By Erin Nelson, Director of Strategy
MTV’s 1981 debut of the Buggles’ “Video Killed the Radio Star” instantly changed how we enjoyed music. We no longer had to wait in line for concert tickets to see our favorite performers in action because the concert was brought into our living rooms. In today’s telehealth world, we’re seeing a demand for services to be brought into our homes, but since surgery is a service that can’t be done remotely, we haven’t heard much about how this changing dynamic will affect the surgery arena. Despite the silence, consumerism and payer pressure will indeed affect the trajectory of hospital-based surgery centers (also known as hospital outpatient departments, or HOPDs).
Today, about a quarter of all outpatient surgical volume is conducted in HOPDs, but several factors suggest future HOPD market share is threatened by ambulatory surgery centers (ASCs):
- CMS has expanded the number of surgical procedures payable at ASCs to include total knee arthroplasty, some neurosurgery procedures, and cardiac procedures including diagnostic catheterizations (many believe the addition of percutaneous coronary intervention (PCI) is in short order).
- The reimbursement disparity between ASCs and HOPDs is shrinking now that CMS is tying ASC payment rates changes to the same market basket as hospital reimbursement instead of the consumer price index (CPI).
- Both publicly and privately insured patients are experiencing lower cost-sharing (co-pays) in ASCs than in HOPDs. As commercially covered patients continue to see a rise in high-deductible insurance options, they’re becoming more price-sensitive and educated on their options.
Understanding these reimbursement shifts and changing consumer dynamics, hospitals need to evaluate their ambulatory surgery strategy to avoid becoming the “Radio Star.” Geography, financial health, physician relationships, and case mix all play into determining a hospital/health system’s strategy for growth and sustainability. Based on these variables, some strategies to consider include:
- Investing in operational improvements to an existing HOPD: Some markets are not large enough to support an ASC or certificate of need (CON) regulations impede investment in additional OR capacity in the market. In these markets (and even in some large, competitive markets), investments made to increase throughput and reduce operating cost in an HOPD can position the HOPD to be as financially successful as an ASC.
- Partner with an existing ASC: The adage “if you can’t beat them, join them” has some merit in the ASC environment. This defensive strategy allows hospitals to diversify their ambulatory surgery portfolio relatively quickly, and from the partner’s perspective it provides additional capital for growth and/or investment into the existing surgical platform.
- Capture untapped demand or new market growth by building a new freestanding ASC: This decision cannot be made in a silo. For instance, a hospital’s acute care space needs may dictate their ASC strategy. We’ve seen several instances where the physical and operational cost to add additional ORs or Cath labs to the existing acute care platform outweighed the cost of investing in an ASC. Overlaid with the opportunity to be the first mover in the market, increase access to care, and provide a better patient experience, the ASC strategy can be the most viable solution.
As witnessed in the early COVID-19 shutdown, procedural volume is instrumental to the financial viability of most U.S. hospitals. While the day-to-day “fires” that hospital executives face are typically top of mind, it’s crucial that leaders develop a game plan today for their ASC strategy.