Edition: November 2011 - Vol 19 Number 11
Repertoire readers know that ambulatory surgery centers are a strange breed, lying somewhere between the physician office and the hospital in terms of complexity, sophistication and supply chain needs. But with some 5,300 centers nationwide performing an estimated 22 million surgeries and procedures each year, they are a breed to be reckoned with.
Surgery centers differ from the typical physician office in several ways. For example, the surgery center staff typically deal with more urgent cases than their counterparts in the physician office, and their supply needs are often more urgent as well. But surgery centers share some similarities with physician offices too. For example, centers seldom have one professional devoted to the supply chain, and hence need assistance from their distributor reps to ensure that they get the products they need when they need them, and at the agreed-upon price.
“You have to take into consideration that the ambulatory surgery center has mission-critical items,” says Scott McDade, vice president sales, surgery center division, McKesson Medical-Surgical. “If they don’t have them, they can’t do their cases. That’s a big difference between them and the physician office.” Furthermore, it’s not uncommon for the distributor to get a call at 4 p.m. with a request for items for a case that was just scheduled for the next day.
“Surgery centers need supply chain partners that can assist them with managing inventory, improving efficiencies and productivity,” adds Patti Baran, vice president, account management, Cardinal Health Ambulatory Care. “Throughput, efficiency and quality are key.” The distributor who can provide standard and custom packs, formulary development, low-unit-of-measure delivery and collaboration in the selection of best-value products is a valued partner, she says.
Physician involvement a constant
Like all sectors of healthcare, the ambulatory surgery center market is undergoing rapid change. Management companies – such as Surgical Care Affiliates, AmSurg Corp., Ambulatory Surgical Centers of America and others – have penetrated approximately 25 percent of the market, says David Shapiro, MD, chair of the Ambulatory Surgery Center Association. What’s more, hospitals and IDNs – which represent perhaps the most serious competition to ambulatory centers – are taking a closer look at the market. Meanwhile, the percentages of single-specialty and multispecialty ASCs remain steady at about 50 percent each.
Despite all these changes, there is one constant: Physicians continue to maintain a high level of control in many ambulatory surgery centers, even those that are part of a chain or hospital system.
Approximately 65 percent of surgery centers are 100 percent physician-owned, says Shapiro. The remaining 35 percent are a combination of physician/hospital or physician/corporation ownership. But even when ownership is shared, physicians still have some percentage of ownership in about 90 percent of the facilities nationwide.
That is both a trademark of surgery centers, and a barometer of how they behave from a supply chain point of view.
“[Physician ownership] is important, not because of the financial structure, but because of the emotional and professional tie-in with the facility, which physicians might not have with their community hospital, where they also do cases,” says Shapiro. “This really gives them a large emotional and professional stake, even if it’s a small financial one. In my experience, that has been one of the main reasons this industry has been so successful. It was started by physicians. The whole reasoning behind it was to give physicians a greater say in how patients are treated, from their initial contact with their office until they leave the facility and are discharged home.”
Physician ownership also means that surgery centers can move swiftly to implement technologies that will improve patient care, says Shapiro. “One thing I always hear administrators talk about is this: Whereas 10 physicians in a surgery group might want 10 different kinds of sutures, in the surgery center, they sit at a table with all the sutures in front of them, and say, ‘We have a small facility, let’s choose the best one for all our patients.’ Not that that can’t or it doesn’t occur in the hospital, but it occurs less frequently there.”
What’s more, if the physicians at a surgery center decide they need new-generation equipment, they’ll make the purchase in relatively short order, rather than running it up, down and around various committees, like those in hospitals and multihospital systems, he adds.
That’s not to say ambulatory surgery centers don’t face cost constraints. They do, says Shapiro, and it stems from what he and the Ambulatory Surgery Center Association believes is a severely flawed reimbursement system. Approximately five years ago, the Centers for Medicare & Medicaid Services changed the reimbursement methodology for surgery centers. At that time, ambulatory centers were reimbursed at roughly 85 or 86 percent of what hospital outpatient surgery centers received for comparable cases, says Shapiro. But since then, the gap in Medicare reimbursement between the two has grown, so that today, ambulatory centers receive roughly 56 percent of what hospital outpatient departments receive for similar cases. “This disparity has continued to increase,” says Shapiro. “It’s widening, and it’s putting ambulatory surgery centers at an increasing disadvantage vis a vis hospital outpatient departments.”
It is also paving the way for a wave of ambulatory-center acquisitions by hospitals and IDNs, he continues. “Hospitals are outright purchasing either a controlling interest or 100 percent interest in ambulatory surgery centers, and that results in an immediate 40-odd-percent increase in reimbursement. This is something we have been telling regulators and legislators every time we have met with them for several years.”
There are other factors driving consolidation in the ambulatory surgery center market, not the least of which is healthcare reform. “A significant number of IDNs are in the process of expanding their footprint in the ambulatory care space, including but not limited to, surgery centers, physician practices, home health, and clinics in the community setting,” says Baran. “With the magnitude of change in healthcare, all sites of care are having to evaluate how they best support the patient and remain a viable entity in the future. Surgery centers are not excluded.
“Consolidation of the market will present physician-owned surgery centers new opportunities to partner with IDNs to service the capitated lives that many are signing up to manage. Strong, business-minded individuals know when the time is right to align themselves in a new manner for continued success.”
“Since healthcare reform, there is a lot of talk about things like accountable care organizations and the Independent Payment Advisory Board,” says Shapiro. “But we don’t know the intended and unintended consequences of the legislation. We have to watch closely. There are inefficiencies in our current marketplace, but I think there are also some very good patient protections provided.”
Consolidation is taking place not only at the IDN/surgery center level, but among the surgery center chains and management companies too. For example, in August, AmSurg acquired Dallas, Texas-based National Surgical Care. Earlier, in May, NovaMed Inc. merged with Surgery Center Holdings (Surgery Partners).
Supply chain impact
As a result, the distributor rep calling on an ambulatory surgery center needs to know the ownership structure, according to those with whom Repertoire spoke.
“If a health system ends up with 51 percent control, they will get involved in some ways,” says McDade. “It doesn’t mean we necessarily lose the account.” But the rep must be able to accommodate changes in the decision-making process.
When an IDN acquires an ambulatory surgery center, the vice president of materials management for that hospital system will probably get involved, adds Baran. In response, Cardinal has created an IDN sales structure that bridges its acute-care and ambulatory-care sides. The end result for the provider is product standardization, reduction of inventory, maximization of GPO contract utilization and other efficiencies, she says.
Despite consolidation, the industry still has a “mom and pop” cast to it, at least from a supply chain point of view, says Shapiro. “We’re sophisticated in the patient care we provide; that is what we do, and that is where our reputation rests,” he says. How else to explain the rise of surgery centers, from virtually zero 40 years ago, to 5,300 today? But as far as supply chain goes, it’s a different story. In fact, purchasing, inventory control and accounts payable “may be spread out among different people in the center, all of whom are doing two, three, four, five other things,” says Shapiro. “They may be in the recovery room, or the business manager, or the administrator or the director of nursing.”
That’s where the distributor rep can help, says McDade. Successful centers are implementing electronic tools to help them get that three-way match between purchasing, receiving and accounts payable, he says.
The surgery center market faces challenges ahead, according to Shapiro. The most significant, perhaps, are the consequences of the disparity of reimbursement between independent centers and hospital outpatient surgery departments. In September, the Ambulatory Surgery Center Association board member Mike Guarino painted a picture for the House Ways & Means Subcommittee, which was holding a hearing on healthcare consolidation.
“Just eight years ago, ASCs were paid 86 percent of the HOPD [hospital outpatient department] rate,” Guarino told lawmakers. “As that number has slipped to 56 percent, there is now a growing payment incentive to treat these patients in the HOPD rather than the more economical ASC setting. Indeed, we are now starting to see a number of hospitals acquiring ASCs and converting them into HOPDs.
“A recent analysis conducted by our association found that of 179 ASC closures since 2009, about one-third were a result of purchase by a hospital,” he said. “Further, our research shows that almost 40 percent of the facilities that have closed this calendar year have been purchased by a hospital. The result is that Medicare will pay substantially more for its beneficiaries to receive identical services. While not all of these acquisitions lead to an ASC conversion to an HOPD (20 percent of the ASC marketplace is a joint venture involving a hospital where the ASC retains its ASC designation), the trend raises serious concerns.”
Another challenge – and opportunity – is the public reporting of quality data. Even though the Centers for Medicare & Medicaid Services has demanded that hospital outpatient departments report on a set of quality measures, it has not made the same demands of ambulatory surgery centers. That puts centers at a disadvantage, as the public cannot compare the quality records of the providers, says Shapiro. “Not only has the ambulatory surgery center industry been collecting data on quality for many years, but we have been aggressively asking CMS to institute a national reporting system,” he says.
Six years ago, Shapiro helped start the Ambulatory Surgery Center Quality Collaboration project. The Collaboration developed a number of quality measures, which were ultimately endorsed by the National Quality Forum. In July 2011, CMS released a proposed rule that calls for data collection on those quality measures to start in January 2012. At press time, the public comment period was closed and the industry was awaiting a final rule.
“I’m almost 100 percent sure we’ll have some national quality reporting program in place as of Jan. 1, 2012,” says Shapiro. “This is something the industry has been pushing for years.”