Outpatient industry grows; competition may intensify

The outpatient industry still is booming as managed care pressures continue to push down inpatient hospital stays, according to new reports. However, some surgery center administrators and other experts predict a more tumultuous 1999 as competition increases and more mergers take place.

"The big chains are still looking for markets to tap into," says Scott Schmitz, a research analyst with SMG Marketing Group in Chicago. SMG researchers study the growth of the outpatient industry; the company publishes its information in market reports.

As health care cost-cutting makes outpatient settings more attractive, this competition and the outpatient surgery business will only increase, says Peter Wojcik, product manager with SMG Marketing Group. "Managed care and the entire health care industry are becoming more cost conscious and have driven a lot of procedures to freestanding facilities," Wojcik says.

SMG's most recent Medical Group Practices Report, published in December 1997, demonstrates the dramatic shift from inpatient to outpatient surgeries. From 1990 to 1996, total outpatient surgical procedures from surgery centers and hospital outpatient departments leaped 50% from 14.5 million cases to 22.1 million cases, the report says.

Outpatient facilities have shown they can do procedures at a significantly lower cost, sometimes as much as 50% less, than hospitals, Wojcik adds. "Plus 12% of the market has moved to overnight recovery care, which has further fueled the growth of outpatient procedures in a freestanding setting."

Valley Ambulatory Surgery Center in St. Charles, IL, is an example of the industry's growth. Despite increased competition from hospitals and new surgery centers in the area, the center has increased its business continuously since it opened more than 10 years ago, says Mark Mayo, facility director of the freestanding outpatient surgery center, which performs more than 6,000 surgical procedures a year. Since Valley opened, the number of surgery centers in Illinois has more than tripled, he says. "We've gone from 25 surgery centers to over 90 in our state."

SMG's 1998 Freestanding Outpatient Surgery Centers Report and Directory, released at the end of June, showed that so far this year, the total number of freestanding outpatient surgery centers has climbed to 2,665, including some that have been announced but are not yet open. That's nearly a 10% increase over the 2,425 centers opened at the end of 1996.

Valley's growth partly is due to the addition of new surgeries and the opening of a recovery care center, Mayo says. "We have seen a growth in the number of surgeons who want to utilize the surgery center, in the number of cases we perform, and in the types of cases we perform. We're performing much more sophisticated surgery than when we started."

For example, Valley has included laminectomy, hernia disk repair, within the past two years. Another fairly new procedure at the center is laparoscopic-assisted hysterectomy, he says.

Medicare helped push this trend over the years by doubling to 2,500 the number of procedures Medicare will cover in an outpatient setting, Mayo adds.

The Frederick (MD) Surgical Center also has increased its range of procedures in recent years, say Barbara Smith, administrator, and Marjorie Blouin, RN, director of surgical services of the multi-specialty center, which performs 4,400 procedures a year.

Industrywide, healthy people are undergoing surgeries in outpatient settings that 10 years ago would not have been imagined, Blouin says.

Last year, a Maryland surgeon performed open-heart surgery in an outpatient surgery center, and the patient had a 23-hour stay, Smith relates. "It was a minor open-heart surgery, but he did repair a part of the heart."

SMG's 1998 report on surgery centers estimates that surgical volume rose about 10% between 1996 and 1997. (See chart, p. 108, top.)

Another notable trend is that the large companies are continuing to increase their market share by adding even more ambulatory surgery centers to their chains. (See chart, p. 108, bottom.)

Mayo notes that recent headlines show even greater consolidation of the market, which is demonstrated by Birmingham, AL-based HealthSouth Rehab's move to purchase National Surgery Centers of Chicago. HealthSouth is the nation's second largest chain in 1996 with 131 facilities. National Surgery Centers has 33 freestanding outpatient surgery centers.

A state regulatory trend also is fueling the outpatient facilities' growth. Some states are loosening their certificate of need (CON) regulations, which is making it easier for outpatient surgery centers to open, Schmitz says. But even after meeting CON requirements, the new centers will have to conduct extensive cost and reimbursement analyses if they hope to survive, Smith and Blouin say.

"Instead of Maryland having 147 outpatient surgery centers, it might have 247, but not all of those 247 will survive," Smith adds. "It will become survival of the fittest." (See survival tips for smaller centers, p. 107.)