How to Narrow the Pricing Gap between Hospitals and ASCs

Knee Replacement Surgery

Ambulatory Surgery Center
$ 15,000 - $20,000 All-inclusive Bundled Price
  • Surgical Facility Cost
  • Board-certified Surgeon
  • Board Certified Anesthesiologist
  • Recovery Room
  • Medications
  • Implant Cost

Knee Replacement Surgery

Hospital
$ 28,000 - $53,000 All-inclusive Bundled Price
  • Surgical Facility Cost
  • Board-certified Surgeon
  • Board Certified Anesthesiologist
  • Recovery Room
  • Medications
  • Implant Cost

Why is the price so different?

One reason is the overhead and salaries

photo of Maria K ToddHospital CEOs tend to command much higher salaries and compensation than their ASC counterparts.  “In the comparison between hospital and ASC you are paying more for the “bigness” of it all, even if you aren’t getting any value from it. That’s pared down in the ASC setting”, explains Dr Maria ToddSurgeryShopper’s go-to-expert on health administration issues and healthcare price transparency. Todd explains that while some patients truly need the support of a full-service facility, that’s actually the exception in many cases. 

Another reason is their supply chain and procurement practices

Hospitals have entrenched relationships with traditional distributors, even when they attempt to save money through Group Purchasing Organization (GPO) memberships.  ASC counterparts are more agile and can take advantage of market disruption such as Amazon.com entering the healthcare supply chain and distribute at a lower cost.  Amazon can supply things ASCs need same day or next day. The ASC doesn’t require all the warehousing space, may not need the vendor reps in the OR, and may rely on pre-packaged instrumentation customized to the surgeon’s pick list and case set ups.  “At one point, I thought that ASCs would need to join the GPOs. I don’t think like that anymore. The disruptors have earned the right to play on the playground with a leaner, better procurement solution.” she explained.

A third reason is contract negotiations

“ASCs tend to spend less in the contracting and revenue management process,” Todd explains.  The contracts are less onerous, and require less effort to analyze, negotiate and implement. Todd has been helping both ASCs and hospitals analyze and negotiate their managed care contracts since 1983. She told us that the average hospital contract starts around 48-60 pages in the main document, of which each line and price must be scrutinized. The average ASC contract is usually under 20 pages, total. “My ASC clients pay me about one-third of the amount paid by hospitals because there’s less to evaluate, model and negotiate.  And in the case of bundled price contracts that are negotiated directly with employers, the contract may be fewer than 8 pages in length and comes with lower financial risk exposure and faster remittances.”

Government regulatory constraints

Medicare sets the standards on which procedures can be performed in the ASC setting if you want to be paid by the Medicare or Medicaid program. “It updates payment policies at the pace of a sloth.” says Todd. If you schedule a Medicare or Medicare Advantage patient for a joint replacement in a hospital, the hospital gets paid a hefty sum for the implant cost reimbursement. If you schedule the same Medicare or Medicare Advantage patient for the same joint replacement in an ASC, with the same surgeon and anesthesiologist, Medicare won’t pay for the implant at all. The outcomes can be better in the ASC but they won’t get paid according to established policy. Medicare policy is updated at a snail’s pace and it maintains an office of “innovation”. That’s a joke.

Anti-competitive behavior of some hospitals

In some hospitals, they act in ways that don’t benefit the consumer and the marketplace. For instance, several hospitals I am aware of have made deals with physicians in the open market or acquired the practice of key regional specialists while locking out others with equal or better qualifications. That creates a domino effect. If they lock out certain specialists, the market is forced to seek care from the higher-priced, medical staff member that has been granted privileges while the other local and regional excellent surgeons are “locked out”. Without hospital privileges, the locked out surgeons are further locked out by the managed care plans due to their contracting and privileging criteria. So, if the hospital also owns the largest commercial (birth-64 age group) health insurance plan in the area, the other health insurers won’t even venture to obtain a certificate of authority to sell their product in the region. That leaves patients who want to use the ASC and the lock-out doctors paying higher costs out-of-pocket for out-of-network health access to an equal but lower priced alternative. It isn’t a matter of value or quality or safety. It is merely a matter of policy. What makes it worse is that by coning down the available specialists and surgeons with privileges, waiting times for an appointment increase. If you want to remain “in-network” and not reward the hospital for its anti-competitive antics and higher prices, you need to travel further to shop at a different health facility. Hence, the rising popularity of domestic/USA medical travel.” Would you travel 3-4 hours or more to save $20,000 to $30,000 on a surgery? Most people will. “Until the DOJ, FTC and IRS do their job to begin closer, deeper scrutiny of these anti-competitive strategies and tactics, the American public will bear the brunt of healthcare costs and timely access to care challenges.” she explained.
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TIP: If you know you need to plan an elective surgery or shop prices, get started ASAP. Once hospitals and outpatient surgery centers resume normal operations and replenish supplies in high demand, elective scheduled surgery will be overwhelmed. In the event of price increases, lock in your price quotes, reserve your surgery and consultation appointments, and arrange any needed financing for summer surgeries as soon as you are ready.

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