Healthcare Reform: A Brief Analysis on How it Impacts ASCs and Physician-Owned Hospitals — 10 Observations

For physician-owned hospitals, the healthcare reform bill and its impact is very clear and very negative. For ASCs, there is much less direct impact and the long-term impact is much less clear.

1. As to physician-owned hospitals, the bill will preclude new facilities which are not Medicare-certified by Dec. 31. The bill doesn't include any similar provision for ASCs nor do observers expect any such prohibition.

2. For existing physician-owned hospitals, it places immediate limits on expansion of operating rooms, beds and procedure rooms, limits aggregate increases in physician ownership and imposes immediate disclosure requirements. Hospitals are also prohibited from conditioning physician ownership on the physician referring cases to the hospital. This can create challenges even for hospitals that are acting in a wholly appropriate manner.

3. Many planned physician-owned hospitals that are under construction will be able to meet the Dec. 31 deadline and breathed a sigh of relief. Others will not be able to meet the deadline for Medicare certification and will need to assess a new strategy as to how to complete their projects and operate. They are assessing multiple different options.

"Obviously, these provisions are extremely harmful…," said Molly Sandvig, JD, executive director of Physician Hospitals of America, in a press release. "They virtually destroy many of the hospitals that are currently under development, and leave little room for the future growth of the industry."

4. As to ASCs, the legislation will have little in it that directly relates to ASCs. From an ASC industry perspective, this is largely very good. It will provide new incentives for preventive care which include, in part, a waiver of copayments for procedures like colonoscopies. It avoided an impact on the pricing of ASC services and the ASC payment system. It will require CMS to work with ASC industry stakeholders to develop a report to the Congress by 2011 describing how Medicare could incorporate value-based purchasing strategies for ASCs, according to Andrew Hayek, CEO of Surgical Care Affiliates and chair of the Ambulatory Surgery Center Advocacy Committee, in a press release.

It also avoided a requirement for ASCs to file Medicare cost reports. The original House version of the bill required ASCs to submit reports so CMS would have data to determine ASC reimbursements. Nothing good could have come out of the reporting, says Marian Lowe, senior vice president of federal health policy for Strategic Health Care. "Because the data would not be used as the basis for payment, CMS would not audit the cost reports, calling into question the accuracy of analysis based on reported data," she says. "Despite ASCs' role in creating savings for the healthcare system, there is a significant gap in payment rates between HOPDs and ASCs. ASCs offer CMS and patients savings opportunities, yet continued pressure on ASC payments could shift care to return to more expensive surgical settings."

5. Longer term, the providing of authority to an independent MedPAC type of board — the new Independent Payment Advisory Board taking effect in 2015 — may give ASCs much greater concern as it would have unprecedented powers to reduce Medicare payments for ASCs, physicians and other providers, except hospitals. "The board is a really worrisome thing for ASCs," says David Shapiro, MD, a partner in the Ambulatory Surgery Company. "Will it have overarching authority over reimbursement?" If the board's powers are left intact, Dr. Shapiro says the ASC industry will have to work closely with it, as it currently does with MedPAC, to make sure ASCs' views are heard, a sentiment shared by Mr. Hayek.

"Our team of advocates in Washington will remain at the table to ensure that ASC interests are protected as the administration begins the complex task of implementing the new law," said Mr. Hayek in the press release. "We will be vigilant throughout the implementation process to ensure that ASCs can provide services for the newly insured patients at rates that keep the industry economically viable."

6. ASCs may also take some comfort on the addition of 30 plus million covered lives to the insurance pool. Many of these patients are expected to be on Medicaid, which pays low in many states. "That would be painful and put new pressures on efficiency of management within an ASC," says Barry Tanner, president and CEO of Physicians Endoscopy. "But I believe ASCs could handle it. Most of them have at least some excess capacity that could take on a certain amount of patients without losing money, even at Medicaid-level rates, without losing money."

7. It remains to be seen long-term whether the legislation will discourage the independent and smaller group practice of medicine versus very integrated systems. This is a key issue for ASCs in that a large proportion of ASC users and owners come from small to midsize independent group practices. Some trends are already stacking up against this segment, which makes physician recruitment more difficult as less independent physicians are available. A huge question is whether the long-term impact of this legislation will be to further discourage the small- and mid-sized practice of medicine.

8. The second great long-term concern of the ASC industry may be whether and to what extent the health insurance industry remains viable and a better payor for ASC services. In many situations, commercial payors are the source of most ASC profits.

9. A final large, overriding concern is whether reimbursement will be threatened from Medicare due to the overall cost of providing coverage to a much larger pool of people.

10. Overall, the results for physician-owned hospitals are very negative. The results for ASCs are very uncertain.

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