Given trends in healthcare, and in cardiovascular services specifically, it is instructive to look at the issue of low volume cardiac surgery programs in California. Consider these data:
- Per calendar year 2014 data reported to the State, out of 125 total hospitals with licensed adult cardiac surgery programs, 39 are performing fewer than 100 cases annually.
- Cardiac surgery volumes at California hospitals in 2014 ranged from 1,667 cases to 7.
- The average number for all hospitals was 245, but the median was just 155 cases; for hospitals under 100 cases, the median was only 55 cases.
(For the moment, we won’t enter into the persistent debate over quality = volume, although that topic obviously underlies this discussion and is deserving of further review.)
Any discussion of declining program volume starts with the national downward trend in cardiac surgical volume, but how does one go about explaining and justifying these low volumes in 39 hospitals in the state? There are many factors at work:
- California has not had Certificate of Need (CON) since the 1980’s – partially explaining the proliferation of programs otherwise unconstrained by market (primarily payer) forces.
- California has a very large population and is a large state geographically, with disparate population centers, so program location and travel times between centers is an issue in many areas.
- Managed care contracting, rate setting and the prevailing belief that higher volume equals quality have historically favored full-service hospitals.
- California has lagged behind other states that have allowed elective PCI without surgery-on-site, thus mandating that all elective PCI programs must be performed in hospitals only with cardiac surgery back-up present. Without question, some hospitals added cardiac surgery only to legally enter the clinically important (and well-compensated) elective PCI business, regardless of the business case surgery made.
Despite countervailing pressures on hospitals to report hospital and individual surgeon outcomes and volumes; continuing efforts to achieve transparency in volume, outcomes and pricing; consolidation and network development; pricing pressures (including the use of “reference pricing”); and other trends designed to channel patient volume to high-value centers; few, if any low surgical volume hospitals have moved to divest or “right-size” in recent years.
A significant factor in this equation may be the new California law that allows hospitals with licensed cardiac cath labs to apply for certification to do elective PCI without on-site cardiac surgery. Hospitals that chose to provide cardiac surgery only as a way of accessing elective PCI will now be faced with an important strategic decision: divest or look for alternative ways to boost their cardiac surgery program volume and/or re-tool their operating model to achieve required financial (and perhaps clinical) performance. Another significant fear is that closing cardiac surgery will result in negative consequences to the remaining interventional cardiology and electrophysiology/cardiac rhythm management programs. CFA believes that closing one’s cardiac surgery program does not have to be fatal to the remainder of cardiac services if the divestiture is carefully planned and managed.
Many other states have dealt with the issue of low volume directly through regulation and licensure, as opposed to letting market forces prevail. Some states still use CON or other regulations that require minimum volumes for new and/or continuing licensure of existing services. For example, New York, (admittedly a highly regulated state), requires programs to perform a minimum of 500 surgeries per year; in New Jersey the threshold is 350. Michigan recently changed its minimum volume requirements from 200 to 150, reflecting the new reality of lower volume trends. Some states are getting away from minimum volumes altogether and focusing on quality outcome measures alone. In California, market forces, rather than regulation, predominate as the way of controlling proliferation. However, one could argue that this approach, with few exceptions, has yet to shift significant volume between providers or to a few, large volume providers.
There are many strategic as well as practical, local market-based reasons to continue to operate a low-volume service such as cardiac surgery, whether you are a single hospital or part of a multi-hospital system. Now that elective PCI is permitted without on-site surgical back-up, that justification is no longer a part of the analysis. CFA firmly believes that several hospitals, if certified to perform elective PCI, will eventually divest their surgical programs. In the near term, other low volume providers will need to take a hard look at their strategic and operational options. Cardiac surgery programs performing under 100 cases/year typically cannot be financially sustainable without cross-subsidization. These questions arise:
- Does one divest to decrease expenses, or does one try to re-invest in an effort to capture new market share (in an era of overall declining market size)?
- Does one attempt to develop a new clinical niche (such as valve center program development) in an attempt to augment volume?
- How will competitive pressures, the continuing evolution of payment and patient care innovations, and continuing consolidation figure into these strategies?
- Finally, how can supporting a low-volume service be on the right side of a population health strategy?
These are difficult and complex decisions, but will need to be addressed by all hospitals attempting to prosper in these challenging times.
- What happens to your hospital’s interventional volume if you divest surgery?
- What competitive risks/benefits arise if you divest your cardiac surgery program?
- What are the overall economic consequences?
- How deeply will Medicare (and other) revenue be affected?
- Can you afford to pay for ongoing surgical (and supporting) coverage?
- Are there alternatives that could be developed with affiliated or competitor hospitals?
- What are the clinical outcome trends? How would this affect your ability to compete for managed care contracts?
- If you decide to divest, what is the optimal strategy for winding-down the program?
If your hospital is faced with low cardiac surgical volumes and you would like to discuss these questions, strategies or other options, we are available to talk to you at any time.
As always, CFA welcomes your comments, suggestions and questions.