Market Determinants, Ambulatory Surgery Centers, and Hospital Outpatient Surgery Volume June 28, 2005 John Bian, Ph.D.Michael Morrisey, Ph.D. Division of Preventive MedicineDepartment of Heath Care DSCE-REAP of BVAMCOrganization & Policy UABUAB

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

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

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

ASCs Have Grown Dramatically 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 Facilities Winter (2003) Koazk et al. (1999)

Existence of ASCs Has Been Controversial Improve efficiency by specializing on only a few procedures – focused factories (Herzlinger, 2004) 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. 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 ) 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 ASC vs. hospital law suits have emerged, alleging exclusive contracts, foreclosure of markets, and denial of medical staff privileges

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 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 hospital outpatient surgery volume declined Doctors with an ownership position reduced hospital outpatient surgery volume 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. 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) Growth of ASCs likely correlated with market characteristics (MedPAC 2004)

Conceptualization Market effects on ASCs Higher penetration of managed care: Is characterized by selective contracting/utilization management Attracts efficient providers (e.g., ASCs 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.

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

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

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

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

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

Results: Market Effects on ASC Growth ASCs per Million Population 10 percentage point in HMO Penetration -3.0***.05 in HHI (move from 5 to 4 equal- sized hospitals) 2.5*** of 1 Surgeon per 10,000 Pop of 1 Surgeon per 10,000 Pop-2.0 Model includes MSA & year fixed effects. *** 1%.

Results: ASC Effects on Hospital Surgeries OutpatientInpatient Per Capita ASCs ***0.059 HMO Penetration * HHI-0.269***-0.267*** Per capita Surgeons 0.022***0.033*** Per capita MDs Per capita Income *** Unemployment Rate 0.887* Proportion Elderly Population ( in 100K) 0.024***0.035*** Model includes MSA & year fixed effects. *10%, *** 1%.

Summary Greater HMO penetration or greater hospital competition are associated with lower ASC growth. Greater HMO penetration or greater hospital competition are associated with lower ASC growth. But the effects are small in magnitude. 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. 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). 1 ASC per 100,000 pop associated with a 4.2% in hospital outpatient surgeries (p <.01).

Limitations Unknown ASC specialties Unknown ASC specialties Unknown mergers/closures of ASCs Unknown mergers/closures of ASCs

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