The ever-evolving surgery center

NEWER AMBULATORY FACILITIES OFTEN INCLUDE OFFICE SPACE, IMAGING, ETC.

 

By Jessica Griffith

As medical procedures continue to decamp from acute-care hospitals to ambulatory centers, hospitals, health systems and healthcare companies are finding newer and more efficient ways to deliver outpatient care.

“Procedures that even five years ago required a hospital stay now take place in an ambulatory surgery center, and ambulatory procedures have moved to the doctor’s office,” says Michael Bush, principal and vice president of Tsoi/Kobus & Associates, an architecture firm in Cambridge, Mass., that works on numerous ambulatory centers.

More than 5,000 ambulatory surgery centers are in operation throughout the United States, according to Malcolm Sina, president and CEO of Palm Beach Gardens, Fla.-based DASCO Cos. Of these, 4,600 are certified by Medicare.

It is unclear how many of these centers are on hospital campuses instead of off-campus sites, but large urban medical centers and some smaller hospitals are running out of land on which to build at a time when demand for ambulatory care continues to increase.

Two trends are helping healthcare organizations find space for these services. One is a move to the suburbs or to less-densely populated areas of the city. Another is the growth of big-box ambulatory care centers that combine surgical care with radiology and other diagnostic services, as well as medical office space.

“These centers have everything short of acute care beds,” Mr. Sina says.

Shift to suburbia

The Moakley Building at Boston Medical Center is one example of this type of vertical integration, Mr. Bush says. Originally, cancer diagnostics and treatment were dispersed throughout the campus and patients had to visit multiple buildings for radiology, surgery, radiation and chemotherapy.

Now, cancer patients receive all of their care in one location: the new Moakley Building.

In suburban Houston, DASCO recently completed two, 80,000 square foot outpatient centers for the area’s dominant provider, Memorial Hermann Healthcare System. Half of each building is dedicated to physician offices and the remaining space houses ambulatory surgery, diagnostics and imaging services such as MRIs and CT scans. The centers are located away from memorial Hermann’s central hospital campuses.

This shift to off-campus locations reflects demographic changes in the delivery of healthcare as an increasing number of patients move outside the urban core.

“Do patients and their families prefer to travel into dense urban areas to see their healthcare providers, or do they favor visiting suburban centers where the commute is not as intimidating and access in general is much more convenient?” Mr. Bush says. He adds that there are two sides to this issue, as some patients feel they receive better care on the main campus while others prefer the convenience of the suburbs. Physicians also must be willing to travel to both locations.

The suburban locales allow healthcare providers to expand into new territory without waiting for a particular region to require an acute-care hospital.

An ambulatory center can help a healthcare system introduce itself to a new region or a fresh batch of potential patients, adds George Milligan, president of The Graham Group in Des Moines, Iowa.

“It becomes a healthcare delivery point associated with the system, as opposed to being fragmented and non-branded,” he says.

Indianapolis-based Lauth Property Group is talking to several hospitals and healthcare systems regarding the development of big-box ambulatory care centers. These type of projects have the potential to alter the competitive landscape, says Michael Wagner, Lauth’s director of healthcare.

“Typically, hospitals have played nice by maintaining their own markets within a city,” he says. “Now, we are seeing systems plan ambulatory strategies in each other’s markets.”

Some of these ambulatory centers are planned near available land for future acute-care hospital development, he adds.

One-stop shop

To accommodate multiple services, new ambulatory centers are 30 percent to 50 percent larger than those built a decade ago, Mr. Sina says.

The average size is 60,000 to 80,000 square feet, while ambulatory centers used to be 20,000 to 30,000 square feet, Mr. Milligan adds. Other sources say these big-box centers can support up to 120,000 square feet.

These larger centers create cost savings on several levels as h Healthcare providers do not have to duplicate staff or services. Plus, it’s less expensive to build one large building than to construct multiple smaller ones.

“Current construction costs are at historic highs, especially costs associated with medical facilities in dense urban areas,” says Mr. Bush of Tsoi/Kobus. He adds that the average increase in cost per year was 8 percent to 12 percent during the last several years.

“Properly zoning a healthcare building by use can be an effective means of controlling its costs, which was our approach when designing the (Moakley Building),” he says. “Here, the physician exam space is located in a zone of the building designed for a business occupancy, while the state-of-the-art radiation oncology treatment areas are situated within a different zone that conforms to a much more complex and expensive institutional occupancy.”

In addition, the level of surgical procedures performed in today’s outpatient center is increasingly more complex, with accommodations for sophisticated imaging equipment and other advanced technology.

Larger buildings also require more property, says Marc Jang, president and CEO of Titan Health Corp., in Sacramento, Calif.

“In development, the real estate is always a challenge,” he says. “You have to procure the property and if it is for a larger project, you have the potential for greater delays.”

And as everyone involved in real estate development know, delays can translate into further increases in the cost of raw materials and labor.

Partners, not rivals

Less than a decade ago, surgeons at some hospitals fled to ambulatory surgery centers, where they could control schedules and earn a share of the profits. Hospitals fought back and a competitive environment arose for surgery patients.

The combination of larger surgery centers and smaller reimbursements has helped renew the partnership between surgeons and hospitals.  

“We are seeing less competition, and more joint ventures that are bringing hospital and physician interests together,” says Mr. Milligan of the Graham Group. “Hospitals have better surgery contracts than physicians. It is hard to compete with a hospital system indefinitely.”

The surgery centers built by physicians tended to offer only surgery services. Often, they did not offer radiology or other outpatient services, Mr. Sina says. The partnerships between surgeons and hospitals provide a wider range of medical care and thus a wider range of payers, which both hospitals and doctors expect to result in greater profits.

The market will always experience some doctor-owned surgery centers, but in the last 18 months, hospitals have pursued joint ventures with surgeons, says Mr. Wagner of Lauth.

“They have come to realize that if they can’t beat the doctors, they have to join them,” he says. “Hospitals are coming to doctors; they are realizing a little of something is better than none of something.”

Docs on their own

Still, the vast majority of surgery centers remain unaffiliated with hospital systems, says Christian Ellison, vice president of business development for Broomfield, Colo.-based Health Inventures, a developer and manager of outpatient facilities.

Because most surgery centers are unaffiliated with hospitals, there is the potential for numerous consolidations as more and more hospitals enter the surgery center game.

“Acquisition will be part of the process for hospitals, but so will new development,” Mr. Ellison says.

Physicians usually are open to the joint venture offers, but many of the doctors that Health Inventures approaches already are partners in surgery centers. Some may be able to afford multiple partnerships, and Health Inventures also seeks physicians in new markets or young physicians who do not yet have a surgery center affiliation.

In addition, Mr. Ellison says the reimbursement system is less friendly to independent physicians and more friendly toward hospitals.

CMS proposes change

In fact, surgery centers could find the reimbursement system even more challenging starting in 2008, according to DASCO’s Mr. Sina. The Centers for Medicare & Medicaid Services (CMS) announced this summer that it has proposed revisions in its reimbursement policy for ambulatory surgery centers.

If the changed are enacted, an ASC’s reimbursement for many procedures would average one-third less than what the same procedure would receive in an acute-care hospital. The change would be phased in over four years.

“What you might see if this is initiated is that the number of new ASCs developed would decrease, and some of the existing ones would become unprofitable,” Mr. Sina says. He adds that the proposed change does not clarify whether on-campus, freestanding facilities would be affected.

“It’s not clear whether outpatient surgery centers connected to the hospital would still receive the full reimbursement,” Mr. Sina notes.

Mr. Jang of Titan Health Corp. views the regulatory changes as positive and says they will provide more clarity to surgery centers.

“The total impact should be budget-neutral, although there will be some new trends as a result of the changes in reimbursement,” he says, adding that orthopedics and ear-nose-throat (ENT) procedures would fare well under the proposed changes.

The changes would affect some surgical specialties more than others, Mr. Ellison adds. Gastroenterology, ophthalmology and pain management are among the categories scheduled to take a hit, while orthopedics would see an increase in reimbursement.

Growth on horizon

“There is no indication that ambulatory surgery as a practice will not continue to grow,” Mr. Ellison adds. The rate of growth of new centers may slow down, and the profile of procedures may change to make room for more profitable surgeries.

While some procedures, such as open-heart surgery, likely always will take place in a hospital setting, patients will receive an ever-increasing amount of care in doctors’ offices and ambulatory care centers. Those clinics will need to find the right balance of procedures to turn a profit.

Specialty surgery centers may transition into centers with multiple types of procedures, including ones with high reimbursement rates.

“Management will have to be more precise in terms of how many procedures will be done,” Mr. Sina says.  “If reimbursement goes down per case, they will have to make it up in volume.”

“You’re always going to have ambulatory surgery centers from a convenience standpoint for the patients,” Mr. Wagner says. “You can’t expect everyone to drive into the city center, and running an outpatient department in an inpatient setting is very expensive and inefficient. But reimbursement changes may change the structure of the joint ventures.” q