Healthcare Bluebook and HealthSmart conducted the analysis presented in this report.
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A review of commercial medical-claims data found that U.S. healthcare costs are reduced by more than $38 billion per year due to the availability of ambulatory surgery centers (ASCs) as an appropriate setting for outpatient procedures. More than $5 billion of the cost reduction accrues to the patient through lower deductible and coinsurance payments. This cost reduction is driven by the fact that, in general, ASC prices are significantly lower than hospital outpatient department (HOPD) prices for the same procedure in all markets, regardless of payer.
The study also looks at the potential savings that could be achieved if additional procedures were redirected to ASCs. As much as $55 billion could be saved annually depending on the percentage of procedures that migrate to ASCs and the mix of ASCs selected instead of HOPDs.
Finally, the study explores additional cost savings that would result if certain inpatient procedures, such as total joint replacements, continue to migrate to ASCs.
This study supplements an earlier review of Medicare costs by researchers at the University of California-Berkeley that showed that ASCs reduce Medicare costs by $2.3 billion annually. Ambulatory Surgery Center Association, Medicare Cost Savings Tied to ASCs, (2013).
INTRODUCTION AND PURPOSE
The Medicare price differential for common outpatient services delivered in the hospital outpatient department (HOPD) vs. ambulatory surgery center (ASC) environment is well known and documented. On average, Medicare reimburses ASCs at 53 percent of the rate it reimburses HOPDs for the same procedure. The payment gap between services delivered at ASCs rather than HOPDs reduced the Centers for Medicare and Medicaid Services’ (CMS) costs by more than $7 billion between 2007 and 20111. 1
While CMS payment rates are publicly available, commercial carrier payment rates are not. Therefore, less is known about the price differences and associated savings that exist between the ASC and HOPD environments for those employers and patients covered by commercial insurance (employer-sponsored insurance or private insurance purchased on the public exchanges and elsewhere).
The following analysis provides an estimate of the significant savings that ASCs currently provide to commercially insured patients, along with potential savings available to the commercially insured population, when shifting care to an ASC setting. This analysis was conducted in a partnership between Healthcare Bluebook, the Ambulatory Surgery Center Association
(ASCA) and HealthSmart, a leading provider of third-party administrative services for self-funded employers.
Specifically, the paper discusses each of the following:
1. the estimated cost savings generated by ASCs in the commercially insured U.S. population;
2. the estimated additional cost reductions to be achieved if more cases were to be performed in ASCs;
3. the additional value created as traditional inpatient procedures migrate to ASC settings (e.g., total knee replacements); and
4. examples of HOPD and ASC price disparities within and across regions.
The ASC model was developed in 1970, and Medicare approved payments to ASCs for more than 200 procedures in 1982. Steady growth in the number of ASCs and the number of surgical procedures performed in the outpatient setting, including HOPDs, has continued since. This shift toward outpatient procedures has accelerated due to advancements in medical practice and technology that have reduced the need for overnight hospital stays.
Today, many common surgeries are performed as outpatient procedures, and most patients, except those with complicated health conditions, can be served in the outpatient setting. Common ASC procedures include colonoscopies, cataract surgeries, tonsillectomies and arthroscopic orthopedic surgeries. CMS currently approves and reimburses 3,837 procedure codes in the ASC setting, and commercial populations are constantly expanding these boundaries. In fact, some ASCs are performing total joint replacements and other traditionally inpatient procedures with excellent outcomes.
While all HOPDs are hospital owned, most ASCs are at least partially owned by physicians, often in conjunction with hospitals and/or management companies. Sixty-five percent of the more than 5,400 Medicare-licensed ASCs in the U.S. are wholly owned by physicians and operate as small businesses.
A study published in Health Affairs analyzed data from the National Survey of Ambulatory Surgery and discovered that procedures performed in ASCs are more efficient, taking 25 percent less time than those performed in hospitals 2. This efficiency, and corresponding cost-effectiveness, is due largely to the ASCs’ focus on a limited number of procedures, their owner/operator culture and specialized nursing and support staff. Because ASCs specialize in providing outpatient surgery, they are able to deliver patient-care services efficiently and conveniently. For example, operating rooms are turned over quickly and are not interrupted by emergency cases. This enables physicians to commence their procedures in a timely manner and use their time more productively. Consequently, ASCs tend to be more convenient and cost effective than HOPDs while still providing excellent care.
PATIENTS OFTEN PAY DRAMATICALLY DIFFERENT AMOUNTS FOR THE SAME CARE IN THE SAME COMMUNITY
Healthcare prices vary dramatically even within the same insurance network and city. For example, in Charleston, West Virginia, the price of a cataract surgery, including payments to the anesthesiologist and physician, can vary from $2,684 to $8,662 depending on the facility where the surgery is performed (Figure 1). In this case prices vary by more than 300 percent, primarily due to the amount charged by the facility – not the physicians. These facility prices vary by almost 600 percent and total more than 70 percent of all dollars spent for cataract surgery in Charleston, WV.
Payments to anesthesiologists vary, partially due to the time component of anesthesia billing, but these payments are the smallest portion of the total cost and
are dwarfed by payments to facilities.
Payments to physicians are a more significant portion of total cost, but physicians performing the most expensive cataract surgeries are paid approximately the same as physicians performing the least expensive surgeries. Thus, it is the choice of facility that drives the total price variation.
The consistency of payments to physicians indicates that most physicians are unable to differentiate themselves when negotiating payment rates from insurance companies and, hence, are paid similar rates. Facilities, on the other hand, vary significantly in their service offerings and market power and, therefore, have significantly different negotiated rates with insurance companies.
For example, Hospital A provides emergency,
inpatient and outpatient care. Hospital B offers
everything Hospital A offers and also operates
the only children’s hospital in the metropolitan
area. Due to this exclusive service line, Hospital
B has better negotiating leverage with an
insurance company. Importantly, this leverage
applies not only to services uniquely performed
in the children’s hospital, but also to outpatient
surgeries, such as cataract surgery, that are
performed in other facilities in the area. Since
the entire hospital is either in or out of network,
all services are negotiated together, allowing
Hospital B to demand higher reimbursement
for procedures even though equally good,
lower-priced alternative sites of service exist in
that market area.
Since any ASC will offer fewer services than
both Hospital A and B, those ASCs will have
less negotiating leverage with commercial
carriers and, therefore, often will receive lower
reimbursement rates than either Hospital A or
B if they want to be included in the insurer’s
network. While the efficiency inherent in the
ASC model explains why ASCs can continue
to exist when receiving significantly lower
payments, it is the market power of hospitals
that widens these price disparities3 4.
As a result of these factors, the total price of a
procedure performed at an ASC is generally
significantly lower than the total price of the
same procedure performed in an HOPD. For
example, the average price of cataract surgery
at an ASC in Charleston, West Virginia, is
$2,932, including the physician and anesthesiologist
payments, while the average price at an
HOPD is $5,762 (Figure 2). In this example, the average price for a cataract surgery at the
least expensive facility was $2,684, including
the payments to anesthesiologists and physicians.
At the most expensive facility, the
average price was $7,987. ASCs are at the
low end of the spectrum and HOPDs are at
the high end.
This commercial price differential between the
ASC and HOPD environments is persistent
across metropolitan areas (Figure 3), insurance
carriers and procedure categories, with
the degree of price variability related to local
Summary of Methodology
All analysis was conducted using a sample of
de-identified commercial claims data for
calendar year 2014 from HealthSmart. This
data represents more than 400,000 lives
across all regions of the U.S. The CMS list of
ASC-eligible procedure codes, with a few
additions reflecting those prevalent in a commercial population (pediatric-related
codes, OB/GYN-related codes, etc.), was used
to identify the spending on procedures that can
be performed in an ASC.
Total price of service was included in the
analysis (facility fees, professional fees and
anesthesia fees, where relevant). Based on the
commercial population considered, these
services accounted for about 19 percent of
total medical spend, or $890 per person for the
year. All prices are calculated using the
“allowed” amount, which reflects the actual
amount a provider received after any discounts
Thirteen high-volume outpatient procedures
were used as proxies to analyze the price
differential between the ASC and HOPD
environments and estimate the percentage of
spending that could be saved by performing
the procedures in ASCs instead of HOPDs. An
adjustment was made to account for the fact
that some high-risk patients are not candidates for ASC-based care (patients with high comorbidities
are traditionally directed to an HOPD in
order to be closer to critical-access care). This
adjusted percentage was applied to the $890
ASC-eligible spend per person and then
scaled by the commercially insured U.S.
population to estimate the national savings
All estimates are based on the calendar year
2014 data. No adjustments were made to
account for population aging or increasing
utilization of ASC-eligible services. (See
Appendix A: Methodology and Appendix B:
Adjustments for ASC Ineligibility for a more
detailed explanation of the methodology.)
Current ASC Use Reduces
Private Healthcare Costs
by $38 Billion Annually
The lower cost of care in ASCs relative to
HOPDs saves employers and consumers tens
of billions of dollars a year. For the commercially
insured population in the U.S., an estimated $37.8 billion is saved annually by
using ASCs. Stated differently, if all of the
procedures currently performed in ASCs for
the commercially insured population in the U.S.
were performed in HOPDs, the cost of those
procedures would increase by $37.8 billion in
just one year.
Potential Cost Reductions
Attributed to ASCs
Despite the savings detailed above, for commercially
insured populations, only 48 percent
of procedures commonly performed in ASCs
are actually performed in ASCs. If the remaining
52 percent were performed at ASC price
points, an additional $41 billion in healthcare
costs could be saved annually.
As a practical matter, ASCs would not be the
appropriate setting for a small percentage of
patients (e.g., those with serious health issues)
currently treated in HOPDs. For example,
patients on dialysis (0.1 percent of Americans)
are not ASC eligible for certain procedures.
When ASC-ineligible cases are accounted for,
the total potential annual savings from
performing the surgeries in ASCs instead of
HOPDs is $38.2B. (This assumes 3 percent of
relevant cases are ASC ineligible. See Appendix
B: Adjustments for ASC Ineligibility.)
The average ASC price, however, is a blend of
both lower-priced and higher-priced ASCs. The
optimal migration of cases would shift cases
from HOPDs to the local low-price ASCs. If
patients were directed to low-price ASCs only,
the potential annual savings increases from
$38.2 billion to $55.6 billion.
Migrating a meaningful number of patients to
lower-cost ASC settings would, undoubtedly,
also have the added benefit of causing HOPDs to consider price reductions in order to maintain
their market share. While this study did not
attempt to model the competitive reactions of
HOPDs if confronted with a significant loss of
patient volume, fundamental economic principles
as well as a recent study that looked at
the impact of reference-based pricing on
patient choices concluded that hospitals did, in
fact, lower their pricing for certain procedures
in response to a loss of market share to
competing ASCs 5.
Potential Savings Can
Grow if ASCs Can Perform
More Complex Procedures
With advances in surgical techniques, pain
management and post-surgical care, more
procedures traditionally performed in the
inpatient setting are being shifted to ASCs.
This creates an expanding frontier for reducing
healthcare costs. As an example, total hip and
total knee replacements, which currently
account for about 1.5 percent of total medical
spend, are now being performed safely in
ASCs in a limited number of markets. The
potential savings are significant. Assuming that
the price differential and the rate of ASC
ineligibility due to comorbidities for total joint
replacement will be commensurate with other
outpatient procedures, $3.2 billion could be saved by moving total hip and knee replacements
to ASCs. (See Appendix A: Methodology.)
To realize the potential cost reductions highlighted
above, several things need to happen.
On the supply side, ASC capacity will have to
double in order to support the migration from
On the demand side, patients must be educated
and incentivized to choose ASCs for their
outpatient procedures. As premiums rise and
adoption of high-deductible health plans
increases, patients have greater incentives to
reduce their costs by choosing ASC-based
care, but education is lacking. Though healthcare
transparency has made significant
advancements in recent years, most patients
are still unaware of the lower costs that
Even modest changes in market share produce
massive savings for the entire health system.
For example, if an additional 5 percent of
current HOPD cases were moved to ASCs
annually over the next ten years, $113.8 billion
would be saved compared to current utilization
rates (Table 1). This assumes that the annual
potential ASC savings is currently $41.4 billion: $38.2 billion from current ASC-eligible procedures
above plus $3.2 billion from total knee
and hip replacement.
For ASC eligible procedures in this study,
patients were responsible for 15 percent of the
cost on average. That would mean $17.1 billion
in reduced costs for patients over the next ten
years (Figure 4). If 3 percent or 8 percent of
HOPD cases were moved to ASCs annually,
ten-year savings would be $68.3 billion and
$182 billion respectively (Table 2).
These estimates do not account for inflation or
upward trends in medical spending. They also
do not take into account the potential that
HOPD pricing will decrease in order to compete
with ASCs, which would create further
outpatient savings. As referenced above, in the
CalPERS reference pricing program, highpriced
providers will reduce prices to be competitive
and attract price-sensitive consumers.
Reducing Costs for
Employers and Employees
From 2005 to 2015, average health insurance
premiums for employer-sponsored family
coverage increased 61 percent, from $10,880
to $17,545 per year. To combat these rising
costs, employers have increasingly adopted
Consumer Driven Health Plans (CDHP) and
account-based plan types, shifting costs to
employees. This has driven the average
employee’s share of healthcare spending up 81
percent in the same time period, from $2,713 to
$4,955 6 annually. This highlights the need for
programs like price transparency that can help
patients identify better value providers within
their networks so that employers and their
employees both can lower costs.
For example, in Charlotte, NC, the average
ASC price for a knee arthroscopy was $6,118,
while the average HOPD price was $12,493,
more than twice as expensive. That means
$6,375 is saved on average in Charlotte, NC,
when a patient chooses an ASC for a knee
arthroscopy. How those savings are divided
between the payer and the patient depends on
the plan design.
For a knee arthroscopy in Charlotte, NC, if a
patient has a Silver Plan as defined by the
Affordable Care Act, with a $2,700 deductible,
80 percent coinsurance and $5,000 maximum
out of pocket, the patient would save $1,275—
more than the median family’s weekly income.
The remaining $5,100 would be saved by the
payer. For self-funded employer-sponsored
insurance, that is $5,100 directly to the bottom
line for the employer.
Applying the same plan design to the earlier
example of cataract surgery in Charleston,
WV, a patient would save $566 by choosing an
ASC instead of an HOPD. This is a significant
savings in a geographic area where annual
income per capita is less than $35,000 7. The
payer would realize an additional savings of
Estimating Savings for
For employers that self insure, it is reasonably
straightforward to estimate the potential cost
reductions from ASCs for their covered
employees. With $890 in ASC-eligible spending
per commercially insured person and 20.6
percent savings opportunity from moving all
ASC-eligible cases from HOPDs to ASCs,
$183 in potential ASC savings exists per
commercially insured person. A self-funded
employer with 1,000 employees is normally
covering more than 2,000 lives, when employees
and dependents are counted, which means
a potential ASC-based savings of more than
$366,000 for the employer and employees.
Billions of dollars spent each year on commercially
insured outpatient surgeries and procedures
can be reduced, without compromising
quality, if more cases migrate to ambulatory
surgery centers. While a small percentage of
patients have health conditions that require
outpatient care to be received in proximity to a
full-service hospital should complications
arise, most patients can receive the same level
of care at lower cost by seeking treatment in
an ASC. Advances in medical technology and
pain control are allowing increasingly complex
procedures, such as total joint replacements,
to be performed in an outpatient setting.
Policymakers, insurers, employers and beneficiaries
all have a shared interest in reducing
healthcare costs, and the $38 billion in annual
savings identified in this study highlight the role
that ASCs already play in controlling these
costs. Strategies should be implemented to
generate additional savings by ensuring that
the most efficient site of service for outpatient
care is selected whenever possible. In particular,
innovative plan design and increased
consumer awareness of the benefits of receiving
care in an ASC can save thousands of
dollars per procedure.
APPENDIX: METHODOLOGY AND CHART OF INDIVIDUAL PROCEDURE SAVINGS
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Retrieved April 11, 2016, from http://oig.hhs.gov/oas/reports/ region5/51200020.pd
2 Munnich, E. L., & Parente, S. T. (2014). Procedures Take Less Time At Ambulatory Surgery Centers, Keeping Costs Down And Ability To Meet Demand Up. Health Affairs, 33(5), 764-769.
3 Neprash, H.T., BA, Chernew, M.E., PhD, Hicks, A.L., MS, Gibson, T., PhD, & McWilliams, M., MD, PhD, (2015, October).
Association of Financial Integration Between Physicians and Hospitals With Commercial Health Care Prices. Journal of the
American Medical Association.
4 The Robert Wood Johnson Foundation, Martin Gaynor, PhD & Robert Town, PhD. (2012, June). The impact of hospital
consolidation – Update.
Retrieved April 20, 2016, from http://www.rwjf.org/en/library/research/2012/06/the-impact-of-hospital-consolidation.htm
5Robinson, J., et. al. (2015, March). Reference-Based Benefit Design Changes Consumers’ Choices And Employers’
Payments For Ambulatory Surgery. Health Affairs.
6Henry J. Kaiser Family Foundation. (2015, September). Kaiser/HRET Survey of Employer-Sponsored Health Benefits,
2005–2015. Retrieved April 10, 2016, from http://kff.org/health-costs/report/2015-employer-health-benefits-survey/
7United States Census Bureau. (2014). 2010–2014 American Community Survey 5-Year Estimates. Retrieved April 30, 2016,