Driver 1: Technology

The outmigration of vascular procedures has its roots in the development of minimally invasive technologies for peripheral artery disease (PAD) treatment, which sparked rapid growth in endovascular interventions in the lower extremities around the turn of the twenty first century. The number of therapeutic endovascular interventions in the lower extremities more than quadrupled between 1996 and 2011, largely driven by growth in peripheral angioplasty and atherectomy. Over the same period, peripheral bypass surgery rates declined by 61% and lower limb amputations by 45%.

This rapid growth did not simply reflect a 1:1 replacement of surgery with endovascular interventions, but a net increase in the overall number of procedures performed (especially during the early years of this time period). Rising incidence and prevalence of PAD coupled with growing awareness of the disease certainly spurred growth, but fundamental differences between the surgical and endovascular technologies also played their part. Unlike surgical options, numerous studies have shown that endovascular procedures could be safely performed in outpatient and ambulatory settings, thereby reducing the overall cost of PAD care and increasing access to procedures. Endovascular procedures could also be performed by a wider array of specialists than surgical procedures, increasing the overall number of providers (particularly cardiologists) available to perform interventions. Such differences were not sufficient in themselves to prompt outmigration, but they opened the door to a new model of care delivery that accelerated after 2008 due to changes in reimbursement.

Since 2008, incremental enhancements in both technology and operating models have helped to solidify early gains and increase the viability of the ASC and OBL as appropriate sites of care. Improvements in disposables have enabled a wider array of procedures to be performed in the freestanding setting, while also reducing procedural recovery time for patients. IT and EHR enhancements have also helped foster better coordination between hospitals and freestanding facilities, reducing the challenges of care coordination.

Looking forward, technological enhancements will continue to drive the outmigration of procedures in both vascular services and across medicine as a whole. On the vascular side, in addition to the continued outmigration of PVI, it is possible that we will at some point treat simpler cases of aortic aneurysm repair (AAA) using endovascular abdominal aortic aneurysm repair (EVAR) within the ambulatory setting. The expansion of EVAR to this setting would drive down the costs associated with the procedure, provided it can be performed safely (a point of lingering contention, though with some support). Outside of vascular services, improvements in technology and treatment methods have been instrumental to the outmigration of knee and hip replacements. Since knee replacements were removed from the Inpatient Only list in 2018 and hip replacements in 2020, we have witnessed a wholesale shift in such procedures to both outpatient and ambulatory settings. As with the outmigration of PVI, the increase in procedures performed in the ASC has also given rise to questions over the potential for inappropriate procedures and poor cross-continuum case management.

That said, technology is hardly destiny. In the case of percutaneous coronary intervention (PCI), for instance, the existence of a generally safe technology, coupled with a 2020 expansion of CMS reimbursement for procedures in the ASC, has not yet resulted in a rapid outmigration. While certain markets have seen a considerable uptick in the percentage of procedures performed in the ASC, persistent provider concerns over procedural complications, coupled with state-specific restrictions, have kept much of the PCI volume locked in the HOPD. Market pressures, including the growth of private equity-funded ventures or pressure from private payers to move cardiac procedures to a lower-cost care site, may eventually drive these procedures out. But it is clear that the presence of the right technology alone is not enough.

Driver 2: Regulatory and Policy Environment

Another requirement is the presence of a supportive regulatory and policy environment, which has been instrumental in the case of PVI. Responding to rapidly rising costs associated with inpatient care of vascular patients, in 2008 CMS established new ambulatory payment classifications that allowed payments for PVI procedures to be bundled for HOPD and OBL settings. This was followed by the introduction of a new family of bundled Current Procedural Terminology (CPT) codes for PVI in 2011, which assigned nonfacility practice expense relative value units (peRVUs) to each code. Together, these changes allowed providers to be comprehensively reimbursed for PVI procedures performed outside of the hospital space, opening the door for OBL growth.

CMS then primed this growth by setting physician office reimbursement rates similar to, or even above, reimbursement rates offered in hospital settings. In the case of atherectomy in particular, reimbursement in the OBL exceeded that of the HOPD, with overall atherectomy reimbursement also set higher than reimbursement for other PVI. This opened the floodgates for atherectomy procedures in the OBL, with a growth rate considerably exceeding that of HOPD growth. ^,

The strategy of using reimbursement policies to drive procedures away from the high-cost inpatient setting towards lower-cost HOPD and OBL settings has clearly proved successful in the case of PVI. However, this has not resulted in the overall cost reduction that CMS anticipated, as the cost advantage of the site-of-care shift has been offset by rapid procedural growth in the OBL. Some of this growth has certainly been appropriate, and has been driven by rising demand in an older patient population. However, it has also given rise to legitimate concerns around overuse and procedural appropriateness, and the general view that the OBL space is something of a “wild west.” There is also concern that PVI intervention without effective care management can lead to repeat procedures, and ultimately lead to worse patient outcomes. ^, Over time, the activity of professional societies like the Outpatient Endovascular and Interventional Society (OEIS) have been instrumental in addressing such concerns and working to create a more stable market for non-hospital vascular services.

Changing incentives are also playing a stabilizing role, perhaps at the risk of slowing (though not stopping) future ambulatory growth. CMS is now working to reduce reimbursement for PVI outside of the hospital, in an effort to control cost and control reduce incentives for overutilization. The physician fee schedule for CY 2022 witnessed the most significant drop to date, with an average cut of roughly 11.5%. Subsequent cuts have been less unkind, but we are likely witnessing the beginning of a trend that will last for the foreseeable future.

Despite the pullback in reimbursement for office-based vascular procedures, the policy levers CMS pursued to incentivize outmigration in vascular services are also being used to drive out other procedures historically performed in hospital settings, including joint procedures and PCI. Although CMS has not primed the reimbursement pump to the same degree in these cases, existing reimbursement in the ASC is often sufficient to incentivize providers to move procedures to non-hospital settings. If anything, CMS is likely to expand incentives going forward, as it confronts a wave of rising costs associated with the care of the baby boom population. For instance, CMS has for some time been floating the idea of eliminating the Inpatient Only list entirely, which would essentially allow technological, market, and reimbursement considerations to dictate the site of care. While the growth and operation of non-hospital facilities would still depend on other policy considerations, such as the provisions of Stark Law or the presence or absence of Certificate of Need laws in individual states, this change would likely drive further procedures out of the hospital.

Driver 3: Payer and Purchaser Preferences

Aside from regulators, we are also witnessing emerging pressure from payers and purchasers to efficiently deliver vascular care in non-hospital settings. This is a relatively new source of pressure, as the vast majority of PVI procedures performed in the OBL over the last fifteen years were reimbursed through Medicare. As commercial plans come to manage more senior lives through Medicare Advantage (MA), this is now changing.

MA plans have a strong incentive to attract and retain senior lives through improved consumer experience, which is precisely what the ASC and OBL generally provide. Patients have shown a strong preference for services performed in these settings, largely on the basis of access, convenience, and experience. It is far easier to situate these facilities in bedroom communities than it is hospitals, which means that these facilities often excel on basic access measures such as drivetime or parking. They also often excel in measures of care experience, ranging from lower procedural wait times to more attractive facility design. It is also common to find facilities offering PVI also offering elective procedures, such as venous or cosmetic procedures, which are often appealing to consumers.

As important as consumer experience is to MA strategy, the heart of the MA business model is cost control. MA plans must therefore devise new incentives to promote lower-cost care options for vascular interventions in order to remain profitable. Significantly, these strategies will be less about upside financial incentives than about downside ones. Rather than the “carrot” of high reimbursement we have witnessed in Medicare fee-for-service in the last fifteen years, under MA we are thus likely to see use of the “stick,” in the form of levers like prior authorization, narrow networks, new price transparency tools, or even outright claims denials of hospital services. There is not yet strong evidence of MA plans using such levers to pry more PVI procedures away from the hospital, but there is precedent. In the case of imaging, for instance, commercial plans may deny authorizations for CT or MRI exams performed in the HOPD when there is a viable non-hospital alternative like a freestanding imaging center, provided the state does not require in-hospital testing.

If such pressures do emerge, which seems likely, they will have their greatest impact in relatively non-competitive markets for insurance products, where the percentage of seniors in MA plans is large and where a given MA plan has a large market share. In other words, in markets where health plans have considerable bargaining power, and can force the hand of their hospital partners. In such cases, hospitals may be forced to make hard choices regarding site of service. Faced with considerable pressure from their payer partners to lower the cost of PVI, hospitals may choose to either buy or build their own non-hospital facilities, find opportunities for joint ventures, or simply cede the territory to competitors more willing to make concessions. In practice, few hospitals are willing to simply abandon profitable lines of business, and will at the very least entertain the possibility of buy/build/partner. This is precisely what we are seeing in the case of imaging at the moment.

In more competitive payer markets or markets where traditional Medicare dominates, hospitals have more breathing room. As the number of non-hospital facilities offering vascular interventions continues to increase, however, procedures will continue to migrate in keeping with the inexorable laws of the market. Whether or not they wish to, hospitals in such markets must at least consider buy/build/partner options in order to remain viable in the PVI space.

Driver 4: Provider Preferences

Vascular providers also often show a preference for working in the ASC and OBL settings, especially in contrast to employment in a hospital setting. Physician employment reduces entrepreneurial risk, but it also reduces entrepreneurial opportunities. The promise of financial security is appealing in bad economic times, but is less of a draw in specialties like vascular, where reimbursement for procedures has been relatively high. Hospital employment also entails obligations that providers often find burdensome, such as disadvantageous employment contracts, participation in governance or committee work, frustrating productivity or performance metrics, and a heavy administrative load. The Pandemic has exacerbated all of this in one way or another, to the extent that many providers are now in revolt against the institutions employing them.

The privately-owned and operated freestanding facility has offered and will continue to offer an appealing alternative: In principle, the owner-operator not only has far greater opportunities for upside financial gain, but greater freedom to control their day-to-day patterns of practice, to work as little or as much as they want, and to free themselves from at least some of the bureaucratic obligations that make employment in a hospital challenging. There are now numerous examples of successful and profitable facilities that not only provide the highest standard of care for their patients, but also foster a personally rewarding work environment for providers.

Nevertheless, the prerequisites for individual business success are likely to become more stringent in the coming years due to three external market factors. First, it is likely that reimbursement for vascular procedures performed in the ASC and OBL will continue to decline. Facilities must offset this by increasing procedural volumes or improving operational efficiency, which may come at the expense of provider experience. Second, corporate or private equity backed entrants may seek to roll up existing facilities into larger entities, making it more difficult for independent facilities to compete effectively. While private equity can offer capital support for physician groups seeking to establish ambulatory facilities, this often comes with administrative obligations and expectations for financial performance that can be as onerous as the expectations one encounters in hospital employment. Finally, the high CMS reimbursement that has been the norm in the past has already led to a proliferation of facilities in certain markets, lowering the potential market share (and thus profitability) for new entrants. Some markets are now relatively saturated, with limited opportunities for further growth.

Conclusion

The dynamics we have seen at work in the vascular ambulatory space are rapidly becoming present across healthcare as a whole. The pressure to manage out-of-control costs and care for a complex and aging population is prompting the growth of new delivery models placing ambulatory services at the forefront. As such, patterns we have witnessed in the adoption and expansion of ambulatory PVI hold significant lessons for the future of a wide array of healthcare services.

Some of the most fundamental lessons are these: First, although it is necessary to have the right technologies in place to accomplish an ambulatory shift, technology alone is not sufficient. In the case of PVI, improvements in minimally invasive technology spurred adoption of new techniques among specialists, but financial incentives had to be in place before procedures could spread widely beyond the four walls of the hospital.

Second, financial incentives clearly work to drive procedures out of the hospital, but can also lead to perverse outcomes, and may be too blunt an instrument if not coupled with careful attention to quality and appropriateness. A slightly slower adoption of PVI procedures in the OBL might have served the profession relatively well, reducing external scrutiny and allowing data on ambulatory outcomes to catch up to the pace of change. Indeed, one wonders whether the significant reimbursement cuts we have witnessed in recent years are a biproduct of external scrutiny and disturbing news stories.

Third, it is clear that a wide swathe of stakeholders prefer ASC and OBL facilities to the hospital for certain types of care delivery. Overall, it appeals to regulators and payers for its cost-saving potential, and to patients and providers for experiential reasons. This preference holds both a promise and a warning to us. In terms of PVI, it suggests that despite declines in reimbursement, the trend towards vascular migration will continue (although perhaps more slowly). The imperative to control costs is simply too strong to allow any considerable return to hospital-centered procedures. However, as a wider array of procedures come to be performed in non-hospital settings, we perhaps risk running the same script over again, with rapid outmigration leading to the proliferation of a much larger “wild west” than we have seen in the past.

Finally, it is worth us asking what will become of hospitals going forward. The decline in surgical volumes for PVI and the outmigration of endovascular PVI from the HOPD to the OBL both had an impact on hospital bottom line. It is a story that is now being repeated across a variety of service lines, in ways that are prompting hospitals to carefully rethink their own finances and service offerings. Many hospitals remain profitable, but it seems clear that the hospital of the future will offer a much smaller array of complex services than it has done in the past. To ensure that this does not result in gaps in care, it will be essential to integrate the growing ambulatory footprint with what remains of the hospital enterprise to ensure that the future of ambulatory services is one of coordinated delivery, rather than chaos.