Academic journal article Health Care Financing Review

HMO Penetration, Hospital Competition, and Growth of Ambulatory Surgery Centers

Academic journal article Health Care Financing Review

HMO Penetration, Hospital Competition, and Growth of Ambulatory Surgery Centers

Article excerpt

INTRODUCTION

Freestanding ASCs have been a growing phenomenon in the U.S. health care market for the past 20 years. Winter (2003) indicated that the number of Medicare-certified freestanding ASCs had increased from about 400 in 1983 to over 3,300 in 2001. These facilities typically consist of a small number of operating rooms and provide a specific set of surgical procedures (Casalino, Devers, and Brewster, 2003). Their expanding role in the U.S. health care delivery system has been controversial. Some have argued that these "focused factories" lower the unit cost of surgical care by performing a narrow set of procedures in a remarkably efficient fashion (Herzlinger, 2004). Others have argued that such facilities pose unfair cost advantages to hospitals by drawing profitable surgeries and procedures away from hospitals (Winter, 2003). There are also concerns that ASCs may lead to unnecessary surgeries and procedures because of the financial incentives inherent in physician-owned ASCs and that their narrow service availability may compromise quality of care (Casalino, Devers, and Brewster, 2003; Mitchell and Sass, 2006).

While the growth of specialty hospitals has been contentious with concerns centering on physician ownership and favorable selection of healthy patients (Mitchell, 2006; Guterman, 2006; Stensland and Winter, 2006; Greenwald et al., 2006), the growth of ASCs has been much more rapid. Surprisingly, there has been little empirical research on ASCs and virtually none that has examined the effects of market conditions on the growth of ASCs. The concerns about the growth of ASCs, however, are much the same. Winter (2003) examined differences in the case mix of Medicare patients receiving ambulatory surgeries and procedures between hospital outpatient departments and ASCs, suggesting that ASCs might have treated patients with less intense case mix. Two studies examined the association of ASCs with hospital surgery markets. Casalino et al. (2003) reported the perceptions of medical group, hospital and health plan executives on the effects of ASCs on hospital markets, but were not able to quantitatively support these perceptions. Lynk and Longley (2002) examined the impact of ASC entry on hospital surgery volume in two communities. They concluded that hospital outpatient surgery volume declined as a result of the new ASC entry and that doctors with an ownership position in the new ASCs reduced outpatient surgery volume of hospitals where the doctors had admitting privileges. Two other studies explained the factors influencing the growth of ASCs. Casalino and colleagues (2003) suggested that the absence of State certificate-of-need (CON) laws and the presence of large single-specialty groups in a health care market were likely factors associated with the development of ASCs. A preliminary report by the Medicare Payment Advisory Commission (2004a), using cross-sectional data, suggested that markets with higher managed care penetration had slower growth of ASCs.

This study contributes to the existing literature on ASCs. In this analysis, we start with an overview of rapid growth of ASCs over the past two decades. We then present a model of how changes in health care market characteristics may affect the growth of ASCs. In particular, we focus on two key market characteristics--managed care penetration and hospital market concentration. Finally, we empirically analyze the effects of the two key market characteristics on the growth of Medicare-certified freestanding ASCs, using a balanced 1992-2001 MSA level panel dataset constructed from the 2002 Medicare OSCAR system.

BACKGROUND

Advances in anesthetics and the development of minimally invasive surgical techniques since the 1980s have made it possible to move many surgeries and procedures from an inpatient to an ambulatory setting (Detmer and Gelijns, 1994). Contemporaneous changes in health care market characteristics, particularly the proliferation of managed care activities accompanied by increasingly consolidated hospital markets and emerging hospital systems (Cueller and Gertler, 2003), may have also encouraged providers to shift deliveries of surgeries and procedures from the inpatient to ambulatory settings as a method of cost control. …

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