The Ambulatory Surgery Center sector has undergone significant growth and an increase in merger and acquisition activity over the past several years. Reduced healthcare spending (a trend which may now be reversing), improved quality in outpatient care, progressive surgical and anesthesia techniques, and pressure from insurers to lower costs have prompted providers to direct patients to less expensive settings.
Major players in the consolidation of ASCs include:
- Larger ASC management companies wanting to grow, reduce procedure costs, and solidify their market share.
- Hospitals wishing to create outpatient centers within a 30-40-mile radius of their acute care facilities. (According to Avanza Strategies, 65% of hospital revenue now comes from outpatient services).
- Physician practice groups looking to capture more referrals.
According to a Tenet investor presentation, independent centers make up 63% of the market. The two largest standalones, USPI and AmSurg, have 4% market share each. This fragmented environment is ripe for mergers and acquisitions. Joan Dentler, CEO of Avanza Healthcare Strategies, said in a recent Modern Healthcare article, “Everything I’m seeing is pointing to that direction,” regarding the likelihood of more surgery center consolidation deals. As evidence of that prediction, Tenet, which holds 1% of the ASC market, recently entered into a deal to purchase USPI. Tenet had 67 centers in 2009, and as many as 200 centers by the third quarter of 2014. Wayne Smith, chairman, president and CEO of Community Health Systems, described the strategy as building networks that managed-care payers simply can’t exclude from their offerings. “The better footprint that we have in terms of outpatient facilities, the better opportunities we have to capture market share,” Smith says. “And it’s all about market share.”
Which begs the question, “How will this wave of consolidation affect the so-called ‘Triple Aim’ of increased patient satisfaction, improved quality of care, and lower cost per capita?”
Per Capita Cost
With regard to cost, outpatient care may be part of a larger solution, combined with imaging centers and urgent care, which can deliver good quality care at a more reasonable price. However, competition has historically been a driving force in reducing prices. Post-acquisition, hospitals have been known to increase prices significantly. For example, a Federal Trade Commission analysis revealed that San Francisco Bay area hospitals Summit and Alta Bates increased prices by 28% to 44% after merging in 1999. Research by the FTC and the University of Pennsylvania suggests consolidation that occurs in already concentrated markets can lead to price increases in excess of 20 percent. A recent Wall Street Journal report suggests cost reduction can be achieved without consolidation, through use of different care structures, improving efficiency and reducing waste (by participating in ACOs). During the current rush for market share, consumers will need to be wary of highly-concentrated provider market share that threatens competition.
Quality of Care
In an August, 2014 report criticizing the Affordable Care Act, Christopher Pope said, “In the absence of competition, highly integrated health care providers tend to be irresponsive to patient needs.” The National Bureau of Economic Research reported that, “Although dominant providers claim that their ability to command higher reimbursements allows them to invest in improving treatment outcomes, the absence of competitive pressures tends to actually produce organizational slack, weaker accountability for performance, and lower-quality care.” Is the formation of locally-concentrated systems harmful or beneficial to patients? Proponents of consolidation argue that it will improve efficiency, lower costs, and improve health outcomes. There is limited evidence to support this view. Others are concerned that consolidation may be motivated by a desire for greater market power or that large systems may be overly focused on financial performance, rather than patient care, as Mr. Smith may have indicated in his statement.
Patient Satisfaction
A patient’s satisfaction with any healthcare delivery structure will depend largely on the cost and quality of care. Better care at a lower cost will almost certainly cause a rise in satisfaction rates. However, it may be too early to tell how the recent upheaval in the outpatient market will change the consumer experience.
Jeanette Brown, Somnia’s National Director of Ambulatory Anesthesia, summarizes the current environment by saying, “Consolidation can and should lead to improvements that benefit outpatient facilities. These would include greater financial stability, economies of scale, sharing of best practices, standardization of protocols, improved patient information sharing, and increased use of advanced technologies. It’s simply too soon to tell if it will ultimately lead to improved outcomes and greater patient satisfaction.”
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