Outpatient industry continues to grow and competition may become intense

Here's a guide to the best survival techniques

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 and publishes the information in market reports.

As health care cost cutting makes outpatient settings more attractive, this competition and the outpatient surgery business will only intensify, says Peter Wojcik, product manager with SMG.

"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 surgeries to outpatient surgeries. From 1990 to 1996, total outpatient surgical procedures leaped 50% from 14.5 million cases to 22.1 million hospital outpatient and surgery center 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. 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 surgeries a year. This is despite increased competition from hospitals and new surgery centers in the area.

Since Valley Ambulatory Surgery Center opened, the number of surgery centers in Illinois has more than tripled, Mayo says.

"We've gone from 25 surgery centers to over 90 in our state," he says.

SMG's 1998 Freestanding Outpatient Surgery Centers Report, released at the end of June, showed that mid-way through the year, the total number of freestanding outpatient surgery centers had 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," Mayo says. "We're performing much more sophisticated surgery than when we started."

For example, Valley has included among its procedures laminectomy and hernia disk repair, within the past two years. Another fairly new procedure at the center is laparoscopic-assisted hysterectomies, Mayo says.

Medicare helped to 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.

New surgeries added each year

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

"Gallbladder surgery once kept people in the hospital for three weeks, and now it's an outpatient surgery," Blouin adds.

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."

What impact Medicare's new ambulatory payment classifications (APCs), released June 12, for ASCs, will have on outpatient surgery center growth may depend upon how much an outpatient facility relies on Medicare for its reimbursement. (For more on APCs, see Outpatient Reimbursement Management, July 1998, p. 49.)

Some centers, such as Frederick Surgical Center, may feel only a small impact because they do not rely on Medicare business.

"Only 16.4% of our base is from Medicare," Smith says. "There are some centers that have 40% to 60% of their business from Medicare, and they'll have a much rougher row to hoe."

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

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 market share chart, at right.)

Mayo notes that recent headlines show even greater consolidation of the market, which is demonstrated by Birmingham, AL-based HealthSouth Rehab Corp.'s move to purchase National Surgery Centers of Chicago. HealthSouth was 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."

The industry's continuing growth is a double-edged sword for smaller and independent outpatient centers because it means greater competition, particularly from chains.

However, they can increase their odds of survival by following a few guidelines, Smith and Blouin suggest. Their advice is as follows:

1. Offer new surgeries.

"People should be branching out a little bit more," Smith advises.

For example, ophthalmology surgical centers still are the top specialty surgical centers, with about 27% of the specialty surgical industry's market in 1996, according to SMG. "But it's really hard to make a good profit if you're strictly an ophthalmology center," Smith says. "They should start bringing in a broader base."

Certain surgeries might be reimbursed in a less advantageous way under the APC system. So if a center relied entirely on one of these types of surgeries, it could find it more difficult to make a profit, Smith explains.

2. Become accredited.

"It's important that centers are delivering the highest quality of care to the community, and accreditation is a way to ensure that quality is maintained," Blouin says.

The Joint Commission on Accreditation of Healthcare Organizations in Oakbrook Terrace, IL, and the Accreditation Association for Ambulatory Health Care in Skokie, IL, hold the groups they accredit to a very high standard, Blouin says. (See contact information at right.)

3. Attend health care seminars.

Smith recommends outpatient facility directors and reimbursement managers attend seminars on APCs, cost containment, coding, and other issues.

"You need to educate yourself, and gone is the day when you could just rely on reading articles and hoping you would capture everything you need to know," Smith adds. "You need to get out there and take the opportunity to continue your education."

[Editor's note: The Same-Day Surgery Conference, sponsored by the publisher of Outpatient Reimbursement Management, will be held April 11-13, 1999, in Atlanta. To get on the mailing list to receive information about the conference, contact: Customer Service, P.O. Box 740056, Atlanta, GA 30374. Telephone: (800) 688-2421. Fax: (800) 284-3291. E-mail: custserv@ahcpub.com.]