Sleep centers provide lessons for need to adapt in changing health system

While the number of centers is growing, payer pressure and new technologies have forced them to adapt or face financial struggle.

By Victoria Stagg Elliott — Posted July 30, 2012

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How physicians responded to financial problems in one corner of the health system — sleep testing — illustrates how all doctors can thrive economically in the face of escalating pressure to provide higher quality care for a lower cost.

While the number of sleep centers continues to grow at a steady rate, there has been pruning and reshuffling as they contend with payer pressure to reduce costs and technology that created less expensive alternatives to in-house testing. The lesson for physicians, experts say, is the centers that anticipated or reacted early to those trends thrived, while those that insisted on operating as if nothing had changed struggled or went out of business.

With trends such as accountable care organizations, pay-for-performance and information technology in medicine not going away, doctors, like successful sleep centers, need to adjust. The sooner they start, the more they can be in the conversation to make sure those adjustments can be made with their ideas in mind, rather than simply done to them, say those in the sleep center business.

“Health care is volatile and can be affected by multiple factors, including technology and revaluation of traditional services,” said Sam Fleishman, MD, president of the American Academy of Sleep Medicine and medical director of behavioral health and sleep medicine at Cape Fear Valley Health in Fayetteville, N.C. “Basing your success on traditional fee-for-service models is rapidly becoming an outmoded concept.”

The growth of sleep centers

In 1996, AASM accredited 337 sleep centers. The number grew to 2,461 as of the end of June 2012, as hospitals and physician groups responded to the growing recognition that sleep disorders could be serious health issues, and were becoming more common as the population aged and its obesity rate went up. The numbers, however, mask a health care sector managing great change. The initial rush by investors and others thinking payments from Medicare and other insurers would never stop appears to have come to an end.

“At one point sleep labs were growing like daisies in the spring,” said Fred F. Holt, MD, an otolaryngologist, who provides consulting services to sleep centers and those thinking of investing in them through his company, Medical Cost Solutions in Raleigh, N.C. “I have no doubt that sleep labs will always be around, but the growth spurt may be over.”

For example, Graymark Healthcare, based in Oklahoma City, which operates 105 freestanding and hospital-based facilities across the country, reported March 29 that total revenue from diagnostic sleep services declined 16%, from $15 million in 2010 to $12.6 million in 2011. The company was delisted from the Nasdaq on June 19 because it failed to comply with minimum bid price requirements. Graymark did not respond to requests for comment.

Analysts say these financial problems occurred because payments went down and technological changes altered how testing is delivered. For instance, cutting Medicare costs related to sleep testing in a lab has been a priority for the Dept. of Health and Human Services for the past five years. Medicare payments for on-site sleep testing grew from $62 million in 2001 to $235 million in 2009, making it a large, appealing target but far from the only one. The agency also is reviewing payments for “incident-to” services provided by a physician assistant or nurse practitioner, procedures at ambulatory surgery centers, various imaging modalities, dialysis and other large categories.

What lies ahead

Commercial payers are following suit because finding ways to reduce health care costs while maintaining value is an ongoing theme of reform. This means payment for a service may be lower, but there may be more money on the table for quality of care.

Physicians with an eye toward maintaining the fiscal health of their practices say participating as much as possible in establishing new payment models is key to making it more likely that their services will be properly compensated.

For example, Dr. Fleishman is involved in the creation of his medical system’s accountable care organization. He is looking at ways sleep testing can reduce hospital readmissions. He also is considering how his sleep center can become a neighbor in a patient-centered medical home and how patient compliance with treatment protocols can be measured and improved.

Sleep centers also have had to respond to the emergence of an at-home test, which costs only a few hundred dollars. In-lab sleep testing has an average price tag of a couple of thousand dollars.

“Fields with a large technology component are prone to changes that can be very disruptive as the technologies advance,” said Lawrence Epstein, MD, chief medical officer of Boston-based Sleep HealthCenters. “Be prepared to change.”

His company started offering at-home testing last year and expanded treatment offerings, but had to shrink from 26 facilities to 22 in 2011 because of changes in the health system and the troubled economy.

Those involved in sleep medicine say all physicians need to look at the services they provide and how they are providing them and be ready to shift gears in a timely manner.

“Medicine is changing in ways that will promote the provision of high-quality, cost-effective services focused on improving long-term patient outcomes,” Dr. Epstein said. “It is important to assess the services you provide to make sure they align with these goals.”

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The steady growth of sleep clinics

Sleep testing has expanded as awareness that the quantity and quality of a person’s sleep is closely linked to health. Insurers became increasingly willing to pay for this assessment. The number of sleep centers accredited by the American Academy of Sleep Medicine, by year:

Year Sleep centers
1996 337
1997 374
1998 417
1999 442
2000 502
2001 566
2002 623
2003 692
2004 857
2005 915
2006 1,096
2007 1,395
2008 1,611
2009 1,863
2010 2,153
2011 2,380
2012 2,461*

* Total as of the end of June.

Source: American Academy of Sleep Medicine

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External links

“Starting a sleep center,” Chest, May 2010 (link)

“The future of sleep medicine,” Sleep, December 2011 (link)

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This article originally misstated when the U.S. began applying contributory negligence in tort cases. The concept of contributory negligence originated more than 100 years ago in England and was later adopted in the U.S. American Medical News regrets the error.

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