ASCs vs. Hospitals:
Struggling Over a
Flawed System
Relations have never been worse.
But some see ways to ease the tension.
BY JERRY HELZNER, SENIOR EDITOR
As the "turf battle" between hospitals and physician-owned ambulatory surgery centers (ASCs) continues to escalate, one fact is increasingly clear. Both sides sincerely -- and with some justification -- believe that they're being treated unfairly by a crazy-quilt and capricious healthcare system.
Meanwhile, ASC operators also are dealing with a high level of uncertainty. They feel ASCs shouldn't be penalized for being able to perform efficient, cost-effective procedures that satisfy both patients and physicians. In fact, ASCs, the Medicare Payment Advisory Commission (MedPAC), and most medical device companies believe that advances in technology should now allow many additional procedures to be performed in the ASC setting. They believe that instead of a list of approved procedures that can be performed in an ASC, there should instead be a list of specific procedures that can't be performed in an ASC.
ASC interests also believe that solutions for unprofitable hospital services shouldn't cause hardship to the low-cost provider. And they note that facility fees paid to ASCs under Medicare have been frozen at current levels until 2009 unless MedPAC or a costs report now being undertaken by the General Accounting Office can convince Congress to repeal the freeze.
Both sides in this battle have been adamant in defending their respective positions. One reason for that is that both sides have ample ammunition to make their points. For example, because the Centers for Medicare and Medicaid Services (CMS) uses vastly different cost data to determine Medicare reimbursement for ASCs and hospital outpatient departments, a YAG capsulotomy performed in an ASC is reimbursed at almost double the facility fee of the same procedure performed in a hospital outpatient department. Conversely, a pars plana vitrectomy done in a hospital is reimbursed at almost three times the reimbursement as the same procedure performed in an ASC.
It's these kinds of inconsistencies that have ASC and hospital interests sniping at each other, while also questioning the rationale behind the existing health system.
The situation has now come to a head, with hospital interests recently taking what William J. L. Kennedy, vice president of business development for ophthalmic ASC operator NovaMed, Inc., calls an aggressive "us vs. them" approach to ASCs and specialty hospitals. In this article, I'll explain the issues that have caused this rift, examine the current uncertain environment for both ASCs and hospitals, and explore possible solutions that would ease tensions between these two major categories of healthcare providers.
Ophthalmology Fit the Model
When Congress passed the Omnibus Budget Reconciliation Act of 1980, one of its provisions gave authorization for Medicare to begin covering the facility costs of certain procedures that could be provided in ambulatory surgery centers. This landmark legislation not only encouraged the shift of some surgical procedures from hospitals to more cost-effective ASCs, it began what might be termed a "golden age" for physician-owned surgery centers.
One of the chief beneficiaries of the 1980 legislation was ophthalmology. High-volume, Medicare-covered procedures such as cataract surgery fit the ASC model perfectly, making ophthalmology one of the first medical specialties to fully embrace the ASC concept.
"I think it's accurate to say that ophthalmologists were the pioneers in adopting ASCs," says Kennedy, the NovaMed executive.
"Fifteen years ago, about 20% of cataract operations were performed in ASCs," adds Michael Romansky, a partner in the Health Law Division of McDermott, Will & Emery, and an attorney representing the Outpatient Ophthalmic Surgery Society (OOSS). "Currently, about 60% of cataract procedures are done in ASCs."
ASCs Found Favor
But if ophthalmology was the ASC pioneer, other specialties were quick to follow. Today, there is a total of about 3,800 single-specialty and multispecialty ASCs in the United States, Of these, about 700 to 800 are operated as ophthalmology-only centers.
Over the course of the past 20 years, more and more surgical procedures have migrated from hospitals to ASCs, and later to specialty hospitals which can do more complicated surgical procedures that require overnight stays.
Meanwhile, hospital interests grew increasingly alarmed over the years. They began to view ASCs, and particularly specialty hospitals, as entities determined to "skim the cream" off of hospital revenue streams, leaving traditional hospitals with the responsibility of accepting all comers, including emergency and uninsured patients.
Uncertainty Rules
In a recent letter to the Speaker of the House of Representatives, Rep. Dennis Hastert (R-Illinois), the president of the American Association of Ambulatory Surgery Centers (AAASC), David Shapiro, M.D., noted that the AAASC was about to celebrate an important milestone: the 25th anniversary of the approval of the Medicare ASC benefit.
But after pointing out the billions of dollars in savings that surgery centers have brought to patients, insurance companies, and to the Medicare program itself, Dr. Shapiro offered a cautionary note.
"Despite a 25-year record of providing a high-quality, cost-effective, patient-friendly alternative to hospitals, the future of ASCs in Medicare is uncertain. Congress has recently been bombarded with conflicting messages about physician ownership of healthcare facilities, most notably specialty hospitals. While physician ownership of ASCs is not being challenged at this time, it is important that Congress recognize the unique character of ASCs and continue to promote policies that enable physicians to invest in these centers."
Dr. Shapiro went on to note that physicians have an ownership interest in 83% of the ASCs that currently operate in the United States. Most of these physicians essentially see their ASCs as an extension of their own offices, using the facilities to perform procedures they would be unable to do in an office setting. Because physician-owned ASCs are facilities where the owners actively practice, they've been exempted from federal Stark laws and federal and state antikickback laws, which are aimed at so-called "passive investments" that have far greater potential for abuse.
It's More than Money
And while hospitals may see physician-owned ASCs as "skimming the cream," physicians tend to favor using ASCs for reasons more far-reaching than the opportunity to make more money.
"You have to remember that eye surgeons were setting up their own ASCs when there was no facility fee at all," says Michael Romansky. "Clearly, they were driven by other factors than just profit. The surgeons sought more control of the surgical environment. They wanted to enhance their productivity. They wanted to adopt new technologies without the constraints imposed by hospital administrators. They wanted to work with a team of personnel specialized in treating ophthalmic patients. They wanted to provide an environment in which patients felt comfortable, and where surgery was performed as scheduled. They knew that patients would sustain substantially lower out-of-pocket costs in the ASC."
But hospital interests see the ASC model as working well for everyone but traditional hospitals. Recently, they've done more than just gripe about the situation. The major Medicare Modernization Act of 2003 included a provision mandating an 18-month moratorium on physician self-referral under Medicare for new specialty hospitals, effectively taking away the incentive for physicians to invest in new specialty hospitals. The impetus for that provision came from the powerful hospital lobby.
Ominously, the American Hospital Association (AHA) called its win on specialty hospitals only "a step in the right direction. More needs to be done."
"That legislation is a shot across the bow of ASCs," says Romansky. "The hospital lobby may next target ASCs on both the state and federal levels."
ASCs Under Attack
Craig Jeffries, executive director of the AAASC and acting executive director of the OOSS, says the hospital lobby's current goal is "to limit, eliminate or forestall physician ownership" of ASCs and specialty hospitals.
"At the federal level, the hospital associations may seek revisions to the Stark laws," says Jeffries. "At the state level, hospital tactics could include attempts to obtain more rigorous CON requirements, advocating prohibitions on physician ownership, and supporting taxes on ASCs that would help fund unprofitable hospital services (such as New Jersey's recently imposed 3% tax on ASC gross revenues). Hospital associations may also want to raise regulatory barriers to ASCs and create stricter licensure requirements."
But Jeffries also sees the possibility of increased cooperation between hospitals and physician entrepreneurs.
"ASCs developed as a result of hospital/physician joint ventures can be a very viable model, and we're seeing that in a number of instances," says Jeffries. "While the hospital associations may see physician entrepreneurs as adversaries, local hospital administrators tend to take a more cooperative approach with physicians."
Jeffries believes traditional hospitals need to reinvent themselves to deal with current healthcare realities.
"Hospitals can no longer be the one-stop healthcare shop for the entire community," he asserts. "One of the reasons they've lost ground is because physician entrepreneurs and the ASCs have been fantastic at being early adopters of new technologies that have benefited patients and led to more cost-effective health care."
Cooperation Can Work
One company that's now working to bring physicians and hospitals together in creating new surgery center joint venture entities is Healthcare Venture Professionals (HVP) LLC, a Tennessee firm founded about 18 months ago by two former hospital CEOs, John Smalley and Chuck Owen.
"We were of the opinion that, given the opportunity, hospitals and physicians would prefer to choose to collaborate rather than oppose each other," says Owen.
HVP gets a major part of its business from hospitals that fear their physicians will form their own ASCs.
"We tell hospitals that 50% of something is better than 100% of nothing," says Smalley. "Forward-thinking, proactive hospitals recognize their need to partner with surgeons, and surgeons need the hospitals for their inpatient cases."
HVP says that hospital/physician joint ownership is a natural for a number of reasons, including the fact that hospitals have access to capital, enjoy group purchasing arrangements, have existing managed care relationships, and are likely to negotiate joint venture partnerships that are fair to the physician owners.
Though owners of ophthalmology-only ASCs aren't showing much interest in joint-venturing with hospitals now, HVP and other observers believe ophthalmologists will need to consider this option if restrictions on physician-owned ASCs become increasingly more onerous.
Additional information on the issues discussed in this article can be found by logging on to the following Web sites: www.ooss.org (Outpatient Ophthalmic Surgery Society); www.aaasc.org (American Association of Ambulatory Surgery Centers); www.aha.org (American Hospital Association); and www.hvpros.com (Healthcare Venture Professionals).
|
Despite Thorny Issues, ASCs Have Bright Future |
Stephen C. Sheppard of the Medical Consulting Group, LLC in Springfield, Mo., is a highly respected authority on ambulatory surgery centers and a consultant to a number of ophthalmic ASCs. Ophthalmology Management recently asked Sheppard to comment on the current environment and future outlook for ASCs. Following is our Q and A with Sheppard: Q. What do you see as the key issues that will affect the future of ASCs?. A. On the positive side: A continually increasing demand fueled by the continuing aging of the population A increasing types of procedures that are appropriately performed in ASCs as the technology and surgical techniques advance, e.g., laparoscopic colisystectomy is now appearing on the approved lists of some commercial carriers. Also, I would expect additional retina procedures to be approved for ASCs. A increasing willingness of physicians to participate as they become familiar with ASCs, both as an operating environment and as an economic opportunity. On the negative side: A uncertainty of future revenue streams as health system resources are stretched by the aging population A efforts by the hospital lobby, abetted by some in government, to restrict the ability to develop ASCs through revival of CON statutes, or by outlawing physician ownership of economic interests in ASCs. A perceived "excess" profits generated by ASCs may lead to reimbursement cuts and/or initiatives like the one in New Jersey to tax gross receipts or profits. Q What are the biggest threats to ASCs? Hospital lobby? Regulatory action? States looking for revenue? A. With over 4,000 ASC currently developed and operating in the US, I think it's fair to say that it will be very difficult to substantially curtail or eliminate the development of ASCs. They have proven to be a cost-effective means of delivering outpatient surgical care and the payers have no incentive to return cases to less efficient providers. That said, all of the factors mentioned above may result in slowed growth and/or reduced profitability on a state-by-state basis. Eventually, however, the healthcare system and society will have to confront the issue of how to cost-effectively provide the entire range of required healthcare services. This will require us to deal with the fact that many services provided by hospitals are money losers under the current pricing models in place. I certainly understand the point of view of the hospitals, however. It's a poor long-term solution to try to institutionalize the existing inefficiencies in the healthcare reimbursement system. Ultimately, we are all better off if each procedure is reimbursed in accordance with its true costs regardless of the setting in which it's performed, and each procedure is allowed to be performed in the surgical environment to which it's best suited, including reflecting the comparative costs associated with different theaters. Q. What are the major factors that will allow for continued growth of ASCs? A. For a wide range of surgical procedures, ASCs are the low-cost producers. The ability to specialize in a small number of procedures makes them more efficient, patient-friendly and physician-friendly. With the continued decline in surgeon per- case reimbursements, ASC ownership provides an ancillary revenue stream that doesn't require substantially more of the physician's time. Q. Is there much current interest in constructing new ophthalmic ASCs, or are plans on hold pending resolution of key issues? A.There is currently more interest in development of ASCs than I have seen at any time in my career. The legislative attempts to curtail development are probably inducing a good number of physicians to seriously consider getting into the process before regulatory barriers are enacted. Q. What's the status of the certificate of need (CON) issue? Is it state-by-state, or is the Federal Trade Commission/Department of Justice recommendation that CONs restrain competition going to have an impact on eliminating CONs? A. CONs are still being fought state-by-state and in my opinion will remain that way. I don't see the FTC recommendation having a major impact. ASCs will point to the free trade aspects, and hospitals will note that the healthcare market is already highly regulated and that unfettered competition might, in their opinion, have some very deleterious impacts, certainly in the short run. Q. When are the GAO recommendations on ASC reimbursement vis-à-vis hospital outpatient departments going to be completed? Give us your best estimate. A. My crystal ball isn't nearly that good. It appears that little progress is being made and I don't really expect there to be much tangible information available until mid 2005, if then. Q. If the GAO recommends that ASC procedures be reimbursed at a percentage of hospital outpatient procedures, what do you think would be an acceptable (apples-to-apples) percentage? A. I doubt that the method developed will reflect a single percentage. If it did, I would suggest something in the high 80s to low 90s. The problem with this approach is that there are two issues that directly conflict with one another: A Why should a consumer of healthcare services pay more for the same procedure in a hospital outpatient department as opposed to an ASC, assuming that the quality of care and the risk is the same? A Hospitals deserve a premium to subsidize all of the activities beneficial to the community that aren't adequately compensated under the current system. Aside from the basic question of fairness to the patients/payers that are subsidizing others in the system, how can you reasonably calculate this premium? In my view, it's more likely that different procedures will have different ratios based on a number of factors in an attempt to more accurately reflect cost differences. Q. What's the outlook for more procedures being approved to be performed in ASCs? Is it possible that a new list will only name those procedures that can't be performed in ASCs? A. CMS appears to be on track with the required 2-year update to the list. It looks like it will be circulated this fall with an anticipated effective date of July 1, 2005. I doubt that we will see an "exclusionary" list, as that would reduce CMS's control over utilization and, thus, total reimbursements. Q. Is the aging of the baby boomer generation going to create a problem in finding Medicare funds to reimburse for an ever-growing number of cataract procedures? A. Of course it will. The baby boomers are relatively affluent and used to having their way. I doubt that we will be swayed by esoteric arguments about the percentage of GDP allocated to health care vs. other goods and services. We certainly don't care what is spent on health care in Sweden or Canada. As the population ages, it's entirely logical that we will opt to spend more on health care vis-a-vis other alternatives. That is generally true in the life of our individual consumers. I think that extrapolating these behavior patterns to society at large is just common sense. |
|
The AHA Takes On ASCs |
| The American Hospital Association (AHA) has been taking an increasingly strong stand against what it views as the unfair advantages enjoyed by ambulatory surgery centers and specialty hospitals in a number of key operational areas. Organizations representing traditional hospitals were instrumental last year in getting Congress to impose an 18-month moratorium on physician self-referral at new specialty hospitals. Ophthalmology Management asked Ellen Pryga, director, Policy, the American Hospital Association, to explain what changes hospitals want to ensure a level playing field. Here are her answers: "The movement of specialists into ASCs is not only a question of revenue and volume, it's also the issue of specialists becoming increasingly unavailable for emergency and on-call services in the hospital. We believe the ASCs should be more supportive of the emergency services that communities must have and that hospitals must offer, either through monetary support or by providing on-call services." Pryga says some ASC physicians are so uncooperative that they often send patients to hospital emergency rooms without alerting the ER that a patient is coming and without furnishing medical records. "They still want to send their complex cases and emergency admissions to us, but they want the well-paid specialty procedures for themselves," says Pryga. "They want to have it both ways. Let's establish decent transfer procedures for sending ASC patients to an ER." The AHA also wants ASCs and hospital outpatient surgery departments to be held to comparable standards and enforcement in such areas as quality evaluation, patient monitoring and infection control. "More complex procedures are now being done in ASCs," says Pryga. "They should be held to hospital outpatient surgery standards. As yet, they are not." (Editor's note: The OOSS says that ASCs that seek Medicare facility reimbursement are subject to conditions of coverage that, with respect to the operative environment, are virtually identical to the standards imposed on hospital outpatient departtments.) Though hospitals receive higher reimbursement than ASCs for about 80% of procedures that can be compared on an "apples-to-apples" basis, the AHA bristles at the fact that ASCs receive a higher facility fee for 20% of comparable procedures. "An ASC should never be paid a higher rate than a hospital outpatient department," asserts Pryga. "This is because hospital costs reflect emergency capacity, longer hours, more complex cases and other factors. MedPAC (the Medicare Payment Advisory Commission) has generally agreed, and said that while hospital outpatient department data is current, the ASC cost data goes back to the 1980s, with inflation updates through the years. This is an issue that needs to be addressed." The AHA has also been discussing advocating possible changes to the Stark laws regarding physician self-referral. Currently, physician-owners of ASCs are exempt from the Stark laws. "This has been a subject of discussion for more than a year," says Pryga. Told that ASC owners are expressing concern about any possible changes to the Stark laws, Pryga says they should have cause for concern. "Everyone, including MedPAC, is concerned about the rate of growth in ASCs and related Medicare procedures," she notes. "It should be keeping them up at night." Asked to comment on New Jersey's recent imposition of a 3% tax on ASC gross revenues to help fund hospitals' unprofitable services, Pryga says the AHA doesn't comment directly on state issues. "Generally, it looks like a step in the right direction," she notes. "The costs of maintaining access and preserving the safety net of services have to be recognized somewhere in the system. We have to address the costs of providing care to the 45 million uninsured individuals in this country. We also have to address the costs of unprofitable services that hospitals provide, such as burn units." On a more positive note, Pryga says there are currently about 1,000 hospital/physician joint ventures involving the operation of ASCs. "And many hospitals are innovating in their outpatient departments, giving physicians more of the control they've requested." Overall, though, Pryga sees the hospitals as bearing the burden of physician entrepreneurs who are primarily looking out for their own interests. "Hospitals won't enjoy a level playing field until key issues -- the provision of safety net services, the 45 million uninsured, and a wacky patchwork of incentives favoring ASCs -- are all addressed fairly," she concludes. |
![]({"src":"/media/mp1kg35e/112004.jpg","focalPoint":null,"crops":[{"alias":"thumbnail","width":1110,"height":700,"coordinates":null}]})