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What Surgery Centers Should Watch for in 2012: 12 Issues Facing ASCs

Brent Lambert, MD, founding principal, and Luke Lambert, CEO, of ASCOA, discuss 12 issues likely to significantly impact the ambulatory surgery center industry in 2012.

 

1. Patient Protection and Affordable Care Act. The overriding theme for ASCs in the future is uncertainty, says Dr. Lambert, and healthcare reform and how it will impact surgery centers captures this sentiment.

 

"Will the Affordable Care Act survive? It has election challenges coming up, it has court challenges coming up and it has deficit challenges coming up," says Dr. Lambert. "I think the chances of [PPACA] surviving in its present form are between zero and none. One of these things is going to be its death knell, if not all of them. The way [it] is now is not going to persist, but we don't know what it portends for ASCs."

 

2. Replacement for healthcare reform. "Let's assume in the year 2012 and 2013, we see the dismantling of [PPACA]," says Dr. Lambert. "I don't think the country can afford it and I don't think it will survive the elections and the court challenge. Every Republican in the debates says the first thing they'll do [if they become president] is they'll appeal [it]. Then what will you have? You'll have the same old system that didn't work before. So we have to replace it with something that is not going to be adverse to the interests of American medicine and that we can afford."

 

In Dr. Lambert's view, the clearest thinker on the subject of replacing the Affordable Care Act is Congressman Paul Ryan (R-WI). Rep. Ryan delivered a speech at Stanford's Hoover Institution in late September on what should become the Republican template behind its bid to "repeal and replace" PPACA. The title of the speech was "The Optimist's Guide to Repeal and Replace: Patient-Centered Health-Care Reform for the 21st-Century."

 

"It was a seminal speech because he looks at how we got into this non-market-based health economy that [PPACA] is designed to replace," Dr. Lambert says. "Healthcare is not market-based and that's why we see these rising costs all of the time. [Rep. Ryan's] speech is enlightening and it's optimistic. It says we can solve the problems of rising healthcare costs but we have to revamp our thinking. The health of the country depends on us coming up with solutions." Note: You can read Rep. Ryan's speech, as hosted on the website of the Hoover Institution, by visiting http://bit.ly/mTbOQd (pdf).

 

3. Economy. "A lot of people said at the beginning of this last recession that many ASCs didn't feel it," says Dr. Lambert "What we're now seeing now is a 5-10 percent decrease in revenues across the board, with a lot of elective surgery being postponed. I think if we go into a double-dip recession, it would hurt us, but, again, this is all still uncertainty."

 

4. Super Committee. The Joint Select Committee, commonly called the "Super Committee," was created as part of the agreement in August to reduce the federal deficit by at least $1.3 trillion over the next 10 years. How this will impact ASCs is a significant issue to watch in 2012.

 

"This is a bomb waiting to go off," says Dr. Lambert. "I hope this Super Committee fails and it triggers the 2 percent across the board cuts because I think we would do far worse ... than with a 2 percent trigger of across-the-board cuts.

 

"This is, again, a big uncertainty, and it all relates to the economy," he says. "What this committee has taken off the board is the 2 percent cuts to lots of budget items — they're not going to touch the benefits of Medicare or vital defense spending. What they're going to do is go after the providers in Medicare and instead of 2 percent we may get a 5 percent cut."

 

5. Vertical integration of the healthcare system. Significant questions remain about where independent surgery centers fit in with the future of healthcare in the United States.

 

"The integration theme is playing out on the ground in a way that almost reminds you of a game of Monopoly," says Mr. Luke Lambert. "You have these hospitals trying to snap up properties on the board, out in the market, so they can expand their sphere of influence. I think there's a base assumption amongst some of these hospital systems that the more they can control, the more likely they are to do well in the future.

 

"As a result, I think that does spur more interest in ASCs by hospitals because they see this as a way to expand their reach, expanding the elements they can bring to integrated care," he says. "I've seen this in multiple markets and it's a theme I expect may continue to play out with some time to come."

 

Mr. Luke Lambert believes some health systems feel and are acting on the assumption that there is a limited period of time for them to expand their footprint and their relationship with physicians, both from a practice perspective as well as being involved in projects like ASCs.

 

"The danger of this is independent ASCs may eventually fall outside the system," says Dr. Lambert.

 

6. Private practice is suffering. Not only does Dr. Lambert see the private practice of medicine and the private practice physician suffering, he believes it may even approach extinction.

 

"This presents a problem of populating our ASCs," he says. "Who are we going to populate them with? We certainly can't populate them with hospital-employed physicians?"

 

Mr. Luke Lambert says he believes the number of physicians who are open to entertaining a new ASC project or becoming involved in an existing project has likely dropped in half over the last couple of years.

 

"Vertical integration actually squelches the entrepreneurial spirit in physicians," Dr. Lambert says. "I see it every day when I meet with physicians. They can't fight the [Frank Norris] 'Octopus' that is enslaving us. The physicians have this mindset that there's this octopus and they can't fight against it, so they're sort of throwing in the towel."

 

The fear that physicians have of trying to remain independent may stem from their observations of hospital involvement with payors that control growing parts of physicians' patient base, says Mr. Luke Lambert.

 

"They really start to feel the squeeze then," he says. "I've seen this in some markets where the hospital or a coalition of hospitals basically controls the payor and the payor is not letting the doctors do these cases at their surgery center. The physicians eventually run up the white flag and turn to the hospital to see if they can get them to buy their ASC."

 

7. Return of the independent physician. While Dr. Lambert sees the private practice of medicine suffering, he believes it will survive and eventually thrive again, although this may not be the case for several years.

 

"I think there's eventually going to be a rebound [of entrepreneurship]," he says. "This happened in the early 1990s — the tilting toward hospital employment. Hospitals were recruiting physicians and were paying them big bucks. But I personally see this thing crumbling like it did before because hospitals won't be able to afford it. For now, they can afford it, as they did before."

 

8. Rising costs, OON challenges remain. ASCs will continue facing challenges from previous years in 2012, including rising costs with escalators not matching inflation and the loss of out-of-network billing.

 

As ASCs are forced to go in-network, typically their volumes are increasing, but in most cases they make less money, says Mr. Luke Lambert. This scenario is creating an interesting knock-on effect.

 

"If the center started up and was initially OON, there was a wave of patients the hospital wasn't getting," he says. "Now, as a result of ASCs signing these contracts and going in-network, there's a second wave of patients not going to the hospitals. The hospitals are seeing their volumes drop, which I think then further spurs the hospital's interest in ASCs."

 

9. Healthcare reform regulations likely to survive. While Dr. Lambert believes the Affordable Care Act will not survive in its present form, he expects at least some of the regulations from the proposed law to remain.

 

"Some of the provisions in [PPACA] like the Independent Payment Advisory Board — I think some of these concepts, even if [PPACA] goes away, are going to survive because there's a whole industry of consultants in medical care and people making millions doing this healthcare engineering. Why have IPAB when you already have MedPAC advising Congress? I think regulations promulgated by government are hurting ASCs and will continue to hurt us."

 

10. Meeting government requirements will increase costs. "This sounds like blasphemy, but EMR is a bad thing," Dr. Lambert says. "How many ASCs actually have EMR? I'd say less than 10 percent, maybe five percent. This regulation that has to be in place by 2014 is going to cost us lots of money but it doesn't make us any better.

 

"And, now [HHS Secretary Kathleen] Sebelius has trotted out a requirement that all private health insurers in the United States have to turn over all of their medical records to the government," he says. "They want to have this huge database so they can start rationing medicine. This government interference is creating more paperwork and is going to add costs for ASCs."

 

11. ACOs and their long-term sustainability and importance. Mr. Luke Lambert says he expects to see, over the next few years, empirical results about whether accountable care organizations actually do what they are supposed to do — control costs, improve care and benefit patients.

 

"We'll find out if these incentives are good enough that the healthcare system will move to an ACO model or not," he says. "Personally I'm of the opinion that the people that do it are going to be doing it for other reasons than economic. It's not likely to produce sustainable lower cost delivery models.

 

"Three to four years from now we'll see how the 100 or so ACOs that made a go of it made out and what percent actually saved money," he says. "If 20 percent saved money, it will be discrediting to the ACO model. That may take the wind out of the sails of all of those people who are really pushing for it."

 

12. Importance of ASCs continuing to grow. Despite all of the uncertainty and challenges, ASCs are more import today than ever before, and Mr. Luke Lambert sees the role of surgery centers in helping to control costs continuing to grow in 2012.

 

"With each passing year, the market share surgery centers are grabbing is increasing," he says. "And in some states, like Massachusetts, for example, Blue Cross Blue Shield has had an enlightened view for how ASCs can help them deliver cost-effective care to the patients. They pay GI specialist significantly more money to take their cases to the ASC as compared to the hospital. They are providing physician incentives to get the care delivered in the most cost-effective place.

 

"Even though they're paying the physician more, the ASC costs so much less than the hospital that the payor comes out significantly ahead," he says. "I think other payors are taking notice of this. I think we will see more of this going forward."

 

Dr. Lambert expects this migration from hospitals to ASC to continue, while also expecting the migration of patients out of ASCs into offices to decline.

 

"I don't think offices are set up to provide as high of quality as ASCs, and states that have cutback on office-based surgery in recent years prove that," he says. "They were seeing so many complications in Pennsylvania that they cut out a large segment of office-based surgery. They then removed the CON laws so one could build ASCs. I don't think you're going to see a wholesale migration of cases out of ASCs into offices."

 

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