Image by 3D Animation Production Company from PixabayThe site-neutrality movement has rapidly become one of the most talked-about issues in health care. But what does it mean for ambulatory surgery center operators?
At its core, site neutrality is about leveling the playing field between different outpatient settings by eliminating the extra facility fees that hospital outpatient departments (HOPDs) often receive, Rachel Carey, counsel at Whiteford, Taylor & Preston LLP, told Ambulatory Surgery Center News.
“It’s a movement to standardized payments across any site,” she said. “I think the big disparity has always been between a hospital outpatient department vs. an ASC and freestanding physician offices. [The movement is] trying to see if they can take some procedures that in the past have been allowed to be billed more under the outpatient prospective payment systems.”
Under many current reimbursement structures, hospitals can charge significantly more for the same service performed in an ASC or physician office, primarily because they factor in infrastructure and overhead costs unique to hospital operations.
Yet if site neutrality is implemented, hospitals, with only the physician-fee-schedule rate for services formerly reimbursed at an outpatient rate, may favor moving procedures to a more cost-effective setting.
This could be a boon for ASCs, since most already have a strong record of efficiency, Carey said.
“If hospitals are going to be getting only the physician-fee-schedule rate for something that’s being done on site, they will probably look for something that is … a more efficient option and cost-effective option, which [ASCS] has been able to offer,” she said.
And legislative proposals have propelled the debate, pointing toward a possible reshaping of reimbursement structures that could drive more services into lower-cost outpatient environments.
The industry is mixed on the matter.
During HCA Healthcare Inc.’s (NYSE: HCA) Q4 earnings call, CFO Michael Marks said the company is skeptical of site neutrality.
“The idea of paying the same rate for [a 24/7 hospital] … with full capabilities of physicians, staff and equipment versus [an 8 a.m. to 4 p.m. outpatient surgery center] does not seem to make a lot of sense to us,” he said.
Still, HCA has not seen a bill yet that would give the company enough information to estimate a potential impact, he added.
Meanwhile, Surgery Partners (Nasdaq: SGRY) CEO Eric Evans said site-neutral legislation could be a net positive for his company.
“It is more likely that as site-neutrality legislation moves forward, our facilities will be the net beneficiary, as procedures may transition faster from acute care health systems and their outpatient department to the facilities that we own and manage,” Evans said during Surgery Partners’ most recent earnings call. “To put it another way, we believe our facilities are the solution to the problem our government is trying to solve.”
The impact of site neutrality will be different for different operators, Carey said.
Leveling payments could mean capping or aligning some reimbursements with physician-fee-schedule rates, which are typically lower than the hospital outpatient or ASC rates. And if further legislation ultimately pegs reimbursements to a lower baseline, ASCs could see some procedures reimbursed at rates that diminish their profitability.
“[Lower rates] might occur for those borderline cases where you could do it in a hospital or an ASC,” she said.
Industry impact
Some industry leaders see site neutrality as a long-overdue reform.
“By reducing financial incentives that have historically favored hospitals, site neutrality helps level the playing field, allowing ASCs to thrive as a key part of the outpatient care ecosystem,” Danilo D’Aprile, president-elect of the Arizona Ambulatory Surgery Center Association and vice president of business development for Merritt Healthcare, told ASC News. “This shift also supports the long-term growth of ASCs by validating their role in delivering cost-effective, patient-centered care.”
Michael Davis, chief financial officer at Pinnacle GI Partners, said site neutrality is likely to influence which procedures remain in hospitals and which migrate to ASCs.
Once hospital facility fees are eliminated, or at least reduced to a uniform rate, hospitals may be less inclined to hold onto procedures that can be easily performed in an ASC, he said. Historically, hospitals benefit from higher reimbursements, so they have reason to keep procedures in-house, he added.
If those payments are standardized, hospitals will start referring more cases to ASCs, particularly routine procedures where there is no longer a financial incentive to keep them in a hospital outpatient department.
Site neutrality might also affect physician recruitment, especially for high-demand specialists like GI doctors. Currently, hospitals can offer salaries that far exceed those of private practices because they recoup more through higher facility fees. By establishing a common rate, site neutrality would narrow this salary gap, potentially allowing private practices and ASCs to compete for physician talent.
“[Hospitals] will probably be more conservative on physician recruitment instead of paying GI doctors seven-or eight-hundred-thousand dollars,” Davis said. “We don’t pay our doctors that much in private practice, even with a partnership model.”
Pinnacle GI Partners is the largest GI provider in Michigan.
In other words, Davis’ group could see an uptick in referrals from hospitals needing GI specialists for call coverage, he said. Hospitals will still require 24/7 coverage, yet if they cannot justify paying certain specialists sky-high salaries, they may opt to outsource more of that work.
“They’ve got to cut their costs somewhere,” Davis said.
And equalizing payments might help private providers compete for physician talent, because hospitals would lose some ability to leverage their higher outpatient payments to pay premium salaries, Davis added.
“It’s very difficult for us to compete for GI doctors when a hospital is almost doubling their salary, even though we offer a path to partnership,” he said. “Hospitals can do that because they’re getting higher payments. If site neutrality comes in, we’d start seeing some of the payment streams be lower in hospital systems, and they’d probably be more conservative on physician recruitment.”
Site neutrality, therefore, may improve an ASC’s value proposition, he said.
“Hospitals will be less inclined to actually take on cases that can be performed in an ambulatory care setting, because they’re going to be paid for it,” Davis said.
ASCs and HOPDs: worlds apart
A fully realized site-neutral policy framework would remove the hospital’s inherent advantage of higher reimbursements, potentially causing hospitals to reevaluate their approach to outpatient services.
This has direct implications for ASCs, which may then attract greater volumes of cases, and also more interest from hospitals exploring partnerships or joint ventures.
“If site neutrality is fully implemented, we’ll begin to see dramatic changes in ASC-HOPD market dynamics,” D’Aprile said. “With reimbursement rates becoming more consistent across both settings, hospitals will no longer have a significant financial advantage, which could reduce their motivation to maintain higher-cost outpatient facilities.”
Carey agreed that if site neutrality is implemented, hospitals may pivot away from running high-cost HOPDs and toward forming ASC joint ventures.
“Hospitals only know how to run things pretty much as hospitals, so you can get some blocks there when they really want to lead everything,” she said. “If you want the benefit of having more efficiency, you want to look for a partnering group that will provide that efficiency, not just the same approach you’d get at a hospital.”
Hospitals should be developing a robust ASC strategy now, rather than waiting until new regulations force significant cuts, she added.
“I think the hospital systems need to prepare and kind of have an ASC strategy,” she said. “And I think these [ASCs] are in this position to maybe approach more of the bigger systems on marketing themselves as a helpful answer to some of this, some of these worries they might have.”
Indeed, private insurers in many markets have already begun encouraging patients to choose lower-cost sites of care through incentives like reduced copays, D’Aprile said.
“I believe that payers, including Medicare and private insurers, are increasingly recognizing the value of site neutrality,” D’Aprile said. “Many private insurers are already incentivizing patients to choose ASCs by offering lower copays and creating benefit structures that favor outpatient procedures.”
Even so, these incentives may not apply uniformly across all geographic regions, though they are especially evident in competitive markets like the New York metro area, he said. Across the board, payer support can foster further ASC development by creating a more predictable reimbursement environment.
“This makes it easier for the development of new payer contracts and to scale the ASC model in both existing and emerging markets,” he said. “The alignment between payer interests and ASC growth is accelerating, and the trend is expected to continue.”
