Ambulatory Surgery Centers Play Important But Shifting Role in NJ Healthcare

Andrew Kitchenman | June 22, 2015 | Health Care
Industry, traditionally run by doctors, trends away from standalone, out-of-network operations toward mergers with hospitals

Ambulatory surgery centers have long been predominantly doctor-owned and independent from hospitals, but this is rapidly changing as the industry increasingly moves to merge with hospitals.

In addition, it was once common for the ASCs to not join insurance networks. But that has come to be seen as no longer viable, even before legislation was proposed to rein in higher out-of-network prices.

But while those two trends are reshaping ASCs, their importance in providing outpatient surgeries is growing, as hospitals look to move less risky medical procedures to less costly locations.

Roughly 40 percent of ASCs in New Jersey are now part of larger health systems, up from just 10 percent five years ago, according to Mark Manigan, an attorney who represents ambulatory surgery centers.

“That’s just going to continue to grow,” Manigan said, adding that “there appears to be just a boundless amount of capital” available for healthcare mergers.

Doctors began to launch ASCs in the 1970s and 1980s, partly as a way of moving away from the control of hospitals. With the mergers, things have come full circle.

One factor driving the change is the move away from a healthcare payment system in which providers are paid based on how many of medical services they provide and toward onein which providers are paid based on whether their patients have positive health outcomes.

This change is leading providers to invest in technology that helps them manage patients’ health, as well as to better coordinate patients’ healthcare. But ambulatory surgery centers were traditionally too small to make the necessary investments in technology. In addition, the centers frequently focus on a single specialty, which doesn’t leave them in a strong position to coordinate patient care.

Manigan said the potential downsides of merging ASCs with hospital systems, including loss of independence, are outweighed by the benefits of being better prepared for changes in healthcare delivery.

“If you don’t have scale, you’re going to have a hard time dealing with that,” he told a crowd of ASC executives at a recent conference of the New Jersey Association of Ambulatory Surgery Centers that was hosted by Manigan’s firm, Brach Eichler, at the Borgata in Atlantic City.

Henry Bloom, whose healthcare consulting company, the Bloom Organization, advises ASCs on mergers, said they weren’t merging with with hospitals a decade ago.

“Today, I will tell you that 80 percent of our transactions involve a hospital in some way,” Bloom said, adding that many of the deals involve four or five parties: the ASC itself, an ASC management company, a hospital, and one or two physician groups. This enables the entities involved to expand the number of patients they serve.

The Philadelphia-based Rothman Institute – which operates three ASCs in South Jersey – is an example of the type of organization that’s thriving in the changing landscape. Never entirely separate from hospitals (it has an academic affiliation with Thomas Jefferson University Hospital, the institute is planning its fourth New Jersey facility and is looking to expand to the state’s central and northern regions.

[related]The move away from being out-of-network is contributing to the trend, as doctors look to attach themselves to larger organizations, such as the Rothman Institute, that are inside insurers’ networks.

“Many of these folks, they would not have talked to us, quite frankly, especially some in the north, because they were doing quite well on an out-of-network basis,” said institute CEO Mike West. “They’re very, very nervous now, and they would like us to … help them.”

The Rothman Institute has partnerships with the AtlantiCare and Kennedy health systems.

West pointed out an advantage of ASCs working with hospitals: the ability to match the level of risk for different patients with the least costly health setting.

In the case of the institute, for instance, surgeries can be done at a major academic medical center like Jefferson, at a community hospital, at a specialty hospital, or an ASC, depending on the patients’ health and individual risk factors.

ASCs are seeing a wider variety of regulators investigate their practices at both the state and federal levels, a group of Brach Eichler lawyers warned center executives.

NJAASC President Larry Trenk said that the merged entities essentially have the best of both worlds – the scale and information-technology infrastructure of hospitals, combined with the entrepreneurial spirit of the doctors who lead the centers. He said that hospitals value what the ASCs bring to their systems, and don’t want to interfere with that.

But Chris A. Holden, president and CEO of Tennessee-based ASC operator AmSurg, said he’s concerned that the industry will be affected by a generational change he’s seeing among young doctors, who are less likely to be attracted to independent practices.

“How do we keep them engaged? How do we keep them feeling like owners?” Holden said. “I just don’t want to lose that” entrepreneurial approach.”