Skimming the cream. That's what surgery centers are doing, skimming the cream. What we need is a level playing field." I'll wager there isn't a surgery center in this country that hasn't heard those words. I first heard them in 1984 when we opened the Fresno Surgery Center. I heard them again in 1988 when we opened our bed unit. In those days the then California Hospital Association went so far as to argue that surgery centers and surgical hospitals actually increase the cost of medicine by taking profitable cases from not-for-profit hospitals, forcing them to increase their charges. To the CHA, our innovative, cost-effective, customer service-oriented model was bad for our community even though surgeons loved it, patients loved it, and the clinical results were at least equivalent if not superior to those of traditional hospitals.

I agree that the playing field is not level. But which way does it tilt, really?

In my opinion, our not-for-profit hospitals are misnamed. They are really tax-exempt for-profit entities that enjoy a number of subsidies in exchange for providing a community benefit. They do not pay federal income taxes. They do not pay state income taxes. They do not pay property taxes and they can borrow at interest rates substantially below those available to their for-profit competitors. Is that a level playing field?

In many communities, not-for-profit hospitals have successfully offered substantial discounts in exchange for exclusive HMO contracts. They have used the lower cost of capital granted by their special tax status and market clout of their great size to competitive advantage by excluding for-profit competitors from HMO contracts. Is that a level playing field?

Well-meaning citizens donate capital, sometimes in the millions, to our not-for-profit hospitals with no strings attached and no requirement for repayment. Surgery centers cannot raise free capital. Is that a level playing field?

Hospitals say they carry a burden not shared by surgery centers-the burden of indigent care. There are four reasons that argument fails. First, the not-for-profit hospitals enjoy their special tax benefits in exchange for accepting a community service burden. Second, study after study has shown no correlation between the tax and other benefits of not-for-profit status and the indigent care provided. Indeed, in California the for-profit hospitals provide more indigent care than the not-for-profits. Also, there is no difference in the federal and state tax exemptions granted to not-for-profits in high poverty areas and those in the wealthy suburbs. Under the tax code, it is possible to enjoy the tax benefits and provide no indigent care. Third, through Medicaid's Disproportionate Share program, hospitals with high indigent care loads receive additional compensation. Fourth, hospitals continue to be reimbursed by Medicare at higher rates than surgery centers for the exact same service. Is that a level playing field?

Hospitals have many advantages over surgery centers. They have more financial resources, more contracting leverage with payers, greater name recognition and larger advertising budgets. They have been losing market share to surgery centers every year since 1984 because they simply do not deliver the same level of service. They have abandoned two very important customers-surgeons and their patients. No matter how we construct the playing field, we should not tilt it against customer service and innovation. Hospitals have the resources and a number of advantages. All they have to do is adopt the superior model and compete.

Alan H. Pierrot, MD, is the orthopedic surgeon who founded the Fresno Surgery Center and its internationally acclaimed, customer-service driven surgical hospital model. He is CEO of FSC Health, a physician owned, surgery center and surgery hospital acquisition and development company.