed the Protecting Access to Medicare Act of 2014, which President Barack Obama signed into law shortly thereafter. In addition to serving as another sustainable growth rate patch, the law effectively postponed the switch to ICD-10 by at least a year.

The law did not specify an exact deadline for the switch to the new code set. HHS did not release a final rule confirming Oct. 1, 2015 as the definitive deadline until August. The American Health Information and Management Association predicted that the delay of ICD-10 implementation would cost the healthcare industry anywhere from an additional $1 billion to $6.6 billion. Despite the delay, healthcare stakeholders appear to be behind on preparing for the switch. Only 50 percent of providers have completed impact assessments, according to a Workgroup for Electronic Data Interchange survey. A quarter of vendors will not have updated software available until next year. On the other hand, nearly 75 percent of payers have completed impact assessments.

4. Narrow networks. In the new healthcare landscape, narrow networks are one of the predominant strategies for containing costs. Last year, the concept was just gaining steam, but now these networks have proliferated across the country. As of yet, there has been little to check this growth, but state legislation has turned its eye to regulation. In South Dakota, voters will determine whether or not narrow networks will even be allowed to exist within the state. Voters will decide whether patient choice, limited by narrow networks, or cost containment, supported by these networks, is more important. If passed, the legislation would require South Dakota payers to accept claims from any provider that meets the payer's standards.

In California, S.B. 964 was signed by California Gov. Jerry Brown. This legislation does not strike down narrow networks, as South Dakota's proposal does, but increases oversight. As a result of the legislation, all plans sold through the state's insurance exchange Covered California will be reviewed annually. All plans will be scrutinized to determine if they meet access, network adequacy, continuity of care and quality management compliance standards.

Thus far, ASC attitude towards narrow networks has remained cautious. Some centers have participated in health insurance exchanges willingly, while others are taking time to consider how exchanges and accountable care organizations will affect the industry.

5. Anesthesia mergers and acquisitions. Uncertainty is a strong impetus behind the consolidation that ASCs and healthcare as a whole have witnessed. The upswing in mergers and acquisition activity has been particularly marked in the anesthesia field. Publically traded companies such as EmCare, MEDNAX and TeamHealth have been key players in this field. Additionally, privately held companies and private equity sponsored companies such as North American Partners in Anesthesia, Sheridan Healthcare and U.S. Anesthesiology Partners have joined the fray. In January alone, four major anesthesia mergers were announced or closed. Historically, the anesthesia market, much like the ASC industry, has been fragmented, but now pressures in healthcare are highlighting the "strength in numbers" strategy.  

6. Price transparency. The market for healthcare transparency is expected to grow by 55 percent by 2016 to reach a value of $3.09 billion, according to a Healthcare Finance News report. In 2013, price transparency was a hot term in healthcare, but for the most part actual prices remained in the dark.

This year, however, there have been several significant moves forward with an effort to reveal healthcare costs to the public. In October, Massachusetts became the first state to require health insurers to provide real-time pricing for procedures.

Two new state laws that aim to drive consumerism in healthcare in Maine recently took effect. Instead of requiring payers to shed light on pricing, the Maine laws require hospitals and ambulatory surgery centers to provide the average charge for any service or procedure on request and require healthcare providers to gather a list of their most common procedures, anything performed more than 50 times a year and the price set for uninsured patients, respectively.

Earlier in the year, a number of ASCs took the initiative to post prices independent of a legislative mandate. MEDARVA Stony Point Surgery Center in Richmond, Va., posted the out-of-pocket costs for more than 30 of its most common surgical procedures. Monticello Community Surgery Center in Charlottesville, Va., opened this year, but before even performing its first case announced the intent to offer patients price transparency.

A number of websites designed to offer price transparency in healthcare were launched this year. In May, Jeff Blankinship, president of Surgical Notes and Surgery Center Network, founded the I Need a Surgery Platform, which is designed to connect insured and uninsured patients with ASCs, which will offer pre-determined, all-inclusive prices. The website Wisconsin PricePoint launched for the comparison of inpatient and outpatient prices in the state. The website CO Medical Price compares hospital prices for knee replacement, total hip replacement, uncomplicated vaginal birth and cesarean birth. Along with ASC prices, nine additional services will be added by the end of the year.

7. Bundled payments. Bundled payments, much like narrow networks and price transparency, have been selectively tested; not all healthcare stakeholders are on board yet. One of the biggest stories in bundled payments revolved around a three-year study of a pilot program launched in California. The program, launched by the Integrated Healthcare Association in 2010, aimed to adopt bundled payments for orthopedic procedures among commercially-insured patients under the age of 65. A RAND Corporation study revealed that the pilot program failed to meet its cost-savings goals. The participating ASCs successfully offered bundled payments, but payers did not did not direct patients to the centers.

Despite the results from that particular study, bundled payments continued to gain traction this year. After the release of the RAND study, CMS announced that 4,100 new providers will test out Medicare bundled payment contracts, joining 2,400 providers already testing the payment model under the Affordable Care Act's Bundled Payments for Care Improvement initiative.

CMS is not alone in continued pursuit of bundled payments. Commercial payers are also involved in trial runs. Atlantic Information Services released the report "Bundled Payment Models: Bottom-Line Strategies for Insurers," which includes case studies of Horizon Healthcare Services and Arkansas Blue Cross and Blue Shield. In May, Bedford (N.H.) Ambulatory Surgical Center and Harvard-Pilgrim embarked on a bundled payments pilot program focused on colonoscopy.

In another study, bundled payments were found to reduce the total cost of care for patients with three different types of cancer by $33 million. Bundled payments, like many healthcare strategies still in their infancy, are yielding mixed results, but remain at the forefront of new pursuits.

8. Pay equalization debate. ASC payment as a percentage of hospital outpatient department payment has been on the decline for years, but the debate over the difference remains heated. In January, the Medicare Payment Advisory Commission recommended a 3.25 percent increase in pay for HOPDs, while recommending that ASC payment remain flat.

A common point of contention in the argument over ASC and HOPD reimbursement is site neutral payments, or the equalization of rates. The OIG recommended that HOPD rates be lowered to ASC rates, and MedPAC recommended the same for a select number of procedures. CMS opposes rate equalization and it is unlikely to actually go into effect.

For 2015, CMS proposed to increase ASC payment by 1.2 percent and HOPD payment by 2.1 percent.

9. Shift to outpatient utilization. In 2015, 19 percent of total private health insurance spending is expected to go towards outpatient services, according to a PwC's Health Research Institute report. Case volume is steadily shifting from the inpatient setting to the outpatient setting, driven by desire to lower healthcare costs and enabled by increasingly sophisticated technology. Hospitals are experiencing this shift — 36.2 percent of hospital respondents to a Kaufman Hall survey reported a 3 percent or more increase in outpatient utilization — and as a natural consequence are turning their eye towards ASCs.  

In 2013, Crozer-Keystone Health System acquired the Surgery Center of Pennsylvania in Haverford. Over the past several quarters, the health system reported operating losses, but after the ASC acquisition the system experienced a 19 percent increase in surgical volume. Many hospitals are following suit and building or acquiring their own ASCs to take advantage of the low-cost, high-quality environment.

10. The death of Joan Rivers. On August 28, comedienne Joan Rivers underwent an endoscopic procedure at New York ASC Yorkville Endoscopy. Ms. Rivers went into cardiac arrest, was transferred to Mount Sinai Hospital in New York and died Sept. 4. The events that followed thrust the entire field of outpatient surgery into the public eye.

As the media coverage unfolded, it came to light that Ms. Rivers' ENT physician, present in the operating room during the procedure, was not only without privilege at the ASC, but also allegedly took an authorized selfie with anesthetized patient. Further still, Ms. Rivers' ENT physicians allegedly took an unplanned biopsy of the performers vocal cords.

The New York State Department of Health is investigating whether or not the ASC's team is responsible for Ms. Rivers' death. In the meantime, Ms. River's daughter Melissa Rivers has indicated she intends to file a lawsuit against the ASC, according to a WHDH report. Regardless of the investigation's or lawsuit's outcome, the high profile nature of the story caused the public to question the safety of outpatient surgery.

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