Market Determinants, Market Determinants, Ambulatory Surgery Centers, and Ambulatory Surgery Centers, and

Hospital Outpatient Surgery VolumeHospital Outpatient Surgery Volume

June 28, 2005June 28, 2005

John Bian, Ph.D.John Bian, Ph.D. Michael Morrisey, Ph.D.Michael Morrisey, Ph.D.Division of Preventive MedicineDivision of Preventive Medicine Department of Heath Care Department of Heath Care DSCE-REAP of BVAMCDSCE-REAP of BVAMC Organization & PolicyOrganization & PolicyUABUAB UABUAB

PurposePurpose

To examine:To examine:

The effects of market forces on the growth of The effects of market forces on the growth of free-standing ambulatory surgery centers (ASCs)free-standing ambulatory surgery centers (ASCs)

The effect of the growth of ASCs on the provision of The effect of the growth of ASCs on the provision of outpatient surgeries in community hospitals.outpatient surgeries in community hospitals.

Ambulatory Surgery CentersAmbulatory Surgery Centers

ASCs provide relatively uncomplicated surgical ASCs provide relatively uncomplicated surgical procedures. Typically, an ASCprocedures. 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 areasLocated in urban areas For-profit For-profit Less stringently regulated than hospitalsLess stringently regulated than hospitals

Our focus on nonhospital-based ASCs.Our focus on nonhospital-based ASCs.

What Factors Drive Growth of ASCsWhat Factors Drive Growth of ASCs

Advances in technology Advances in technology e.g., laparoscopic/laser surgeriese.g., laparoscopic/laser surgeries

Changes in consumer tastes and quality of careChanges in consumer tastes and quality of care Changes in Medicare payment systemsChanges in Medicare payment systems Changes in Market dynamicsChanges in Market dynamics

Managed care/hospital competitionManaged care/hospital competition Growth in populationGrowth in population

ASCs Have Grown DramaticallyASCs Have Grown Dramatically

0

500

1000

1500

2000

2500

3000

3500

1984 2003

Surgical volume in ASCs Surgical volume in ASCs grew from 3 million grew from 3 million procedures in 1980 to 27 procedures in 1980 to 27 million in 1995million in 1995

ASCs are distinct from the ASCs are distinct from the 100 to 120 specialty 100 to 120 specialty hospitals that typically focus hospitals that typically focus on cardiac, orthopedic and on cardiac, orthopedic and general surgerygeneral surgery

Facilities

Winter (2003)

Koazk et al. (1999)

Existence of ASCs Has Been ControversialExistence of ASCs Has Been Controversial

Improve efficiency by specializing on only a few procedures Improve efficiency by specializing on only a few procedures –– “focused factories” “focused factories” (Herzlinger, 2004) (Herzlinger, 2004)

Draw profitable procedures away from hospitals Draw profitable procedures away from hospitals –– making it making it more difficult for hospitals to provide uncompensated care.more difficult for hospitals to provide uncompensated care.

Conflict of interest when physicians have ownership in ASCs Conflict of interest when physicians have ownership in ASCs (Casalino et al. 2002; Lynk & Longley 2002(Casalino et al. 2002; Lynk & Longley 2002))

ASC vs. hospital law suits have emerged, alleging exclusive ASC vs. hospital law suits have emerged, alleging exclusive contracts, foreclosure of markets, and denial of medical staff contracts, foreclosure of markets, and denial of medical staff privilegesprivileges

Little Empirical Evidence on ASCsLittle Empirical Evidence on ASCs

Lynk and Longley (2002) examined hospital surgery Lynk and Longley (2002) examined hospital surgery volume as a result of new entries of ASCs in two volume as a result of new entries of ASCs in two communities, and concludedcommunities, and concluded hospital outpatient surgery volume declined hospital outpatient surgery volume declined Doctors with an ownership position reduced hospital outpatient surgery Doctors with an ownership position reduced hospital outpatient surgery

volume volume

Winter (2003) found Medicare patients in ASCs healthier Winter (2003) found Medicare patients in ASCs healthier than their counterparts in hospital outpatient departments.than their counterparts in hospital outpatient departments.

Growth of ASCs likely correlated with market Growth of ASCs likely correlated with market characteristics (MedPAC 2004)characteristics (MedPAC 2004)

ConceptualizationConceptualizationMarket 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.

HypothesesHypotheses

ASCs will have a ASCs will have a largerlarger presence in markets with presence in markets with higherhigher managed care penetration, and managed care penetration, and lessless hospital competition. hospital competition.

Hospital outpatient surgery volume will be Hospital outpatient surgery volume will be lowerlower in in markets withmarkets with a a largerlarger presence of ASCs presence of ASCs

Data SourcesData Sources

2002 Medicare Online Survey Certification and 2002 Medicare Online Survey Certification and Reporting System (OSCAR) (Reporting System (OSCAR) (Thank Kathleen Dalton for the Thank Kathleen Dalton for the datadata))

No information on ASC mergers/closuresNo information on ASC mergers/closures No information on ASC volumeNo information on ASC volume No information on ASC specialtiesNo information on ASC specialties

American Hospital Association (AHA) annual survey American Hospital Association (AHA) annual survey files (1992-2002)files (1992-2002)

HMO penetration file (HMO penetration file (Thank Laurence Baker for the dataThank Laurence Baker for the data))

Area Resource Files (ARF)Area Resource Files (ARF)

DesignDesign Health care market: MSAHealth care market: MSA

Unit of analysis: MSA-yearUnit of analysis: MSA-year

Analysis sample:Analysis sample:

1992-2001 MSA-level panel dataset from OSCAR 1992-2001 MSA-level panel dataset from OSCAR 317 MSAs 317 MSAs × × 10 years10 years

Merged with additional time-varying information from Merged with additional time-varying information from AHA (# outpatient/inpatient surgeries, # admissions of community AHA (# outpatient/inpatient surgeries, # admissions of community

hospitals)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)

VariablesVariables

Log-transformed community hospital outpatient surgery Log-transformed community hospital outpatient surgery volumevolume

Per capita ASCs Per capita ASCs # of ASCs normalized by MSA population# of ASCs normalized by MSA population

HMO penetration HMO penetration all age combinedall age combined

Hospital concentration Hospital concentration Herfindahl-Hirschman Index (HHI) using hospital Herfindahl-Hirschman Index (HHI) using hospital

admissionsadmissions Economic/demographic characteristicsEconomic/demographic characteristics

Statistical AnalysisStatistical Analysis

Main estimation strategy: MSA and year fixed effects Main estimation strategy: MSA and year fixed effects to deal with unobserved market and time heterogeneityto deal with unobserved market and time heterogeneity

ASCs = ASCs =

f (f (HMO, HHIHMO, HHI, MDs, socioeconomics, , MDs, socioeconomics,

MSA & year fixed effects)MSA & year fixed effects)

lnln (hospital outpatient surgery volume) = (hospital outpatient surgery volume) =

f (f (ASCsASCs, HMO, HHI, MDs, socioeconomics, , HMO, HHI, MDs, socioeconomics,

MSA & year fixed effects)MSA & year fixed effects)

Figure 1. Time Trend of ASCs (per 10,000 Population)

0.07

0.07

0.08

0.09

0.11

0.12

0.13

0.15

0.16

0.17

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

Per

Cap

ita A

SC

s

Figure 2. Time Trend of HMO Penetration

0.120.13

0.140.15

0.16

0.18

0.190.20

0.200.19

0.00

0.05

0.10

0.15

0.20

0.25

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

%

Figure 3. Time Trend of Hospital Competition

0.360.36

0.370.37

0.38

0.39

0.390.39

0.40 0.40

0.34

0.35

0.36

0.37

0.38

0.39

0.40

0.41

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

HH

I

Figure 4. Time Trend of Hospital Outpatient Surgery Volume

5.886.06 6.15 6.27

6.566.88

7.17 7.18 7.20 7.21

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

Vo

lum

e (in

10000)

Results: Market Effects on ASC GrowthResults: Market Effects on ASC Growth

ASCs per Million ASCs per Million PopulationPopulation

10 percentage point ↑ in 10 percentage point ↑ in HMO PenetrationHMO Penetration

-3.0***-3.0***

.05 ↑ in HHI.05 ↑ in HHI

(move from 5 to 4 equal-(move from 5 to 4 equal-sized hospitals)sized hospitals)

2.5***2.5***

↑ ↑ of 1 Surgeon of 1 Surgeon per 10,000 Popper 10,000 Pop

-2.0-2.0

Model includes MSA & year fixed effects. *** 1%.

Results: ASC Effects on Hospital SurgeriesResults: ASC Effects on Hospital Surgeries

OutpatientOutpatient InpatientInpatient

Per Capita ASCsPer Capita ASCs -0.416***-0.416*** 0.0590.059

HMO PenetrationHMO Penetration -0.050-0.050 -0.158*-0.158*

HHIHHI -0.269***-0.269*** -0.267***-0.267***

Per capita SurgeonsPer capita Surgeons 0.022***0.022*** 0.033***0.033***

Per capita MDsPer capita MDs 0.0050.005 0.0030.003

Per capita IncomePer capita Income -0.041-0.041 -0.097***-0.097***

Unemployment RateUnemployment Rate 0.887*0.887* -0.176-0.176

Proportion ElderlyProportion Elderly 1.6541.654 1.9541.954

Population ( in 100K)Population ( in 100K) 0.024***0.024*** 0.035***0.035***

Model includes MSA & year fixed effects. *10%, *** 1%.

SummarySummary

Greater HMO penetration or greater hospital competition Greater HMO penetration or greater hospital competition are associated with lower ASC growth.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 More ASCs in the market are associated with a fewer hospital outpatient surgeries with no effect on inpatient hospital outpatient surgeries with no effect on inpatient surgeries.surgeries.

↑ ↑ 1 ASC per 100,000 pop associated with a 4.2% ↓ in hospital 1 ASC per 100,000 pop associated with a 4.2% ↓ in hospital outpatient surgeries (p < .01).outpatient surgeries (p < .01).

LimitationsLimitations

Unknown ASC specialties Unknown ASC specialties

Unknown mergers/closures of ASCsUnknown mergers/closures of ASCs

ConclusionsConclusions

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 ASCs appear to compete directly for ambulatory surgeries with hospital outpatient departments.with hospital outpatient departments.

More research needed on quality of care, outcomes, and More research needed on quality of care, outcomes, and efficiency of ASCs.efficiency of ASCs.