Over the past few weeks, we've received an influx of questions about ambulatory surgery centers (ASCs): What's moving there and how fast? Who actually owns them—and is that changing? What clinical areas or service lines should I be watching? Read on to learn the answers to your (and your peers') most burning questions.
Wait, remind me what is an ASC?
ASCs offer same-day surgical care outside of a hospital. The core value proposition of ASCs is to provide a more efficient, lower-cost alternative for surgical care than an inpatient or hospital outpatient facility. Because of this, ASCs are rising in popularity, as key stakeholders—especially payers and physicians—are driving patients to receive care in these lower-cost settings.
Who decides what procedures can be done in an ASC?
For Medicare, CMS dictates where procedures can be reimbursed. Currently, over 1,500 procedures are on CMS' Inpatient Only List (IPO), which means they must occur in the inpatient setting. Late last year, CMS finalized a plan to eliminate the IPO list by 2024, beginning by removing 266 musculoskeletal-related services. Good news for ASCs? Maybe, but remember that procedures removed from the IPO list are not necessarily approved for ASCs. Removal from the IPO list makes a procedure eligible for reimbursement in a Hospital Outpatient Department (HOPD), but to be reimbursed in the ASC setting, the procedure must separately be approved for ASCs. Each year, CMS adds procedures to the ASC-eligible list as part of the standard rulemaking cycle. (You can find the ASC-eligible list by downloading Addendum AA on CMS' website here.)
However, private payers make their own determinations about ASC eligibility and do not have to follow Medicare guidance. This means that private payers will sometimes reimburse for a procedure in an ASC before Medicare.
Is the number of ASCs increasing?
Yes. Over the past five years, the number of ASCs has increased by 7.1%, far outpacing the .97% change in the number of new hospitals, according to an analysis of CMS Provider of Services files. We expect the number of ASCs to continue to grow, primarily driven by payers favoring this lower-cost care setting, physician groups viewing ASCs as smart investments, and to a lesser extent, patients preferring ASCs as more accessible and affordable options.
Want to successfully compete in today’s competitive ASC market? Here's the first step you need to take.
We increasingly see ASCs collocated with other ambulatory services, like within medical office buildings, or even as a part of an ambulatory campus or wellness village. But there are few important rules to keep in mind. Medicare-certified ASCs cannot:
- Mix functions and operations in a common space during the same hours of operations with another entity. So, for example, an ASC could not share a waiting room with an adjacent physician office.
- Share space with a hospital outpatient surgery department or Medicare-participating independent diagnostic testing facility (IDTF).
Who owns ASCs, and how is ownership changing?
ASCs have long been a lucrative opportunity for physicians, offering equity ownership and greater autonomy in scheduling and management. So, it's not surprising that over 90% of ASCs are at least partially physician-owned.
Source: Ambulatory Surgery Centers Association’s 2017 Salary & Benefits survey
While physicians have historically owned the largest numbers of ASCs, there is increasing competition in this lucrative market. The two other big ASC players are ASC operator chains and health systems, often in partnership with physicians.
The number of health systems planning to increase their investments in ASCs rose from 44% in 2019 to 67% in 2020, according to Avanza Healthcare Strategies' survey of more than 100 health system executives. Why this large increase? Health system leaders are looking to increase surgical capacity and enhance physician relationships.
Most hospitals with ASCs choose to operate them as joint ventures, with the hospital often owning more than 50% of the equity. When hospitals own the majority of the venture, ASCs can leverage hospitals' payer contracts to negotiate higher payment rates. There are many different types of ASC partnerships and acquisitions. Some recent health system ASC deals include:
- Health system acquires existing independent ASC: Tenet Healthcare Corp. signed a $1.1B deal to acquire 45 SurgCenter Development ASCs
- Health system partners with ASC operator: Penn State Health and ValueHealth formed a joint venture to develop an orthopedic ASC
- Physician groups form a joint venture with health system: Cape Surgical and the Obelisk Group have entered a joint venture with Chesapeake Regional Healthcare to open Chesapeake Regional Surgery in Virginia Beach, VA.
Which procedural categories are primed for growth in ASCs?
Approval for reimbursement in an ASC does not necessarily mean an immediate shift to that care setting. Historical patterns suggest site-of-care shifts may happen gradually and vary across markets. For example, when CMS approved total knee arthroplasty (TKA) in ASCs, many people were surprised at how slowly these volumes moved.
That caveat aside, there are several service lines with clear growth potential in ASCs, namely orthopedics and cardiovascular.
Orthopedics: For 2021, Medicare added eleven procedures to the ASC covered list, including total hip arthroplasty (THA). With THA and TKA now both reimbursed in ASCs, we project that ASC joint replacement volumes will increase by 94.5% in the over the next five years. With this anticipated growth, it's not surprising that the number of ASCs that offer joint replacement procedures rose from 251 in 2018 to 512 in 2020.
Although much attention has been paid to joint replacement, CMS has also expanded the number of spine surgery procedures that can be done in an ASC to 107—up from 56 in 2014. Growth projections for spine surgery are more modest than joint replacement—with only 38% growth projected over five years—but still represent an important part of the orthopedic business. As a result, the number of ASCs offering spine surgery has increased from 95 in 2018 to 179 in 2020.
Commercial payers also play a role here. Many outpaced Medicare in approving orthopedic procedures in the ASC and are now applying pressure to shift volumes away from the hospital. Some payers now require pre-authorization for hospital-based surgeries, including arthroscopy and foot surgery.
Cardiovascular: This story is a bit more complicated.
CMS added percutaneous coronary intervention (PCI) to the ASC-eligible list for 2020. In that same rule, CMS listed percutaneous coronary atherectomy and other key CV procedures that it was actively considering for ASC eligibility. However, the following year CMS did not approve those additional CV procedures and did not comment on if or when the agency will consider these procedures in the future. (See Table 59 on pages 61392-61393 in the 2020 OPPS Final Rule for the list of procedures CMS mentioned they were considering as these would likely be the first to be approved.)
AA large part of the decision to expand the list of approved procedures will likely depend on PCI's quality outcomes in ASCs.. A new study in the Journal of the American College of Cardiology found an increased risk of post-procedural bleeding complications in patients who received a PCI in an ASC versus an HOPD.
Beyond PCI outcomes in ASCs, there are a few additional factors our CV experts are tracking on the CV ambulatory shift. Notable factors that could accelerate the shift are industry investment and steerage by health plans, employers, and at-risk primary care physicians. A factor that could slow the shift is state legislatures failing to amend certificate of need laws.
Some other ASC high-growth areas we're watching are:
- Spine: simple to complex fusion, decompression, microdisectomy, kyphoplasty, disc replacement
- Pain Management: stellate ganglion block procedure, intrathecal pump implant, disc nucleoplasty, MILD procedure
- Ophthalmology: vitreoretinal surgery/retinal surgery, femtosecond laser to perform cataract surgery
- GI: video capsule endoscopy, endoscopic retrograde cholangiopancreatography, esophageal manometry, stretta
- OB/GYN: minimally invasive hysterectomy (including vaginal, laparoscopic, or robot-assisted)
We're beginning research on the future of ASCs. Want to be involved? Email Robert Ryan at RyanRo@advisory.com.