Winds of Change: Hospitals Look to Invest in ASCs
By: Adam Taylor | Managing Editor and Joe Paone | Senior Editor
Published: 4/14/2025
Health system leaders look to go beyond hospital outpatient departments for surgical care.
Patient and payor preferences and the potential for a seismic shift in how outpatient surgery is reimbursed have health systems strategizing about how their futures can include more ASCs.
An outside observer may ask why a hospital or health system would ever consider such a thing, given the current higher reimbursement rates HOPDs earn from CMS versus those of ASCs. As with many things in life, it’s not that straightforward.
A response to ASCs
Joan Dentler, MBA, founder of Avanza Healthcare Strategies, a Westchester, Ill., firm that advises hospitals and health systems nationwide in the development, execution and oversight of their ambulatory and outpatient initiatives, witnessed how HOPDs originated as a response to ASCs that were successfully opened, owned and operated by physicians and management companies during the 1990s and early 2000s. Most hospital executives were surprised at the success of the new HOPDs, which were still on the hospital license and billed at hospital rates, but mimicked ASCs.
“To the consumer, they really looked and seemed more like freestanding ASCs, but they were really HOPDs,” says Ms. Dentler. “We got a lot of calls back then to come and help hospitals open these facilities that had an ASC culture — more consumer-friendly, smaller, quicker case turnarounds — but because they were part of the hospital, no physician investment was allowed.”
Since then, however HOPD reimbursement rates from CMS and private payors have dropped, even though they remain higher in most cases than those of ASCs. As margins have dwindled for hospital and health systems, the appeal of converting HOPDs to ASCs has grown. “A lot of hospitals are realizing they want the physicians involved as owners, and the physicians are demanding it,” says Ms. Dentler.
The surgeon factor
Surgeon retention and recruitment is currently the biggest motivator behind HOPD-to-ASC conversions, says Ms. Dentler. “Especially in specialties like orthopedics, physicians want to know, ‘Will I have an opportunity to invest and have a revenue stream coming from the ASC where I work?’” she says. “In the past, hospitals and health systems never really cared about having physician ownership. Now they’re finding they’re not able to recruit quality surgeons without offering that opportunity.”
“It’s more burdensome and more expensive to maintain an HOPD compared to an ASC.”
— Keith Smith, MD
Hospitals and health systems are also sensitive that their physicians will leave to open their own ASCs, taking their cases with them. As a result, from the health system and hospital perspective, conversions of HOPDs to ASCs jointly owned and/or operated with physicians and physician groups are often more defensive than proactive moves, says Ms. Dentler.
Another driver in conversions is reimbursement from private payors. “A lot of payors are saying, ‘We know you’re a hospital and CMS pays you a hospital rate, but we are going to pay you closer to what ASCs are getting,” says Ms. Dentler. “If there’s an ASC in the community, and the quality of care is just as good there as it is in the HOPD, a lot of payors are saying, ‘Why should we pay more to the HOPD?’ That’s pushing more cases toward the ASC.”
A common conclusion among hospitals and health systems, says Ms. Dentler, is that it’s much faster to convert an HOPD to an ASC since it’s already looking and acting much like one. However, it’s not that simple.
“One mistake we see hospitals make is tellin doctors they’re going to convert the HOPD to an ASC where the physicians can invest and getting everybody excited about it. “But the very first step is tosee if you can even do it.”
The life safety requirements for an ASC can make the process very difficult. Sometimes the physical plant can’t be converted for reasons such as the HOPD’s generator, HVAC system or other things are shared with the rest of the hospital. “That didn’t matter when it was all on the same license, but ASCs have very distinct and different regulations on life safety and physical plant than HOPDs,” says Ms. Dentler “If you’re going to try to segregate this square footage as an ASC, you can’t do it without a very big expense.”
It’s not always so difficult, but it’s a major consideration and potentially a roadblock to a profitable conversion. “I always tell people it’s a lot like renovating your house versus building a new house,” she says. “Sometimes renovating it is more expensive than if you just built it new. This is very much the same situation.”
Another consideration is staffing. “People often think they’ll use the same staff that run the HOPD to run the ASC, but ASC culture is different,” says Ms. Dentler. “Finding staff who understand the fast pace, and the surgeon-driven way of doing business versus the hospital administrator-driven way of doing business, sometimes can be very difficult. Our advice when we’re advising clients is don’t just assume you’re going to keep the same staff.”
Pros and cons
In some cases, a new ASC build might be preferable to an HOPD-to-ASC renovation. Daniel K. Zismer, PhD, co-chair and CEO of Associated Physician Partners, a practice development company in Stillwater, Minn., says facility design and build costs for ASCs can be lower, no matter if you are converting an HOPD inside a hospital to an ASC, or building a new facility on campus and deciding whether to license it as an HOPD or ASC.
“If it’s an HOPD, the build becomes much more expensive,” he says. “The advantage of HOPD is the hospital billing, the increase in the potential facility fee opportunity. The tradeoff is HOPD has a much higher cost of design and build because you’re building it to hospital standards.”
With HOPDs, health systems are limited in their potential to form financial and legal partnerships with private physicians, private medical groups or other institutions.
There’s also a competitive issue at play. For example, a hospital loves getting the HOPD reimbursements for eye surgery, which could be two or three times higher than it would get if it partnered with physicians to start an ASC.
“That’s fine until you have ASC competitors in the marketplace that are negotiating for third-party contracts, and they’re going to be doing them at one-third of the facility fee,” says Dr. Zismer.
Migration to ASCs will only grow
Keith Smith, MD, is a pioneer in price transparency. He founded Surgery Center of Oklahoma in Oklahoma City, where prices for every surgery performed have been posted on the facility’s website since it opened in 1997. Dr. Smith thinks hospitals sense that the era of HOPDs being paid multiple times more than the reimbursement for the identical procedure at an ASC is waning.
“I’m sure their consultants are telling them it’s a good idea to convert an HOPD to an ASC because more and more procedures are being approved for payment by Medicare and other carriers in ASCs and they’re not going to pay for a lot of these procedures in the hospital for much longer,” he says. “So, without that conversion, the hospital is just going to be out of luck unless they own and control an ASC.”
Other issues that could lead hospitals to invest in ASCs include regulatory compliance and accreditation. “It’s more burdensome and more expensive to maintain an HOPD compared to an ASC,” says Dr. Smith. “It makes sense to try to get out of that yoke if the future includes more patients and payors who want these procedures in ASCs anyway.”
The specter of site-neutral payment systems are likely haunting health systems as well and motivating the desire to get more involved in the ASC business. Advocates for site-neutral reimbursements contend payments shouldn’t be higher just because surgical procedures take place in a hospital. Opponents, meanwhile, say site-neutral proposals don’t consider the higher costs hospitals face and the additional care that’s on-site.
“Once we have site-neutral payments, it’s not going to make sense for the hospitals to incur a larger regulatory burden for the same pay, particularly when the cases that they can actually perform in their HOPD get curtailed because the carriers are not going to pay for it,” says Dr. Smith. “Ultimately it all comes down to money and control of market share. The prospect of site-neutral payments on the horizon is bothersome to hospitals and has them looking for ways to limit their overhead.” OSM