Session: What is the Effect of Hospital Specialization?
Room: Phillips 307
Time: Tue 13:15-14:45

Presenter: Michael Plotzke (Abt Associates, Inc.. Health Policy)

Discussant: Jane RuseskiUniversity of Alberta

Abstract

Ambulatory Surgery Centers (ASCs) are small (typically physician owned) healthcare facilities that specialize in performing outpatient surgeries and therefore compete against hospitals for patients who require those services. Since ASCs perform a limited range of services in comparison to a hospital, it is unclear how large an impact an ASC entering into a hospital’s market would have on that hospital. It’s conceivable that a large hospital performing a wide range of services may not be impacted by the entry of a small competitor (in this case an ASC) into one of its lines of business. However, hospital administrators claim that outpatient surgery is one of a hospital’s most profitable lines of business and competition in this area could cause significant harm to the hospital. This paper examines whether the entry of an ASC into a hospital’s market impacts either that hospital’s surgical volume or its profit margins.

Our primary datasets include: the Centers for Medicare & Medicaid Services (CMS) Provider of Services (POS) file for information on characteristics of ASCs, the American Hospital Association annual survey for information on characteristics of hospitals, and the CMS Medicare Cost Report for information on hospital profit margins. Numerous other data sources were used to collect information on the characteristics of the market where an ASC or hospital was located. ASCs were assumed to be located in a hospital’s market if they were within the radius where the hospital admitted 75% of their patients (as calculated by Gresenz, Rogowski, and Escarce [2004]). We use a fixed effects model to estimate the impact of the entry of an ASC into a hospital’s market on the hospital’s surgical volume and profit margin. Additional, currently ongoing, exploratory analysis will use the State Ambulatory Surgery Database from Florida from the first quarter of 2007. This additional data will allow us to control for the size and type of ASC entering in a hospital market to better understand the impacts of entry. We examine 2,269 urban hospitals in the United States from 1997 through 2004.

We find on average a 1.71% decline in a hospital’s annual outpatient surgeries and no significant change in its annual inpatient surgeries after an ASC enters that hospital’s market. However, for hospital markets with 2 or fewer ASCs, an additional ASC entrant is associated with a decline in hospital outpatient surgery of 6.9%. ASC entry is not associated with any changes in hospital profit margins for either a hospital’s outpatient or inpatient department. Even if ASCs treat a hospital’s most profitable patients, ASC entry on average does not seem to be associated with any financial harm to the hospital nor a large loss of hospital surgical volume. Since most urban US hospital markets already contain several ASCs, the entry of an additional ASC would not seem to cause harm to a hospital based on these results. The entry of an ASC may have more of an impact in rural markets where there are a limited number of healthcare facilities.

Key Terms

Ambulatory Surgery Centers, Hospitals, Outpatient Surgery

Authors:

Michael Plotzke (Abt Associates, Inc.. Health Policy) and Charles Courtemanche (University of North Carolina Greensboro. Bryan School of Business and Economics )