Some would argue that the main reason hospitals are losing outpatient surgery market share is because many of them aren't cutting it anymore. When ASCs began flourishing in the 1980s and 90s, many surgery center proponents claimed that community hospitals had become out-of-touch behemoths, slow to respond to patients and physicians, unconcerned about spiraling costs and resigned to inefficiency.

But not all hospitals fit this description. Some have set themselves apart, improving their outpatient surgery departments or joint-venturing with physicians to build freestanding facilities. Here, we'll share the many challenges full-service hospitals - from large, metropolitan organizations to small, rural facilities - faced and the strategies they used to survive and thrive. Whether you're a surgical facility manager at a hospital, ambulatory surgery center or office-based surgery facility, these lessons apply.

Let surgeons pick
Not all surgeons, even those who primarily perform outpatient procedures, jump at the chance to move to a freestanding facility, so some hospitals such as St. Peter's in Albany, N.Y., are developing freestanding facilities while maintaining busy outpatient surgery departments.

In May 2002, St. Peter's opened a for-profit, freestanding center, in a 50-50 joint venture with Albany Gastroenterology Associates, LLC. The 15,500 square-foot facility, three miles from the hospital, has four ORs and three procedure rooms and hosts about 8,000 cases a year, including general, ENT, podiatric, plastics, colon/rectal and endoscopy procedures. New equipment, a convenient location and a seasoned nursing staff have popularized the new facility with surgeons and patients and helped it turn a profit in year two, says administrator James Torre. Most surgeons transfer cases directly from St. Peter's hospital; about 50 docs now use the facility consistently.

But not all St. Peter's surgeons are sold on the venue. Some have become accustomed to the amenities of the hospital and its 19 ORs, some of which are exclusively outpatient. The hospital still hosts more than 6,600 outpatient surgeries annually, including ENT, GYN and general cases, plus more than 7,500 complex endoscopies.

"Some surgeons simply don't like to change their habits," says Kathleen Brodbeck, vice president of patient care services. She also notes surgeons who do inpatient and outpatient cases often schedule both in the hospital for convenience.

Ms. Brodbeck anticipates most outpatient cases will move to the ASC. For now, surgeons can choose, perhaps one reason the hospital has a waiting list 35 surgeons long, despite two other local hospitals and a freestanding ASC about 15 minutes from St. Peter's.

Adjust to change
Competition from ASCs often compels full-service hospitals to find ways to attract surgeons or strengthen services outpatient facilities can't offer. St. Mary's Hospital in Troy, N.Y., the flagship of Seton Health, is doing both. St. Mary's competed mostly against three hospitals until three years ago, when surgeons built two orthopedic ASCs, and an ophthalmic and multispecialty ASC within a few miles.

When the ASCs opened, St. Mary's lost about 50 cases a month, especially outpatient orthopedics procedures such as arthroscopies and carpal tunnels. But the hospital remained competitive, stayed profitable and even grew the outpatient surgery program by 3.5 percent annually for the past three years, says Pamela Rehak, vice president of planning and community health. The hospital hosts about 6,000 outpatient procedures a year, including orthopedic, general, ophthalmic and urologic cases. Here are the secrets of their success:

• Opportunities. The hospital networked with primary care physicians for more podiatric surgery referrals, including bunionectomies, hammertoes and plantar fasciotomies, says OR director Debbie Shumelda. Podiatric surgeons use much of the orthopedic equipment, and they were happy for the block time.

  To retain some orthopedic surgeons, St. Mary's set up an orthopedic unit to handle cases such as total joints, says Ms. Shumelda. A dedicated orthopedic nurse practitioner works with patients in this unit, providing pre-op, intraoperative and post-op care. Plus, some surgeons prefer to do their cases in one place, so a surgeon might schedule a total joint, then an ACL and an arthro-scopy at the hospital rather than go to another facility.

• Quality equipment. Surgeons help recommend products, forecast equipment needs, choose vendors and even negotiate prices, so they take ownership of the cost impact. In recent months, surgeons have provided input on buying laparoscopes and scope accessories, C-arms and a urology laser, says Ms. Shumelda.
• Excellent time management. Surgeons are constantly monitored on how they're using block time - if they're not filling the block, the time is reassigned. Staff will often set up two rooms so a surgeon can move seamlessly from case to case. Although it may not match the turnover time of single-specialty facilities, average turnover time at St. Mary's is 20 minutes to a half-hour.
• Superior staff. Surgeons know St. Mary's nurses are top-notch, with many years of inpatient care experience. The hospital has formed a recruitment and retention committee that finds and trains new nurses; it averages two new nurses and techs a month, says Heather Boyle, perioperative educator. They get ongoing training, reimbursement for certification and a variety of challenging cases that help them maintain skills. Patient satisfaction surveys consistently show nursing care in the 95th percentile.
• Patient-friendly program. St. Mary's has taken many steps in this area. For example, the pre-admission testing, registration and scheduling departments were moved to the main lobby. Before procedures, patients are invited to tour the relevant hospital unit so they can become comfortable with the layout and meet the staff who'll care for them. The waiting area is staffed with volunteers who act as patient advocates; patients' families are allowed to stay with the patient as long as possible and are updated throughout surgery.
• Continuous quality improvement. Patients and medical staff are surveyed for satisfaction annually at St. Mary's, but according to Ms. Shumelda, the management staff seek input from staff, surgeons and patients daily.

Despite stiff competition, the hospital has increased urology and minimally invasive surgery caseloads, says Ms. Rehak. The biggest increases are in endoscopy, which has grown from 3,403 cases in 2000 to 5,089 in 2003. The hospital plans to add more cosmetic, ENT and neuro procedures.

Expand, survive
Like many community hospitals, Kino Community Hospital (KCH) in Tucson, Ariz., has been shrinking. The facility that once hosted many kinds of outpatient and inpatient procedures now features a small medical unit, several psychiatric units and an ER. Associate administrator Laurie Canacakos says two factors caused this transformation. The first: inadequate payer mix. KCH is one of the first hospitals on the main freeway that runs from Mexico into Arizona, and many patients were uninsured. The second: low managed care fees. Even when patients were insured, says Ms. Canacakos, reimbursement was often so low that it was difficult for doctors to operate without losing money.

Over time, physicians discontinued contracts with KCH, choosing to practice instead at other Tucson-area hospitals where they were sure of a reasonable fee.

But help is on the way. University Physicians Inc. (UPI), a large physician practice that provides physicians to the Uni-versity of Arizona College of Medicine and the University Medical Center, will take over the hospital license from Pima County (where KCH is located), transforming it from county-run to not-for-profit. Ms. Canacakos calls the move win-win: UPI gets access to space and equipment and increases its number of physicians; the hospital gets help attracting much-needed specialists. She hopes the partnership will help KCH reinstate outpatient surgery.

Tapping into the CAH Program
Maintaining surgical services is often toughest for rural hospitals, which may provide the only medical care for miles around. A lack of surgeons, anesthesia providers, staff and resources, and sometimes competition, can force these hospitals to gradually eliminate services until they offer little more than emergency care. But some rural hospitals are finding relief and resources thanks to the Critical Access Hospital (CAH) program, which Congress created as part of the 1997 Balanced Budget Act. CMS provides critical access hospitals with cost-based reimbursement for many services, relaxed staffing requirements (compared to full-service hospitals) and grant assistance.

Hospitals are eligible for the CAH program if they have fewer than 25 beds and are more than 35 miles from a hospital or another CAH, or if they are certified by the state as being a necessary provider of healthcare services to residents in the area. There are more than 800 CAHs nationwide, mostly in the Midwest.

This program has kept some hospitals from closing altogether and let others maintain or even add surgical services. In fact, a 2002 survey of 217 CAH administrators showed a majority of hospitals expanded or maintained surgical services, especially outpatient surgical services, because of the program. Here's what two CAHs say about the program's effects.

• Caribou Memorial Hospital and Living Center, Soda Springs, Idaho. Caribou Memorial became a CAH in 2000. Even in this fairly remote area of southeast Idaho, the hospital competes with other facilities, including a nearby multispecialty ASC. Recruiting surgeons is extremely difficult, says CEO John Hoopes - in fact, the hospital recently stopped doing ENT cases when the surgeon who performed them became too busy elsewhere. Recruiting nurses has become slightly less difficult since CMH started recruiting local students to send them to nursing school at the hospital's expense. Well-trained, seasoned staff and convenient offices help ensure the general surgeon, two part-time orthopedic surgeons, urologist and podiatrist keep coming back. They perform about 120 outpatient procedures yearly, a small but significant portion of revenues.

  The CAH program kept CMH alive. Mr. Hoopes says the hospital had been losing money - $217,000 the year before its CAH status. The year it became a CAH, the hospital lost $85,000. In 2001, it came out $450,000 ahead and has done well since.

• Sistersville General Hospital, Sistersville, W.V. Until the mid-1980s, SGH hosted many outpatient and inpatient procedures. But limited anesthesia services, the prohibitive cost of equipment, decreasing surgery referrals and competition from ASCs compelled the hospital to stop.

In 1996, the hospital became a rural primary care hospital, a precursor to the CAH. The CAH program has helped the hospital to remain viable, to maintain a 24-hour ER and ambulance service, and to offer outpatient services, including physical therapy and radiology. SGH also offers pain management and oncology clinics.

SGH is planning a new facility. Working with the West Virginia Health Care Authority and the HUD 242 program, SGH hopes to break ground this fall. A new hospital might generate interest among healthcare providers. Nursing administrator Anita Mattingly, RN, hopes it helps the hospital reinstate surgery: "We would like to offer a full spectrum of outpatient surgical services. That's where the reimbursements are."

Challenges ahead
Experts estimate about 60 percent of the average hospital's operating margin depends on revenue from outpatient services, including imaging, radiation oncology and outpatient surgery. This revenue helps fund unprofitable but much-needed services such as emergency and intensive care, says Don May the vice president of policy at the American Hospital Association.

Full-service hospitals face many challenges. But regardless of size or location, the thriving hospitals will be those that enhance efficiency, cost-effectiveness and innovation.