As of Jan. 1, 2016, Medicare reduced its reimbursement rate for pain management and gastroenterology by nearly 12 percent and 3 percent, respectively. The problem? Ambulatory surgery centers’ costs are on the rise. In fact, a 2014 report published by The Commonwealth Fund found that the U.S. has the highest healthcare costs in the world, with administrative costs alone increasing from $97.8 billion in 2000 to $215.4 billion in 2011. Consulting firm Avanza Healthcare Strategies found that in 2015, clinical, administrative and staff time per case increased, as did operating expenses and surgical device costs. Additionally, this trend of declining reimbursements does not seem to be reversing any time soon. A study published in the Journal of the American College of Surgeons found that reimbursement for common surgical procedures have declined by an average rate of 3.5 percent each year over the past century. This trend has increasingly affected commercial business; on Nov. 1, 2015, Cigna began basing contracting efforts on the current year’s Medicare reimbursement rate. Aetna on the east coast as well as some Blue Cross Blue Shield plans have also begun using this model. In the midst of reductions in revenue by Medicare and growing operational costs, how do ASCs successfully compete in the market and thrive in the years to come? The following are three strategies for ASC leaders to counteract this decline:
Direct energy toward profit
Although pain management and GI may have seen overall decreases in reimbursement this year, these procedures still generate substantial revenue for surgery centers across the country. For example, partnering with pain physicians to offer trial neurostimulation procedures can be a profitable addition for an ASC. For GI, on the other hand, utilization is key. Focus efforts on marketing to grow physician volumes, as well as managing supply costs to keep the specialty profitable.
Expand service offerings
Expanding the specialties and procedures offered at an ASC may involve an initial investment regarding staffing and equipment, but can often reap benefits for a facility’s bottom line if the appropriate specialties are added. HealthCare Appraisers’ 2010 ASC Valuation Survey analyzed data from 500 surgery centers across the country to learn the most desirable specialties for centers to offer. Respondents voted ENT as one of their top picks, due to the short procedure and recovery time, minimal need for equipment, high incidence of multiples and relatively stable or even increasing reimbursement rates. Despite high case costs, general orthopedics came out on top due to its wide range of subspecialties. Hand surgeons, for example, have a high case volume, short case time and good reimbursement rates. Within orthopedics, however, it is important to take supply and implant costs into account when negotiating contracts with payors. Typically, ASCs should aim for a threshold of 700 cases per year before making the investment to offer this specialty. When higher acuity cases and specialties are brought in, however, less profitable procedures may need to be reduced. Few facilities are at capacity and it is important to structure the ASC around not only what is profitable, but also beneficial to the surrounding community’s needs.
Establish set case rates
While some commercial payors reimburse as a percentage of Medicare’s current year methodology, it will be critical for ASC leaders to establish set case rates to protect their center from continued reimbursement decline. Asking for carve out rates for certain procedures can help facilities keep cash flow strong. For example, instead of asking commercial payors for 150 percent of Medicare’s current pain rate, negotiate a set reimbursement of $500 to avoid continued losses due to declining payments. With this trend only increasing as time goes on, it will be necessary for industry leaders to firmly understand case costs, operational costs, and current reimbursement rates to craft a financially viable budget and future business plan for their ASC. By allocating resources toward financially lucrative procedures and specialties based on community needs and current payment methodology, physicians and administrators can better manage today’s increasingly competitive healthcare landscape. For more information about how to combat declining reimbursements, contact awoodell@regentsh.com.
