The Financial Impacts of Ambulatory Surgery Centers on General Surgical Hospitals

Ambulatory surgery centers (ASCs), which treat surgical patients who do not need an overnight stay, are a health care service innovation that has proliferated in the U.S. in the past four decades. This paper examines the effect of ASCs on net patient revenues and total operating costs of hospitals. My major contribution is to use an exogenous instrumental variable which is the product of change in the over-age 65 population at the county level over the years studied and change in the average Medicare payment rate for all ASCs' procedures over the same years to overcome the endogeneity of ASCs' penetration rate. The results of two-stage least squares suggest that both hospital revenue and operating expenses will increase when ASCs enter the market, with operating expense increasing more, resulting in a decrease of profit margin. I also find that this negative financial impact likely comes from the change in hospital inpatient-severity mix upon ASCs' entry.