Hospitals fighting back while ASCs struggle
By Stephen W. Earnhart, MS
CEO
Earnhart & Associates
Austin, TX
I've been in the business of surgery for the past 24 years. Years before that, I was in a clinical role in the OR. I try to stay ahead of the curve; that's my job. Trends are developing out there that you need to be aware of in your workplace.
In the early years of surgery centers, I would team up with business-minded surgeons who were frustrated with the supposed inefficiencies in the local hospital. Hi-ho, hi-ho, it's off to work they would go, as they built their own ambulatory surgery centers (ASCs) and became more efficient. The fact that they could make a nice profit from them clearly played a role in that process. Life was good for everyone. Well, almost everyone.
This honeymoon lasted several years — decades, actually. Then the paradigm began to shift. Insurance companies began to realize that the surgeons and ASCs were doing too well. It was time to start ratcheting down the reimbursement. It became increasingly more difficult for surgery centers to obtain good payer contracts — if they could get a contract for reimbursement at all! The sky started to fall.
Everyone started looking for a safe haven. What good is an efficient surgery center if you can't get paid? Granted, many surgery centers don't care about profits (LOL!) as long as they have an efficient place to do their cases. But seriously, time also is profit. As long as they don't have to keep putting money into their efficient operation, many are content just to build equity and rake in the precious saved minutes.
During that time, it was obvious that surgery centers needed an ally. Who better to help obtain commercial and managed care contracts — good contracts — than the hitherto shunned local hospital? Strange bedfellows those two made! As a company, we loved it! Hospitals that wanted to joint venture with local surgeons contacted us. They were of the mindset that it was better to lose half of the surgery cases to the surgeons by joining them than it was to lose all of their cases by not. The surgeons were OK in sharing the revenue with the hospitals because they now were in a better position to pick up more revenue.
It has been a blissful period. Everyone was busy making deals, making money, and enjoying new relationships. Nurses have been learning more about the business. Hospitals were starting to understand their surgical partners a little better and were applying that knowledge in making their inpatient surgeries more efficient. With their needs met, surgeons have started relaxing a bit. They aren't feeling paranoid now that they have achieved their goal of getting their cases done in a reasonable time and they aren't being stressed out about it.
Can you hear the distant thunder? The gathering storm? Listen . . .
Welcome everyone to 2008! Even the people with their heads buried deepest in the sand have to think, "What the heck?"
Suddenly, China and Japan have decided to start building things. The price and availability of steel — the main structure of a surgery center — has skyrocketed in price and become more difficult to obtain as the Asian countries eat up it up like candy. Hurricanes and gas prices have driven up the cost of construction for surgery centers from $120 per square foot to more than $300 and higher, and that does not even include the cost of the land and building. Overnight, everything costs more. The surgeons have to spend more to build their centers — and they have to borrow more! (Anyone see what else is coming?)
Then a one-two punch lands! The subprime real estate market has gone to hell. Not only is it more difficult to get a loan to construct a $5 million surgery center, but many surgeons are not able to get a loan to begin with. Owners of the buildings where surgery centers reside are less willing to build unless the surgeons collectively become responsible for the cost of the building in the event the centers don't succeed. Many surgeons and their joint-venture hospital partners are starting to think twice about this situation.
Did I forget to mention that reimbursement for surgery centers got pushed back on its butt? Cases that once were profitable in a surgery center aren't anymore. Talk about a nightmare.
Hospitals have begun to fight back. Armored with all the above, they no longer are willing to sit back and take a minority interest in a for-profit surgery center, at decreased reimbursement, with surgeons who can no longer really afford to do it anyway. They are putting their foot down with a collectively thunder and saying, "No!" Hospitals are building their own cost-effective and efficient outpatient departments (HOPDs) that surgeons are very welcome to use but not have ownership in. The hospitals are having those centers professionally managed and are teaching their staff to become a lower-cost provider of surgical services, not only to the surgeons, but to the hospital itself.
You know what? It's working. Half of our business now is centered on management of HOPDs and it's growing. Talk about going full circle.
The irony of all of this change is that the cost of surgery still is high and, with fewer surgery centers being built, more patients will use hospital-based centers at a significantly higher price.
Sometimes you just gotta shake your head.
(Earnhart & Associates is an ambulatory surgery consulting firm specializing in all aspects of outpatient surgery development and management. Contact Earnhart at 1000 Westbank Drive, Suite 5B, Austin, TX 78746. E-mail: [email protected]. Web: www.earnhart.com.)
I've been in the business of surgery for the past 24 years. Years before that, I was in a clinical role in the OR. I try to stay ahead of the curve; that's my job. Trends are developing out there that you need to be aware of in your workplace.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
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