Tough places to build new ASCs

ASCs are typically the perfect example of high-value healthcare because centers provide quality care at a lower cost than hospitals. But ASCs aren't thriving, or even welcome, in some places across the U.S.

Most ASCs are for-profit facilities that depend on a steady stream of patients with either Medicare or commercial insurance who need elective surgery. Surgery centers don't have the same funding sources as hospitals or the responsibility to care for all patients, and as smaller facilities, they don't have leverage to dictate rates during payer contract negotiations.

Rural areas are tough places to thrive as a surgery center because the population is spread out and patient flow is inconsistent. Farmers often don't have health insurance or have high-deductible health plans and are reluctant to foot the bill for elective surgery until the condition is extremely advanced.

In 2020, 95.4 percent of new ASCs were opened in urban areas and 4.6 percent in rural areas, down from 7.1 percent of new ASCs opened in rural areas in 2015, according to MedPAC's report to Congress released earlier this month. It's no surprise that states like Vermont, West Virginia, Iowa, Kentucky and Alabama have among the fewest ASCs per capita.

Compounding the challenges of rural areas are certificate-of-need policies, which require physicians to obtain approval to open or expand ASCs. There are 35 states with some sort of certificate-of-need requirement, including the five states listed above. Hospitals often challenge ASCs in certificate-of-need states, arguing the community doesn't have a need for more operating rooms and competition from the ASC would threaten the hospital's existence.

For example, West Des Moines, Iowa-based UnityPoint Health is also challenging a medical group's plans to open two new cardiac catheterization labs in its ASC. OrthoIllinois also spent a year batting back opposition from Beloit (Wis.) Health System to develop a $14 million surgery center.

On the other hand, places with the most ASCs are also challenging. Florida and Texas both have around 450 Medicare-certified ASCs, and California has more than 800, with market saturation in some cities. It's tough for ASCs to compete with each other for surgeons and cases, especially when insurers narrow networks and ratchet down contracted rates.

Finally, markets with strong health systems and powerful payers, including those with little payer competition, are challenging for ASCs. Insurers spend the same resources to contract with hospital systems as ASCs despite the vastly different sizes of each organization. It's more efficient for insurers to focus on hospital contracts than surgery center contracts. New York is one state that traditionally has been a challenging place to open new surgery centers, but more have been approved in recent years.

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