Ambulatory surgery centers saw volumes significantly drop when the U.S. largely shut down elective care one year ago, much like hospitals and other healthcare facilities. 

But ASCs were able to somewhat normalize operations as elective care began to climb back, capturing new procedures as hospitals kept delaying electives or were overwhelmed with COVID-19 surges.

The centers gave medtechs an option to recapture lucrative surgeries and help offset the pandemic's hit across their businesses. Now that the facilities have absorbed new volumes and services, experts believe that some of the procedures may never go back to hospitals.

Todd Johnson, a partner with Bain & Company, said that the speed with which procedures moved over to outpatient settings was surprising after the lows of March and April 2020, shortly after CMS advised providers to limit non-emergency care. While volumes were still below pre-pandemic levels, ASCs and other outpatient settings allowed some procedures to be done.

"It was incredibly helpful for all the big medtechs that are competing in this space to have volume back … they ended 2020 in a better spot than what they thought their year was going to look like in April," Johnson said. "I think people were really gearing up for the worst."

As hospitals return to more regular operations, Johnson said there are still questions about whether procedures stay in ASCs. But he added that outpatient settings are likely to keep procedures as they are cheaper and the quality of care is "as good if not better" than hospitals.

ASCs specialize in a smaller number of services and allow patients to be back in their homes typically the same day as their operation. Volumes at these facilities have been growing over recent years as CMS and commercial payers have opened up their coverage to the sites of care.

The procedure shift to ASCs has recently caught the eye of medtechs, particularly for orthopaedic procedures like total knee and hip replacements.

A September 2019 Bain report projected total procedure volumes in ASCs to grow from 20 million annually in 2015 to about 27 million by 2021. The report also projected the monetary value of ASC procedures to climb from $28 billion to $43 billion over the same period.

Johnson said that those figures are likely to be beaten by the end of this year because of the pandemic's boost to the ASC space.

Bill Prentice, CEO of the Ambulatory Surgery Center Association, said that much of 2020 was a "rollercoaster." Because ASCs primarily provide services that are deemed elective or non-emergent, many of ASCA's members saw revenues and volumes plummet to nearly zero in the first months of the pandemic. 

Volumes then returned throughout the year and facilities were able to operate somewhat normally, but procedure numbers still remain below pre-pandemic levels.

Prentice was more reserved on the trend of procedures migrating from hospitals to ASCs.

"We saw some [procedures] move to surgery centers in some markets," Prentice said. But he explained that hospitals wanted to make sure that any care that was moving out of an inpatient setting was going to facilities still owned by the hospital, such as a hospital outpatient department.

Adapting to a new environment

Johnson said that 2020 "changed the level of urgency" for medtechs to commit to ASCs as they do not want to risk losing out on the growing opportunity.

Aldo Denti, group chairman for orthopaedics company DePuy Synthes, part of Johnson & Johnson's medical device business, said that the pandemic accelerated an ongoing trend. Hip and knee replacements are among some of the top procedures to make the move to ASCs, but spine procedures have also gained momentum.

Denti added that while there will be a rebalancing back to hospitals, orthopaedic companies are prioritizing ASCs more because procedure volumes will continue to grow in that space.

Similarly, Stryker CEO Kevin Lobo predicted during a January earnings call that the recent trend of procedures moving to ASCs is permanent and only going to accelerate. The CEO added there may also soon be international opportunities for medtechs as the U.K. and Canada are also looking at alternative sites of care.

However, as the industry further embraces ASCs and outpatient settings, it will also need to adapt to the uniqueness of the new environment.

ASCs are much smaller than hospitals and unable to hold the same amount of inventory that a hospital can, limiting the amount a company can sell to an individual facility at one time, according to Johnson. Another hit to inventory is that a large number of ASCs are still independently owned or operating in small groups, unlike hospitals where they tend to be part of larger networks.

Medtechs will also have to work with ASCs on pricing because the costs for procedures are not as high as in a hospital setting. And while Medicare increased coverage in outpatient settings, there are still hurdles at the federal level.

For example, Prentice said that ASCs are reimbursed at a lower rate for procedures than hospitals and other outpatient settings. There is also no cap for how much a Medicare beneficiary can spend on copays for procedures done in ASCs, while copays are capped at $1,400 in hospital outpatient settings.

CMS reimburses ASCs about 45% lower than they do for inpatient settings and about 30% lower than other outpatient facilities, according to an Evercore ISI report on the move of total knee replacement surgeries to ASCs. It also found patients spend on average over $300 more in out-of-pocket costs when receiving care in an ASC versus a hospital outpatient department.

Prentice said ASCs can possibly balance out lower procedure costs or reimbursement rates with larger volumes. However, Johnson was not so sure that the smaller ASCs can keep up with hospital volumes.

Johnson said that medtechs could exclusively work with some ASCs, giving them more procedure volume or pricing stability; however, because ASCs will struggle to match hospital volumes, there "will continue to be a bit of a risk for medtechs to compete in the space."

Despite the remaining pricing and strategy hurdles, both Prentice and Johnson believe that the migration to ASCs will not be reversed.

"More and more care is being provided on an outpatient basis … that trend is not going to stop, and I think ASCs are perfectly positioned to take that volume," Prentice said.