Market Determinants, Ambulatory Surgery Centers, and Hospital Outpatient Surgery Volume

1. Market Determinants, Ambulatory Surgery Centers, and Hospital Outpatient Surgery Volume June 28, 2005 John Bian, Ph.D. Michael Morrisey, Ph.D. Division of Preventive Medicine Department of Heath Care DSCE-REAP of BVAMC Organization & Policy UAB UAB

2. Purpose To examine: • The effects of market forces on the growth of free-standing ambulatory surgery centers (ASCs) • The effect of the growth of ASCs on the provision of outpatient surgeries in community hospitals.

3. Ambulatory Surgery Centers • ASCs provide relatively uncomplicated surgical procedures. Typically, an ASC • Specializing in 1 or 2 procedures (e.g., GI, orthopedics) • Mostly physician-owned (entirely or partially) • Exempt from the Stark law. • Located in urban areas • For-profit • Less stringently regulated than hospitals • Our focus on nonhospital-based ASCs.

4. What Factors Drive Growth of ASCs • Advances in technology • e.g., laparoscopic/laser surgeries • Changes in consumer tastes and quality of care • Changes in Medicare payment systems • Changes in Market dynamics • Managed care/hospital competition • Growth in population

5. ASCs Have Grown Dramatically Facilities • Surgical volume in ASCs grew from 3 million procedures in 1980 to 27 million in 1995 • ASCs are distinct from the 100 to 120 specialty hospitals that typically focus on cardiac, orthopedic and general surgery Koazk et al. (1999) Winter (2003)

6. Existence of ASCs Has Been Controversial • Improve efficiency by specializing on only a few procedures –“focused factories” (Herzlinger, 2004) • Draw profitable procedures away from hospitals – making it more difficult for hospitals to provide uncompensated care. • Conflict of interest when physicians have ownership in ASCs (Casalino et al. 2002; Lynk & Longley 2002) • ASC vs. hospital law suits have emerged, alleging exclusive contracts, foreclosure of markets, and denial of medical staff privileges

7. Little Empirical Evidence on ASCs • Lynk and Longley (2002) examined hospital surgery volume as a result of new entries of ASCs in two communities, and concluded • hospital outpatient surgery volume declined • Doctors with an ownership position reduced hospital outpatient surgery volume • Winter (2003) found Medicare patients in ASCs healthier than their counterparts in hospital outpatient departments. • Growth of ASCs likely correlated with market characteristics (MedPAC 2004)

8. Conceptualization Market effects on ASCs • Higher penetration of managed care: • Is characterized by selective contracting/utilization management • Attracts efficient providers (e.g., ASC’s cost advantages to hospitals) • Thus, leads to faster growth of ASCs • Greater hospital competition: • Forces hospitals compete more aggressively for ambulatory surgeries • Reduces profitability of ASCs • Thus, leads to slower growth of ASCs. ASC effect on hospital outpatient surgery volume • Large presence of ASCs: • Forces hospital outpatient departments to compete with ASCs (should have little impact on hospital inpatient surgeries) • Thus, leads to a decrease in hospital outpatient surgery volume.

9. Hypotheses • ASCs will have a larger presence in markets with • higher managed care penetration, and • less hospital competition. • Hospital outpatient surgery volume will be lower in markets with • a larger presence of ASCs

10. Data Sources • 2002 Medicare Online Survey Certification and Reporting System (OSCAR) (Thank Kathleen Dalton for the data) • No information on ASC mergers/closures • No information on ASC volume • No information on ASC specialties • American Hospital Association (AHA) annual survey files (1992-2002) • HMO penetration file (Thank Laurence Baker for the data) • Area Resource Files (ARF)

11. Design • Health care market: MSA • Unit of analysis: MSA-year • Analysis sample: • 1992-2001 MSA-level panel dataset from OSCAR • 317 MSAs × 10 years • Merged with additional time-varying information from • AHA (# outpatient/inpatient surgeries, # admissions of community hospitals) • HMO penetration file • ARF (i.e., economic/demographic indicators, supply of physicians)

12. Variables • Log-transformed community hospital outpatient surgery volume • Per capita ASCs • # of ASCs normalized by MSA population • HMO penetration • all age combined • Hospital concentration • Herfindahl-Hirschman Index (HHI) using hospital admissions • Economic/demographic characteristics

13. Statistical Analysis • Main estimation strategy: MSA and year fixed effects to deal with unobserved market and time heterogeneity • ASCs = f (HMO, HHI, MDs, socioeconomics, MSA & year fixed effects) • ln (hospital outpatient surgery volume) = f (ASCs, HMO, HHI, MDs, socioeconomics, MSA & year fixed effects)

18. Results: Market Effects on ASC Growth Model includes MSA & year fixed effects. *** 1%.

19. Results: ASC Effects on Hospital Surgeries Model includes MSA & year fixed effects. *10%, *** 1%.

20. Summary • Greater HMO penetration or greater hospital competition are associated with lower ASC growth. • But the effects are small in magnitude. • More ASCs in the market are associated with a fewer hospital outpatient surgeries with no effect on inpatient surgeries. • ↑ 1 ASC per 100,000 pop associated with a 4.2% ↓ in hospital outpatient surgeries (p < .01).

21. Limitations • Unknown ASC specialties • Unknown mergers/closures of ASCs

22. Conclusions • Fast growth of ASCs in part driven by market dynamics. • ASCs appear to compete directly for ambulatory surgeries with hospital outpatient departments. • More research needed on quality of care, outcomes, and efficiency of ASCs.