Returns to Specialization: Evidence from the Outpatient Surgery Market

Ambulatory surgery centers (ASCs) have been praised for their potential to provide outpatient care that is less expensive, faster, and more convenient for both patients and physicians than services provided in hospitals (Munnich and Parente, 2014; Hair, Hussey, and Wynn, 2012; Paquette et al., 2008; Grisel et al., 2009). However, to date little is known about the potential gains in quality associated with caring for patients in these settings. One economic argument in favor of ASCs is that they offer higher quality care at lower costs due to specialization. An alternative view is that surgery centers offer faster, cheaper services at the expense of quality of care. If hospitals are better equipped to take care of patients in the event of a surgical complication, ASC treatment may have negative consequences for patient outcomes, in particular for high-risk patients.

In this paper, we examine health outcomes associated with treating patients in surgery centers by focusing on two quality of care measures: inpatient admission and ER visits soon after an outpatient procedure such as the same day, 7, or 30 days afterwards. Because we are concerned that observed differences in patient outcomes across facilities could reflect differences in underlying health rather than differences in quality of care, we use changes in federally set Medicare facility fees as an exogenous source of variation in surgery center utilization to estimate the effect of ASC treatment on patient outcomes.

For a national sample of Medicare patients that varies over time and controlling for physician fixed effects, we show that ASCs treat healthier patients than hospital outpatient departments. However, as Medicare payments to ASCs decreased relative to hospital payments, physicians treated a smaller share of patients in ASCs. Using variation in ASC use generated by exogenous changes in Medicare payments, we find that treatment in an ASC is associated with better outcomes, holding patient risk constant; patients treated in an ASC are less likely to be admitted to a hospital or visit an emergency room a short time after outpatient surgery. These results provide evidence of returns to specialization in ASCs as measured by improved patient outcomes, and suggest that promoting greater use of ASCs may lead to health care cost savings and overall welfare gains.

Key words: Ambulatory Surgery Centers, Hospital Quality, Specialization