Image by Faisal Mehmood from PixabayASC News previously reported on Colliers’ research regarding the expansion of ambulatory surgery centers (ASCs) and the projected increase in outpatient services over the next decade.
We recently had the chance to talk with Marianne Skorupski, director of the national office of research, and Shawn Janus, the national health care services director, to delve deeper into the report and examine its findings.
The conversation below has been edited for length and clarity.
ASC News: How do you perceive the impact of technological advancements like robotics on the expansion of outpatient and ASC services over the next decade?
Marianne Skorupski: Technology enables growth. The robotics and ongoing technological innovations — both within the procedure center and in back-office operations — support the smooth transition of procedures from an inpatient setting to the ASC and outpatient sector.
We mentioned in the report the growth in cardiology and spinal orthopedic procedures, specifically those that have historically been limited to the inpatient setting, because they are so advanced. Still, we are starting to see components and select procedures from those categories moving into the ASC, which couldn’t have been done the way it is now 15 years ago.
Shawn Janus: The hope is also that some of these technological advances will help ease at least some of the labor shortages.
It seems we’ve always had a nursing shortage. But the thing that seems to keep the C-suite folks up at night is the physician shortage.
However, I believe that due to some of these shortages, they are really considering technology, robotics and other solutions to take some of those tasks away from not just physicians and nurses, but even physician assistants, so they can be more efficient and focus on providing care in higher-acuity settings.
Could you discuss the trends that are driving profitability in orthopedics, cardiology and spine surgery within the ASC industry?
Janus: I think some of the things we just discussed, related to increasing efficiency — such as turnaround times and using robotics and other technologies — help improve profitability as they become more efficient with their time.
On the revenue side, as you shift to an outpatient setting, the reimbursement model changes. Therefore, you receive better reimbursement. Clearly, the margins can be larger, especially in orthopedics, spine and similar areas, where moving into the outpatient setting should naturally increase the margins and profitability compared to performing these procedures in the inpatient acute care environment.
Skorupski: In the report, we mentioned the forecast from 2023 to 2028, which shows a 17% increase in volume for spinal procedures in the ASC. This will only lead to significant growth in revenue as part of that.
How are payment reforms and reimbursement policies shaping the growth and operational strategies of ASCs?
Skorupski: Right now, everyone is still gathering information to understand the implications for their models fully. Each system or provider will be affected slightly differently, depending on their setup. As a result, it’s difficult to determine the specific impacts on individual facilities.
However, everyone is trying to figure out what they can do to prepare for these impacts and the upcoming changes once they take effect, while recognizing there’s still some uncertainty about what will happen between now and year-end and how it might lead to further implications.
Changes in reimbursement and coding for over 20 procedures by Medicaid and Medicare now allow these procedures to be performed in the ASC or outpatient setting, previously coded only for inpatient care. This flexibility opens new growth opportunities in the ASC setting that were previously inaccessible, making this shift an advantage for ASCs.
What M&A activity do you expect in the ASC sector, and how could this influence future industry consolidation?
Janus: There will be more consolidation in the ASC space, and there are several reasons for that. We’ve already seen it, of course, whether on the practice side or with ASCs.
Part of that is driven by third-party private equity capital looking to invest in the space. So, there’s more competition, which increases prices.
Physicians really want to stay involved in ownership and are looking to invest as well.
It ties back to some of the margin pressures that health care systems have always faced, along with the recent nuances involving reimbursements, labor and supply costs increasing and squeezing margins.
Providers have an insatiable demand for capital. Labor and equipment are expensive. If they can access private equity capital, we will see more of that.
Skorupski: Another aspect that M&A enables is more strategic efforts in new geographies, especially considering the discussions around rural areas or locations outside the city center — getting closer to patient populations and residential communities.
M&A allows systems and providers to become more strategic, fill in some procedure or specialty gaps they lacked, and access new markets more easily without a large capital investment at once, such as merging with a new practice, a different practice or a system.
Those components also come into play with that M&A activity and even with the PE money, as we look at how to ensure our portfolio is as diverse as possible and that we’re focusing on the right areas, both geographically and in terms of our financial commitments.
How are private equity firms influencing the growth and development of ASCs, and what risks and benefits does this create?
Skorupski: Well, they have this cash flow coming in, which presents an opportunity to actually invest.
Most providers focus on how they’re using their money, so receiving an influx of cash that can be truly expansionary and forward-thinking — helping them modify or grow — is beneficial. It also helps ease some of their decision-making, especially since PE money is focused on growth. They want to increase their return, so it’s a win for both sides.
The new capital emphasizes development. It could be a physical building or, in some cases, new equipment for the practice. However, it also represents the ability to have a fresh pool of money that can go a long way depending on how the provider group is structured.
Janus: From a real estate perspective, we do a lot of advisory work with clients to help them understand where to position their facilities to capture the right demand components for patients and the services they offer. The issue is that development costs have skyrocketed.
To develop a new facility, the costs involved include those specific to the facility itself. Since every market is different, it’s typically expensive to move into existing space — usually involving a significant rent premium — or into a larger space that can accommodate more equipment and provide flexibility for growth and other needs.
There’s a mismatch between what the rental rates need to be for the developers to justify them. So, how can you alleviate that? It’s trying to be more efficient on the operational side and deliver that care through the co-location of services.
We are seeing increased activity in converting offices, which is effective. This uptick is mainly due to the cost difference. There is an opportunity to purchase buildings and convert them into medical facilities. Although it remains costly, it is still cheaper than ground-up development given the current environment.
How is the shift of specific procedures from ASCs back to physician offices impacting the overall outpatient landscape?
Skorupski: I believe it’s a bit of a domino effect. As higher-acuity procedures are moved out of the hospital, something has to give. Lower-acuity procedures have also evolved over time. You might not need anesthesia for them, or they can be more targeted. Different technologies have facilitated the shift of some of those procedures.
For the provider practice, it offers revenue-growth opportunities for procedures that hadn’t been available before. It’s the trickle-down procedure revenue that hasn’t been historically included.
Looking ahead, what do you foresee as the main factors shaping the future of the ASC industry?
Janus: Robotics will drive the evolution of ASCs. AI is part of the technology revolution — particularly in the back-office administrative functions, such as billing and coding. We are also seeing this increase on the clinical side.
When analyzing large datasets and identifying factors that cause certain diseases or procedures, they can use that data to target specific areas. We’re also seeing this in radiology, where they can examine multiple factors and achieve better outcomes.
Secondly, PE capital is an alternative source for providers to use, so they can redeploy their own capital, whether it’s a health system or a hospital.
Skorupski: ASCs now seem to have a more prominent role, as they were once just a nice-to-have. Now, it’s about deciding where we want them and how to shape them.
It’s much more strategic — looking at the entire portfolio and including it as a key part of it, whether as a provider practice, an investor from PE or a hospital system, they use the ASC as a true component of the overall portfolio.
Revenue growth is really emerging, and you notice these discussions and decisions when talking to executives because they recognize the importance of diversifying a portfolio so the exposure isn’t overly reliant on one sector or piece of the puzzle. I think that’s become a major focus.
Janus: It’s about demographics. Everyone has been discussing the baby boomer generation and older for the past 20 years. They require more health care. We see that the baby boomer generation is driving demand, especially for ASCs — hips and similar procedures. So, that will definitely be a significant factor in the short term.
