The Top 10 Events Impacting ASCs for 2007

The following is a list of the top 10 events for 2007 impacting ambulatory surgery centers. This list is, of course, subject to debate. 1. Change in payment system and rates. The event that may have the largest impact on ASCs is the change in the payment system for surgery centers. ASCs, after a long battle, have received the opportunity to bill on a comparable system as hospitals. However, comparable is in the eyes of the beholder. Rather than billing at the same rates as hospital out patient departments, surgery centers can bill at approximately 65 percent of what hospitals bill at. The system will phase in over four years. Under the system, there are clear winners and losers. Surgery centers that do higher-acuity cases tend to win. Surgery centers that handle lower-acuity cases tend to lose. In any event, the impact of the change in the system will be felt for a long time.

2. Going private. The year witnessed three important transactions that involved large, publicly traded surgery center chains going private. These included the sale of the surgery center division by HealthSouth to SCA, and the going-private transactions of United Surgical Partners and Symbion.

3. The divide between the haves and have-nots in the ASC sector.
There seems to be a clearer and clearer breakdown within the surgery center business between haves and have-nots. This includes individual centers that do not have enough cases to operate effectively, and centers that do tremendously well. More and more, it seems that there is a clearer breakdown between those centers that are successful and those that are not.

4. New (old) strategies for hospitals. Increasingly, hospitals have returned to an old strategy. This is the strategy of employing physicians and is often not focused on specialties. This has left many surgery centers without enough available partners to succeed and without enough independent physicians to recruit. This has changed the environment for ASCs significantly in many communities already.

5. Physician-owned hospital politics.
The physician-owned hospital industry remains under siege. Due to a few Republican leaders who do not quite grasp the concept of free enterprise and capitalism's driving innovation, and the work of some regulatory-driven Democrat leaders, there continue to be aggressive efforts to stop the growth of physician-owned hospitals. Rather than viewing this as one of the great innovations in healthcare (higher and focused quality and a potential for lower cost), it is being viewed as a competitive issue that should be stalled before it impacts the existing hospital bureaucracy. There is an absolutely tremendous quote and discussion of the original hearings on capital hill related to this issue in a book by Regina Hertzlinger titled Who Killed Healthcare. Here, Ms. Hertzlinger tells the following story on pages four and five of her book:

    The real issue here is power: the less you and I know about the facts, the greater the power of those in the know-the hospitals, the insurers, and the health policy researchers.

    This hearing in 2006 convinced me that some members of the American Congress were not interested in protecting the uninsured by compelling transparency. This got me really worried.

    The second experience was also a congressional event, and it proved to be my personal tipping point. It was here that I saw that the U.S. Congress was even willing to suppress competition in order to protect the powerful, entrenched status quo healthcare institutions.

    This epiphany occurred at a meeting set up to inform congressional legislative assistants about a new kind of hospital, a small one that specializes only in certain complex, high-tech procedures, like those for treatment of heart disease. These hospitals were partially owned and managed by doctors. It has long been my view that such specialty hospitals generally provide better, cheaper health care than the everything-for-everybody general hospital. These specialized hospitals can become really expert at the focused services they offer because they are run by knowledgeable and experienced doctors-which is often not the case with non-medical administrators in the huge general hospitals most of us frequent.

    The hospital sector sorely needs innovation. Hospitals account for most of the costs and cost increases in health care, yet they provide such wildly erratic quality that hundreds of thousands of patients die yearly from medical errors that occur in hospitals. Although this innovation of small specialized hospitals was only a gnat relative to the size of the trillion-dollar general hospital sector, it potentially posed a major threat to them, and they knew it. To protect their position, the hospitals did what they always do: they ran to the legislators and tried to kill this potential competitor through politics, urging the Congress to pass the laws that would legislate this form of hospital out of existence.

    The key witness at this event was the CEO of a chain of 24 non-profit hospitals who claimed that the impudent, venal 55-bed specialty hospital in his hospital chain's region would limit the ability of his billion-dollar nonprofit hospital chain to give free care to the poor and subsidize the very sick. He argued that the interloper hospital was hurting his own hospital's ability to help the uninsured because it was siphoning away his best-paying patients, hobbling his ability to help the uninsured as much as he wanted to.

    Those in attendance nodded in agreement. They believed him. Most of the legislative assistants were in their 20s -- too young to be dubious. How could one argue with the charitable intents of hospitals called "St. Elizabeth's," "Swedish Lutheran," or, in this case, "Sioux Valley Hospitals & Health System" (since renamed Sanford Health)? After all, they've been cornerstones of our communities for as long as anyone can remember. The other attendees in the room knew better, but they were in their 50s, veterans of Capitol Hill, long pickled and emasculated by Beltway cynicism.

    Unfortunately, the U.S. Congress bought the hospital executive's argument too. In a virtually unprecedented move, it shut down his competition with a moratorium on the expansion of specialty hospitals.

    Let's peek beneath the veil of the purity and altruism in which this chain of nonprofit hospitals cloaked its argument and look at its financial results. The facts provide staggering repudiation of its expressed point of view. In 2003, while the hospital was supposedly locked in a death struggle with the entrepreneurial specialty hospital, it still managed to earn $26 million in profits after all expenses were paid, and it held another $50 million in cash and liquid investments. This is the money left over after all charitable activities have been completed. These are huge amounts of money for a supposed nonprofit. Then, in 2004, after Congress hamstrung the competitor, profits and liquid assets grew by 15 percent, a rate of growth most Fortune 500 companies would envy. Indeed, the hospital was fat enough to donate millions to activities like its local high school football league, which received nearly $200,000.

6. FASA-AAASC merger. This year marks the merger of the two largest trade associations for surgery centers. The remarkably well-led and -directed FASA merged with the viable and improved AAASC to create a much greater institution representing surgery centers. This could not have come at a better time. The surgery center association has done an outstanding job of protecting the interests of surgery centers throughout the country. To join FASA (to be named the Ambulatory Surgery Center Association -- the ASCA or the ASC Association -- as of Jan. 1) call (703) 836-8808.

7. Spine and bariatrics. These two specialties have evolved to comprise very important procedures for surgery centers. While many administrators are still struggling to figure out how exactly to make spine and bariatrics work in their centers, increasingly, these are core parts and drivers of ASCs in many places. We expect to continue to see growth of these procedures at ASCs over the next few years.

8. Out-of-network crackdown. We are seeing, in New Jersey, New York and several other states, legal actions armed at slowing down and stopping the use of out-of-network strategies. Given the small number of payors and the clout they have, this again provides incredible leverage to the payors as to price and reimbursement negotiations.

9. Codey case.
Recently, a New Jersey case decided that a statute in New Jersey long held to allow physician-ownership of ASCs doesn't in fact allow physician-ownership. Since New Jersey has a great number of the country's surgery centers, this is a finding that, even though not binding, will potentially have a significant impact on surgery centers in New Jersey and throughout the country.

10. New ASC conditions for coverage. CMS, on the heels of issuing a new payment rate for surgery centers, also issued new conditions for coverage for surgery centers. Certain of these will cause significant confusion in surgery centers, including new discussions of 23-hour requirements and what kind of cases surgery centers can handle.

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