Ambulatory Surgery Centers

Goal of Presentation

Assist Physicians in achieving a greater understanding of the benefits and challenges associated with Ambulatory Surgery Centers.

Medicare drives reimbursement and policy •Surgical Care delivered in 3 types of environments •Hospital Inpatient and Outpatient ORs •Free Standing Ambulatory Surgery Centers •Physician Offices

Increasing numbers of surgical procedures are moving from the inpatient to the outpatient setting. Inpatient vs. Outpatient Surgery Volume, 1981-2005 60 50 40

All Outpatient Settings

30 20 10

Hospital Inpatient 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005* Source: Avalere Health analysis of Verispan’s Diagnostic Imaging Center Profiling Solution, 2004, and American Hospital Association Annual Survey data for community hospitals, 1981-2004. *2005 values are estimates.

Outpatient surgery is quickly migrating to non-hospital settings… Percent of Outpatient Surgeries by Facility Type, 1981-2005 100% Physician Offices

80% Freestanding Facilities

60% 40%

Hospital-based Facilities

20% 0% 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005*

Source: Verispan’s Diagnostic Imaging Center Profiling Solution, 2004. *2005 values are estimates.

Why Physicians choose ASCs • Quality care • Lowered nosocomial infection rates • Increased patient satisfaction • Timely access, reduced cancellation rate, significantly more cases in same time period

• Self Determination • Ownership • Valued input -from daily operations to board level decisions

• Physician Centric nature of ASC • Staff that understand who they work for – physicians temporarily entrust “their patient” into our care. All members of the team understand what the goal of the day is –positive physician working environment that is high quality, efficient and effective.

• An Investment Diversification • Off set net loss to practice ..(physicians are working harder to keep the same bottom line = loss) • Real estate income (not as susceptible to social taxes and penalties as medical reimbursements) • Passive income for retirement years • Effective use of Surgical time = more time for family and office

ASC Strengths • Patient convenience • Lower cost to system and patient cost share • Shorter wait time for surgical intervention • Increased physician satisfaction • Focus on preventative and restorative surgical care • Cost effective Surgical venue • 98% patient satisfaction

Opponents to ASCs “stated concerns” • Patient selection • Payment (refer good payers to ASC leaving Medicaid and charity care at hospital) • Acuity (cherry picking healthy uncomplicated patients) • Risk (surgical patient transforms into emergent unstable patient)

• Expanded capacity may lead to unneeded utilization • Competition may debase hospitals financial viability • Hospitals must provide care whereas ASCs may have a choice to enter market place. • GME • Uncompensated care • Charity • Non profitable but medically needed services

Medicare Requirements for ASCs and Hospitals are the same where Services are Comparable Required Standards Compliance with state licensure law Governing body Surgical services Evaluation of quality Environment Medical staff Nursing services Medical records Pharmaceutical services Laboratory services Radiologic services Source: 42 CFR 416, 42 CFR 482

ASC ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙

Hospital ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙ ◙

Specialties served in ASCs

Source: American Association of Ambulatory Surgery Centers. February 2007.

ASCs are less prevalent in states with CON requirements… Number of ASCs Relative to CON Laws Governing ASCs, by State, 2005

NJ - 11 MD - 23

Equals 15 ASCs CON Regulation By State No ASC CON ASC CON

Source: Federated Ambulatory Surgery Association (FASA). Medicare Certified ASCs 2005. Available at www.fasa.org & American Health Planning Association (AHPA). 2005 Relative Scope and Review Thresholds: CON Regulated Services by State. Updated January 19, 2005.

…and 44 percent of ASCs are whollyor partly-owned by hospitals. Ownership Structures of ASCs, 2004 All Hospital 15%

Physician & Hospital 19%

Other 2%

Physician, Hospital & Corporation 10%

Physician & Corporation 11%

All Physician 43%

Source: American Association of Ambulatory Surgery Centers. ASC Ownership Survey. February 2004.

ASC Advocate thoughts •Hospitals are a vital and very necessary component of the surgical picture (many times apples to oranges comparison)

•Shifting patient expectations from 3-4 day inpatient stays to same day surgery with recovery at home – can be challenging •ASCs absolutely reduce the cost to the healthcare system. •Demonstrated reduction in social admissions (advance care plan required) •ASCs are paid lower amounts for the exact same procedures •Given the same ASA status and risk factors •ASC outpatients are less likely to return to OR,ED •ASC outpatients are less likely to be admitted post op, or result in death (* AMA 2004 Lee A. Fleisher, M.D)

Inpatient Hospital Admission and Death after Outpatient Surgery in Elderly patients Adverse Event

Death Same Calendar  day as procedure

Hospital Outpatient  Department 

Freestanding  Outpatient Surgery  Center

Percent more likely  that event will  happen at Hospital

2.5

2.3

9%

Death, 0‐7 days Death, 8‐30 days ED visit, 0‐7 days ED visit, 8‐30 days Inpatient Hospital  Admission, 0‐7 days

6.2 7.3 259.1 106.6 432.7

3.1 5.6 103.6 79.6 91.3

100% 30% 150% 34% 374%

Inpatient Hospital  Admission, 8‐30 days

115.3

74.0

56%

Total # of Procedures

360780

175288

AMA Jan 2004 (Medicare data set)

Payment for ASC services •ASCs are paid 59% of Hospitals fee rate (by CMS) •GAO found in its 2008 study that ASCs cost were 84% of a hospitals for like services •CMS set ASCs fee schedule at 64.61% of GAO reported cost to perform •CMS set Hospitals fee schedule at 92% of GAO reported cost to perform Cost GAO HOPD cost GAO ASC cost NMSC unpaid CMS payments

CMS payment for like services

CMS payment as Underpayments percent of cost

$1000

$920

$80

92%

$840

$542.8

$297.2

64.61%

$ 7,333,342

$4,738,736

$ 2,594,606

•ASCs are not eligible for any additional pools of money •Disproportionate share payments •GME payments •Uncompensated care funds

•ASCs have not had a payment increase since 2003 •Medicare froze COLA increases awaiting GAO study

•MEDPAC views ASC payments as adequate as long as ASC development continue to grow nationally. (MEDPAC Jan 2009)

Lower copayments may make ASCs more attractive to Medicare beneficiaries. Medicare Required Procedure Coinsurance Rates for ASCs and Hospital Outpatient Departments, 2006 $500

$496

Hospital Outpatient Coinsurance

ASC Coinsurance

$400 $300 $200 $100

$195

$186 $143 $104

$89

$89

$89

$87

$105 $67

$67

$0 Cataract After-cataract Removal/Lens Laser Surgery Insertion

Colonoscopy

Upper Gastrointestinal Endoscopy

Epidural Injection

Cystoscopy

Source: Federal Register. Medicare Program; Update of Ambulatory Surgical Center List of Covered Procedures; Interim Final Rule. May 4, 2005. Centers for Medicare & Medicaid Services. CMS-1501FC. Changes to Hospital Outpatient PPS for Calendar Year 2006, Addendum B.

MEDPAC Jan 09 meeting minutes Dr. Zabinski: “Today, I am going to discuss our analysis of the payment adequacy in the payment system for ambulatory surgical centers, or ASCs. And as you will see through the presentation, if you only examine changes that have occurred to ASC payment rates, you could come away with a very bleak picture of their payment adequacy.” •“ASCs have not had a positive update to their payment rate since 2003” •“The revised ASC payment system has reduced the payment rates of the procedures that are most frequently provided by ASCs” • “Lowered payments for 72% of performed procedures” procedures” (top 20 procedures account for 74% of entire outpatient volume…..19/20 were paid less in 2008) • 3 specialties make up the top 20 volume GI, Ophthalmology and Pain Pain

“But at the same time if you only examine the empirical trends on the growth in the number of Medicare-certified ASCs, the volume of services provided to Medicare beneficiaries in ASCs and Medicare spending on ASCs, you could come away with a very favorable view of their payment adequacy” • “2007 equated to 6.7% growth rate for ASCs….positive indicator toward payment adequacy” • “86% of the 3,400 CPT codes have increased” Only represents 18% of total volume • “Deutsche Bank Securities found that ASCs on average viewed payment rates under the revised system as a positive”. 83% of all ASCs are comprised of GI, Ophthalmology and Pain

Ophthalmologists and ASC services •Ophthalmology specific ASCs comprise about 30% of all ASCs •Ophthalmologists tend run highly efficient and effective practices (Good business models). Directly transferable skill set for physician owner/investors •“Eye sections tend to reach census sooner and arrive at equipment, staffing, supply agreements with less bloodshed than any other specialty I have worked with.” – Jim Stilley *9:30am 21 Feb 2009 HCPCS

Short Descriptor

Allowed Charges (in mil)

Estimated CY 2009 percent change without transition (fully implemented)

66984

Cataract surg w/iol, 1 stage

1,087

-3%

66821

After cataract laser surgery

84

-29%

66982 15823 67041 67904

Cataract surgery, complex Revision of upper eyelid Vit for macular pucker Repair eyelid defect

51 30 14 14

-3% 10% -3% 13%

A significant contributor to the State of Michigan and the Grand Traverse Region

Community Benefit for 2008 •NMSC contributes a very large percentage in community benefit • In 2008 NMSC has provided 14.2% of Net Receipts over 2 Million back to the Local and State Economy in the form of taxes, Charity care, Medicaid patients (no payment from Medicaid) and State fees •NMSC saves outpatients “real” out of pocket dollars on average of 40% over a hospital based outpatient procedure •NMSC cost the entire healthcare system significantly less than hospital based outpatient care 47%

Community Benefit in 2008 How a “for Profit” must define Community Benefit Charity Care – provided to underserved population below federal poverty guidelines, Medicaid (no

$117,911

payment), Medicaid as a secondary payer (no payment)

Property Tax

Property and Personal Property

Single Business Tax

Now referred to as Michigan Business tax

General Tax & State Fees Payment to Non profit

Payroll taxes, licensing fees, state inspection fees

Money returned to community use via non profit partner

Dividend Taxes & Management Company Taxes paid on investor dividends K1s and management

$287,451 $128,841 $276,231 $XXXXX $XXXXX

services taxes paid

Actual dollars contributed by NMSC = 14.2% of net revenue 17% of Op Budget

$2,008,985

Avoided Minimum additional cost payer system would occur if ASC did not exist and cases were done at Hospital

$8,498,656

Avoided Minimum additional cost in “out of pocket patient co payments” if ASC did not exist and co payments were made to Hospital

$1,699,731

2008 Community Benefit by having the Northwest Michigan Surgery Center a viable appropriately reimbursed healthcare facility

$12,207,372

Facility Statistics • Size – 6 O.R.’s, 4 procedure Rooms. 45,000 sqft 5 overnight stay rooms • 90th percentile in case volume • 95th percentile number of rooms (MGMA 4,000 ASC’s) • 99th percentile for sqft.

• Staff – 77 FTE’s filled by 117 people (60 benefited). •

80th percentile (MGMA standard per 7.2 staff *1000 procedures) Flexible scheduling

• Surgeons – 81 Multi-specialty Surgeons.

Specialties Podiatry 3%

Plastics 2%

Pedodontics 0% Ortho

Urology 2%

Ortho 24%

Gastro Gynecology

General 13%

Ophthalmology ENT

Gastro 31%

ENT 2%

General Urology P odiatry P lastics

Ophthalm ology 22%

P edodontics

Gynecology 1%

Quality Benchmarks • Infections = .07% – NMSC goal