What are the benefits and what unforeseen hurdles should it be aware of before proceeding?

‍This month’s ‘Insights from an ASC Expert’ column is focused on health systems considering the conversion of a hospital outpatient department (HOPD) to an ambulatory surgery center (ASC). Reimbursements for cases performed in an HOPD are greater than those same cases being performed in an ASC setting. For this reason, the conversion of these outpatient facilities to licensed, free-standing ambulatory surgery centers has been slow to occur over time. However, the pace of conversion is increasing.

‍Why Would Health Systems Convert HOPDs to ASCs?
Among many reasons, a few stand out:

1. Physician Demand. Employed, affiliated, or aligned independent physicians are pushing health systems to provide ASCs in which surgeons have more control, greater efficiency, less bureaucracy, and financial upside.
2. Hospital Protection. By creating alignment with surgeons in an ASC, those relationships become much stickier. In particular, it’s a tool to prevent employed surgeons from leaving or aligning with competitive systems or practices.
3. High-acuity Case Migration. CMS continues to approve higher-acuity cases to be performed within the ASC setting, meaning the majority of outpatient appropriate surgery can now be performed and billed in a licensed ASC.
4. Commercial Payer Requirements. Pre-authorization requirements from commercial payers. These payers are requiring certain case types to be performed in the lower-cost ASC setting.

Health systems are quickening the pace of conversions and often seeking support from outside parties to do it. Operating a profitable ASC venture in a lower reimbursement environment is unique compared to operating an HOPD setting. Compass has continued to expand its hospital joint-venture ASC partnerships, with many deals centered around HPOD to ASC conversion.

‍Unforeseen obstacles for an HOPD to an ASC conversion
For a health system that has not yet converted an HOPD to an ASC, there are a few hurdles to consider.

1. Physical plant licensure requirements. The requirements to license a new ASC entity drastically differ today from even 5-years ago. These requirements are typically unique when compared to those of an HOPD. An experienced ASC firm should be consulted to determine if any physical plant improvements are required prior to successfully licensing the ASC.
2. Overbuilt HOPD floorplans. HOPDs are typically built larger than a new ASC would be designed. Even though it may make sense strategically to convert the facility, the ongoing operational costs of the larger, more inefficient facility should be considered. Sometimes, it is more cost-effective long-term to construct a new ASC facility, especially if the health system can repurpose the existing HOPD footprint.
3. Commercial payer contracts. When a new ASC entity is formed, it typically does not have contracts with commercial payers. This is a risk to be carefully evaluated prior to proceeding with the HOPD to ASC conversion. Often the system and the surgeons don’t appreciate the lag time in bringing the “new” ASC back in network with payers and the impact that may have on surgical schedules.
4. Governance. ASCs require a very specific structure for governance and quality oversight that differs substantially from hospital-based operating rooms. Extensive re-vamping of policies and procedures, surgeon involvement in governance, and an entirely new structure of committees need to be established.
5. Building trust. Right or wrong, surgeons often have a difficult time trusting health systems. Establishing and maintaining trust throughout the process is vital. Ultimately, the surgeons will view these conversions as a tool to benefit their patients and themselves. They need to believe that the other partners involved in execution have their interests in mind all the time.

‍Summary

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As hospitals consider converting their existing HOPDs to ASCs, many factors should be considered before determining if this is the appropriate strategy. Obviously, the financial impact on the hospital is always a concern. An experienced ASC developer (insert shameless plug for Compass here) can assist with the strategy evaluation, financial analysis, licensure, and ongoing operational oversight in the lower-cost setting. Additionally, many surgeon partners who invest in the ASC prefer to have a third-party manager involved in the operations and partnership oversight.

For those systems that intend to proceed with the development of a new ASC (via an HOPD conversion or new facility), having an experienced ASC operator has been a benefit to many other hospitals that have pursued this same strategy.
Compass has helped many health systems evaluate whether an ASC is appropriate for its respective market. Many times, the answer to the strategic analysis is not to proceed with the ASC development. The goal is to find the pathway that suits the system in the long run, even if there is some short-term pain due to the loss of better-paying HOPD surgeries.

Lastly, those who think most creatively about how to market the ASC asset to payers and employers will benefit. While not a magic bullet, marketing to large employers to grow market share becomes much easier with a high-performance ASC in the health system network.

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If you are a hospital administrator considering an ASC partnership and not sure if it’s the appropriate strategy, I would be happy to discuss your situation in detail so I can offer professional guidance accordingly. Request a customized analysis by emailing me at sbacon@compass-sp.com.