Continuing uncertainty about future changes to regulation, reimbursement, and costs for orthopedic services is creating an environment of change for physician-owned ambulatory surgery centers (ASCs). As a result, owners of independent orthopedic ASCs are increasingly looking toward alignment and integration strategies in response to major market trends and as a means of offering greater value to patients.
Based on our experience and work with clients, four dominant trends are driving change across the orthopedic ASC market and raising questions about the future of independent, physician-owned ASCs:
- Increasing Volume – The market for orthopedic ASC services is growing due to the number and complexity of cases being performed in the outpatient setting, as well as in response to changes in payer policies that align with this outpatient migration. For example, commercial payers are driving new orthopedic volume from hospitals to ASCs by providing reimbursement for total knee replacements and some total hip replacements in the outpatient surgery setting. Also, reimbursement policy changes have created added flexibility for the type and complexity of orthopedic services provided in ASCs.
- Flattening Reimbursement/Rising Costs – Orthopedic ASCs still enjoy relatively favorable reimbursement, compared to other outpatient surgical specialties. However, downward pressure on reimbursement is imminent. In addition to flat fee schedules for Medicare and other government payers, commercial insurers are moving toward narrow networks, which could pose financial challenges for orthopedic ASCs that currently rely on out-of-network (OON) strategies. Further, ASCs are also facing more stringent Medicare documentation requirements, leading to increased denials and longer A/R cycles. Meanwhile, costs continue to rise.
- Market Saturation – The ASC market grew significantly from 2000 to 2010, although it has flattened in the past few years. With nearly 6,000 freestanding ASCs in the country, composed mostly of smaller, independent operators, a significant opportunity exists for consolidation. As larger health systems acquire physician-owned ASCs, competition for referrals will increase while systems strive to keep their patients within their network.
- Reform Uncertainty – The Affordable Care Act (ACA) is aimed at spurring improvements in care quality and lowering costs, often through care coordination and population health management. While markets vary significantly, the infrastructure and tools needed to implement a value-based, coordinated model are often not available or financially viable for independent ASCs. On the other hand, the low-cost environment of ASCs makes them attractive in the reform environment, especially relative to the high cost of hospital operating rooms (ORs).
Regardless of the type of market they are operating in, most ASC owners are closely monitoring the progress of reform, analyzing the short- and long-term feasibility of maintaining independence, and exploring a variety of alignment, consolidation, and integration strategy transactions.
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Published February 10, 2014