Gabriel Perna | February 17, 2021
Tenet Healthcare is one of the largest owners of acute-care hospitals in the country—with 65 in its network sprinkled across the U.S., generating a collective net revenue of nearly $15 billion.
But when Tenet CEO Ronald Rittenmeyer spoke at the annual J.P. Morgan Healthcare Conference last month, it was ambulatory surgical centers (ASCs) at the top of his mind. Specifically, he said scaling up Tenet’s ASC subsidiary, United Surgical Partners International (USPI), was one of the company’s top strategical commitments heading into 2021.
One month after paying $1.1 billion with SurgCenter Development to acquire up to 45 ambulatory surgery centers in nine states, Tenet vowed to add 40 more ASCs in 2021. When talking about the musculoskeletal procedural space, Tenet COO Saum Sutaria, MD, said, “The amount of scale that Tenet has achieved with USPI in this arena surpasses anything we have seen in this environment under a single entity.”
Since Tenet has acquired USPI in 2015, the subsidiary has seen its EBITDA grow from 4 percent to an estimated 45 percent this year. It has become the biggest ASC chain in the U.S. The margins on its ASCs far surpass the hospital business, Tenet reported at the conference, and the company expects annual same-store surgical revenue growth of more than 6 percent in the coming year.
“It is growing more quickly in the ambulatory environment than the hospital environment,” said Rittenmeyer.
With those kinds of high margins and a sector with significant growth potential, Tenet’s not the only health care organization bullish about the ASC marketplace. Ascension, another large health system, also promised to expand ASC operations at the J.P. Morgan Healthcare Conference. Ascension’s chief strategy and innovations officer Eduardo Conrado said during the event that the organization plans to double its ASC portfolio from the 61 it currently operates. And it’s not just large health systems—independently-owned Baton Rouge General Medical Center recently opened a $12 million ambulatory surgical center across the street from the main hospital.
Hospitals and health systems across the country are getting in on the act. According to a survey from Avanza Healthcare Strategies, a consulting firm, 76 percent of larger hospitals and health systems—those with 200-plus beds—report increasing their investments in ASCs. In two years, the number of hospitals owning or affiliating with more than one ASC has jumped up 17 percent.
One reason for this trend? Payer pressure.
“Payers are seeing that a lot of these ambulatory cases can be done outside of a hospital and in some parts of the country, payers are only paying for certain procedures when they are done in a surgery center. If they were done in a hospital you have to prove they are medically necessary to be done there before payers will pay for it,” says Joan Dentler, President and CEO of Avanza.
The commercial payer space welcomes the idea because ASCs are often reimbursed half of what an inpatient hospital would be for certain procedures. Moreover, they are seeing movement at the federal level in ASC reimbursement. As part of its “Hospital Without Walls” program, CMS allowed ASCs to be temporarily certified as hospitals and provide inpatient care for longer periods than normally allowed during the pandemic.
On a more permanent basis, CMS recently added 11 procedures to the ASC covered procedures list and in 2020, it removed 266 orthopedic procedures from the inpatient-only list. “The intention is to remove the inpatient only list altogether by 2024. This will help ASCs grow and it’s in the interest of hospitals and health systems to be a part of that,” says Beth LaBouyer, executive director of the California Ambulatory Surgery Association.
Dentler says ASCs are lean and nimble organizations compared to inpatient hospitals, both in terms of how they operate and cost structure. As such, the same cost value that payers see in ASC translates to patients, says Carole Guinane, executive director of ASC Operations for Los Angeles-based Cedars Sinai.
“There is a real value add to have choices for patients. Having freestanding surgery centers offers a venue for patients that don’t require hospitalization or a higher level of care in a hospital. Many times, it’s a cheaper venue for patients and the quality is outstanding. There’s a high customer satisfaction,” says Guinane. Cedars Sinai has eight ASCs across a range of specialties, she says.
Traditionally, Dentler says that health systems don’t typically go into the ASC world to make a huge profit, but rather to not lose these surgical cases to another organization. “If you have a patient who will choose to have a procedure in a surgery center and they don’t own one, they’ll just lose out on that revenue,” Dentler says. “It’s the old adage, 50 percent of something is better than 0 percent of nothing.”
Joan Dentler, President and CEO of Avanza
Moreover, while COVID-19 put a temporary pause on procedures across the U.S., including many in ambulatory surgical centers, it also made health systems recognize that they need to save on hospital resources, find ways to limit inpatient capacity, and send patients to the appropriate place for a procedure. This has caused pronounced interest in ASCs, says Dentler. The pandemic has also forced health systems, in general, to think about ramping up services beyond the four walls of a hospital and create more integrated care organizations, says LaBouyer.
It isn’t just health systems investing in ASCs, either. Optum/UnitedHealth Group’s Surgical Care Affiliates subsidiary is the third largest ASC chain, according to data compiled by Modern Healthcare. One of the most active companies in the ASC space, ValueHealth, is a health tech company with a digital surgical platform. It recently announced a partnership with Penn State Health to develop a surgical network. As health care moves toward a value-based reimbursement model, it makes sense for payers, providers and other organizations in risk-sharing models to seek out ways to lower the cost of surgical procedures, says Dentler.
“Surgery is probably the highest revenue service for hospitals. Surgery, in general, is a big part of health care [spend] in the United States. In the move toward value, doing [these procedures] in a freestanding surgery center makes total sense,” says Dentler.
Navigating a different landscape
For those still in the early stages of ASC investment and expansion efforts, experts say it’s a completely different business to operate than hospitals. At Cedars Sinai, for instance, Guinane says the organization had to find partners to immediately stabilize revenue cycle, IT and data warehousing platforms, and human resources operations. The latter is especially important, she says, because ASC employees just can’t be employed from the hospital side and put into a joint venture because of legalities. Either the health system operates HR through a third-party service, such as the one Cedars Sinai uses, or via an employment leasing arrangement.
“You have to use services and offer [benefits] at fair market value. So whatever vendor you work with, whether it’s through the health system, a third-party, or yourself, you have to be careful,” Guinane says. Furthermore, she adds that ASCs tend to have fewer employees and the negotiation of benefits is a different process than it is for hospitals.
Tom Hui, CEO of HST Pathways, which offers cloud computing services to ASCs, says that one of the biggest challenges is that ASCs and hospitals are on different playing fields when it comes to technology deployment and data security. Moreover, the two institutions may not have the data interoperability necessary to create an integrated system where patients can move along the continuum of care across multiple venues.
“Every hospital has adopted EHRs to some degree. Surgery centers are still trying to catch up. When the big push happened to get hospitals on EHRs, ASCs were left out of the equation. Today, the majority of ASCs are still charting on paper,” Hui says. “That can’t continue.”
Hui advises health care CEOs to get data management and gathering processes in alignment when investing into the ASC space. He also says that quality data can help determine which procedures and services benefit the most from this type of care setting.
Cultural differences between ASCs and hospitals pose another challenge. Because they collect lower payments per procedure, ASCs are more focused on an efficiency model, says LaBouyer. “Some of the processes need to be very efficient and nimble. Every process needs to make sure the ASC runs smoothly,” she says. LaBouyer recommends bringing in an experienced management team that understands the importance of this efficiency model.
Dentler agrees that this is probably the biggest challenge for new entrants in the space. She says the biggest mistake health care organizations can make when investing into ASCs is overdevelopment and overbuilding the centers to essentially create a mini-hospital. Likewise, Guinane advises CEOs interested in this space to find a trusted partner.
“It’s an art. It’s a specialty. CEOs who have not done this before…they need to partner with someone who understands the business to help them set it up correctly. It can go south quickly if it’s not done right. There are a lot of moving parts. It’s complicated. You need to work with a good legal team. Find someone who can help you do this,” Guinane says. “And even if you’ve done one or two, it doesn’t make you an expert.”