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Is the Sky Falling on Physician-Owners?
Emboldened by their success in harassing physician-owned surgical hospitals, hospital lobbyists are now lining up physician-owned ASCs in their crosshairs.
Dan O'Connor
Publish Date: October 10, 2007   |  Tags:   News

What if the moratorium on specialty hospitals is just the beginning of the American Hospital Association's (AHA) grand plan to rid the planet of physician-owned surgical facilities?

"I believe it's a short leap from specialty hospitals to ASCs. And there's more of us," says Nick Vailas, CEO of the Bedford Ambulatory Surgical Center in Bedford, N.H., and a board member of the American Association of Ambulatory Surgery Centers (AAASC). "We have to be on guard."

Surging one day, stopped in their tracks the next, specialty hospitals were blindsided by a little-known provision in the Medicare Drug Prescription Act that prevents new specialty hospitals from being built and restricts existing such facilities from expanding. In one fell swoop, the powerful hospital lobby rounded up the 100 or so specialty hospitals in operation and fit them with leg irons for 18 months, the length of the government-imposed sanction.

"I would have handicapped the chances of that happening at less than 10 percent," says lawyer and AAASC lobbyist Mike Romansky of the moratorium that passed after heavy lobbying by the hospital industry, which outspent the much-smaller American Surgical Hospital Association 100-to-1. "The hospital industry's No. 1 goal in the budget bill was eliminating surgical hospitals. They feel emboldened by their victory. And that concerns me."

For what it's worth, Mr. Romansky is laying the same 10-to-1 odds that the country's nearly 4,000 ASCs - most of them wholly or partly physician-owned, for-profit enterprises - will meet with a fate similar to specialty hospitals'. But when you step back and survey the unprecedented scrutiny physician ownership is under, those odds may seem a bit high.

Time to sound the alarm
Take what happened last month in Mr. Vailas's home state of New Hampshire. House Bill 1319 looked to be a pretty ho-hum piece of legislation when it emerged in the New Hampshire House of Representatives, barely causing a blip on the radar screen of physician advocates like Mr. Vailas, who, as chairman of the states's certificate of need (CON) board and the former state commissioner of health and human services, is a man whose political connections run deep. But attached to HB 1319 was an 11th-hour amendment that would have hamstrung physician ownership by capping the percentage of equity a doctor can have in a facility he refers patients to at 15 percent.

Mr. Vailas headed off this attack, helping derail HB 1319 to study committee. But make no mistake: Physician ownership is under an all-out attack in many towns and states that are passing laws prohibiting or curbing physician ownership at a feverish pace.

"This battle's just going to get larger and larger and larger against physician self-referral," says Mr. Vailas, his facility owned, ironically, by a hospital and a group of physicians in a tidy 50-50 split.

This is sobering news for those doctors who consider having an equity interest to be the only way to re-assert their role as the head of the healthcare team. "Without ownership, you're powerless," says Mr. Vailas. "For physicians to have a stake in healthcare, they have to have ownership. It's almost un-American to tell doctors that they can't own. They're their patients. Not the hospital's. And not mine."

Without ownership.

It's a concept physicians may find hard to swallow.

And even harder to fight.

'Plunge us into endless threat'
Physician ownership. Equity interest. Take your pick, they're the two dirtiest words in healthcare, synonymous with greed, impropriety and self-dealing, symbolic of shrinking margins, provider shortages, inadequate reimbursements and whatever else ails full-service hospitals. If the hospital industry has its way, docs who invest in surgical facilities will go the way of docs who make house calls.

Endangered. Extinct.
Don't think it can happen? Look no further than hospitals that use their clout in the marketplace to prevent competitors from gaining access to HMO contracts or summarily expel from their staffs physicians who dare to invest in competing surgical facilities, an increasingly popular practice that goes by the more euphemistic-sounding economic credentialing.

Don't think it can happen? Look no further than local and state bills backed by hospital lobbyists that seek to overturn the very self-referral laws that currently support ASC ownership or make physician ownership more trouble than it's worth. Things like strengthening or reviving CON laws and imposing an ASC tax to fund emergency care. Or requiring ASCs to lay bare their books and submit to stringent reporting requirements.

"It's like all the states have a playbook from the American Hospital Association and they're all following the same game plan," says Mark Mayo, an ASC administrator from Illinois and the AAASC's state societies board liaison. "We have to respond. Or at least be prepared to."

AAASC president David Shapiro, MD, is sounding the alarm. "It is my fear that victory by the hospital lobby (versus specialty hospitals) will wage war against ambulatory surgery centers and plunge us into endless threat," says Dr. Shapiro. "These (Stark and anti-kickback) exemptions can just as easily be eliminated as they were granted many years ago."

If Dr. Shapiro was telling it straight at last month's AAASC annual convention in Orlando, Fla., when he said lobbyists for acute-care hospitals now pose the greatest threat to physician ownership of surgery centers, physician-owners are going to have to grow eyes in the back of their heads, because the attacks are coming from every which way.

"I've never seen this level of state activity in my 14 years. I'm getting an e-mail a week about a new attack," says Eric Zimmerman, counsel to the AAASC and the Outpatient Ophthalmic Surgery Society. "It's coming in a variety of forms, which in some ways makes it more difficult to fight and so disconcerting.

States - the new battleground
The battle has shifted from the federal to the state level where, as Mr. Romansky puts it, "state legislatures can really be dangerous to us."

While the ASC community is well organized and capable of lobbying on the federal level, it's ill-equipped to fend off attacks locally, says Mr. Zimmerman. All of which may make ASCs especially vulnerable. About 36 states have ASC trade associations, many of them fledgling groups whose reason for being is to fend off attacks against physician ownership.

Some cities and states are taking dead-aim shots at physician ownership. Take Newton, Kan., population 17,000, for example. Not a single specialty hospital or ASC in sight. The town's commissioners stopped the competition before there is any, imposing a one-year moratorium on licensing such facilities at the request of the lone community hospital. Lawrence, Kan., and five Oklahoma towns have imposed similar ordinances. Others are trying to trip up ASCs by imposing provider taxes, requiring them to treat a certain percentage of Medicaid patients or forcing them to maintain the architectural requirements (such as stairwell escapes and fire walls) of a hospital.

"If they were simply questioning physician ownership of ASCs, we could point to the many studies that have shown that physician ownership of ASCs does not lead to abuse, higher program costs or higher costs to the beneficiary," says Mr. Zimmerman. "But when the assault comes in the form of a CON requirement, those arguments don't resonate. Then we have to respond in a different way."

Here's what's happening in a few other states:

  • In Colorado, surgery center lobbyists have stalled a bill that would have outlawed self-referral. SB 163, drafted by the Colorado Health and Hospital Association (CHA), would "prohibit a physician from referring a patient to, or treating a patient, in a limited-service hospital in which the physician ... has an investment or ownership interest." By "limited service," the CHA is targeting surgical and specialty hospitals. While the proposed language of the bill didn't specifically refer to ASCs, it most likely would have been interpreted to include this designation, says Rebecca R. Craig, RN, CNOR, CASC, administrator of the Harmony Ambulatory Surgery Center in Fort Collins, Colo. (in which the local hospital has a 59-percent stake) and president of the Colorado Ambulatory Surgery Center Association (CASCA).

"That would be devastating to an industry we very much believe in and are trying to protect," says Ms. Craig. "We thankfully stalled that bill, but now we're looking very carefully at every other healthcare bill that's coming out legislative session because CHA is going to try to attach to it. We're not resting easy. We may have taken a breath, maybe, but our guard still up ' They have a lot of dollars backing them. And we, unfortunately, don't. I think they know that."

  • In Georgia, Lasa Joiner, lobbyist for the Georgia Society of Ambulatory Surgery Centers, is wrestling with HB 1376, a hospital-backed bill Ms. Joiner refers to as the "scorch-the-earth and put-them-out-of-business" bill. HB 1376 would require all surgery centers to apply for a CON if their capital expenditure is more than $1.5 million, to prove that at least 3 percent of their care went to indigent and charity care services and to contribute 6 percent of their gross revenue to an indigent-care trust fund. It's also feared that the bill, tabled until the summer, would have downgraded single-specialty ASCs to office-based surgery centers, eliminating the facility fee single-specialty ASCs can bill.

"Hospitals don't want to do anything to make it any easier to build ambulatory surgery centers," says Ms. Joiner. "They look at them strictly as competition. It's all about the money. Ambulatory surgery centers are profit centers."

  • In Oklahoma, Senate Bill 620 has virtually halted new surgery development. New or remodeled facilities must prove that at least 30 percent of their annual gross revenues are from Medicare, Medicaid, credit for the cost of uncompensated care and/or Oklahoma state corporate tax contributions. Facilities not meeting the 30 percent threshold will be assessed a fee for the difference.

Hospitals' point of view
Jim Hanko, president and CEO of North Country Health Services in Bemidji, Minn., told lawmakers that a surgery center opened within 100 yards of his hospital in 2001. It has four surgery suites, one fewer than the hospital. Since then, the number of procedures performed in the hospital has dropped by more than 30 percent and net revenues fell by $4 million.

When Steven Gunderson, MD, hears tales of woe like this, about how an ASC on every corner could really hurt hospitals, he understands.

"It isn't totally untrue that we haven't siphoned off some of the cream-of-the-crop outpatient procedures and patients from the community hospitals," says Dr. Gunderson, an anesthesiologist, the CEO and medical director of the Rockford Ambulatory Surgery Center in Rockford, Ill., a freestanding, multi-specialty, physician-owned ASC. He's also on the board of the Federated Ambulatory Surgery Association.

ASCs are one of the fastest- growing segments of the American healthcare industry. There are nearly 4,000 ASCs in operation. They will soon outnumber the nation's 5,000 hospitals.

While most outpatient surgery is still done in hospitals, physician offices and freestanding surgery centers are experiencing greater growth in volume than hospital-based ambulatory surgery centers, industry statistics show.

Some hospital executives have complained that competition from freestanding surgery centers is one of several factors squeezing their profit margins - stripping away key profit centers they depend on to subsidize emergency rooms and other money-losing operations that serve everyone, including people without insurance. For physicians, though, it's intoxicating to be in command and control of everything from the flow of the schedules to the size of the dividends in what few would argue (certainly not patients, but they're very much beside the point) is a more cost-effective and efficient setting to perform surgery is.

"Doctors need to be at the table for management, employment and financial decisions," says Tim Robinson, MD, part of a physician's group building a privately-owned surgical hospital on 40 acres in Noskogee, Okla. "We want a voice in the care of our patients. We want responsive nurses. We want employees who are inadequate or incompetent removed. We're in a small town with a big gorilla that controls healthcare. We like that we're restoring the balance of competition."

Legal Context For Physician Ownership Of ASCs

Some fear that the hospital lobby may challenge ASCs' Medicare exemptions from Stark laws banning self-referrals as well as their safe harbors from anti-kickback provisions, overturning the very self-referral laws that support ASC ownership. With that in mind, it's interesting to note why ASCs have been specially treated under self-referral prohibitions and anti-kickback laws.

"They're regarded as a different beast," says Eric Zimmerman, counsel to the AAASC and the Outpatient Ophthalmic Surgery Society, "because concerns for potential for abuse don't exist in an ASC as they may in a hospital."

Section 1877 of the Social Security Act (the Stark self-referral law) prohibits physicians from making referrals for certain types of services to entities with which they have financial relationships. It also prohibits those entities from submitting claims to Medicare or Medicaid for those services. The law applies to several types of services, such as clinical laboratory, radiology, physical therapy, and home health (HCFA 2001). However, it does not apply to surgical procedures provided in an ASC.

The anti-kickback statute prohibits health care providers from receiving or paying anything of value to influence the referral of services covered by federal health programs. The Office of Inspector General has published safe harbor regulations that protect physicians who invest in ASCs from prosecution under the anti-kickback statute, if certain conditions are met. Among other requirements, the safe harbor regulations generally protect physician-investors for whom the ASC is an extension of their office practice (Office of Inspector General 1999). In other words, the physician investors must be in a position to refer patients directly to the ASC and to perform the procedures themselves.

The share of an ASC's profits received by physician-investors must be related to their portion of the overall investment rather than their volume of referrals.

- Dan O'Connor

Public Enemy No. 1
A lawyer with McDermott, Will & Emery and a lobbyist for the AAASC, Mr. Romansky devoted much of his hour-long talk at the AAASC convention to painting the hospital industry as an evil, relentless machine that "is trying to screw you" and imploring the audience to support its state associations and line the AAASC's coffers with lobbying dollars.

"We have to distinguish ourselves from surgical hospitals so that we don't end up with the same cudgel," he says. "It's expensive paying homage to" - he pauses for comedic effect - "bribery."

Even though, as Mr. Romansky puts it, ASCs "are the flea on the elephant's back," accounting for one-half of 1 percent of the Medicare budget, the physicians who own and operate many of the nearly 4,000 ASCs are public enemy No. 1 in the eyes of hospitals.

"Fighting for our survival now is going to mean fighting at the state level. The mischief that's going on is astounding," says Mr. Romansky.

The AHA, the 5,000-member umbrella group for the hospital field, denies that ASCs are next on the hospital industry's hit list, saying it has no plans to work toward legislation that would target ASCs. The AHA also denies choreographing the state and local attacks on physician ownership, as some have suggested.

"The AHA lobbies at the federal level," says Anne Ubl, the AHA's senior associate director of federal affairs. "We have no plans to be working toward legislation that would address ASCs. We are looking very closely to see if those issues surrounding specialty hospitals and ASCs might line up similarly. Do ASCs present a potential competitive model with some hospital services? Potentially, yes. But it is an issue that has not been studied thoroughly.

An AHA spokeswoman, however, says that while AHA has not yet taken a position on ASCs, it does "have a task force that's looking at this issue."

Then there's MedPAC, the federal agency that advises Congress on Medicare issues, still worrisome because its commissioners are looking at physician self-referral as an issue with ASCs. But the clear and present danger lies at the grassroots level, which is where the hospital industry has moved its niche-provider campaign.

Do doctors have the top hand?
In the end, physicians may be holding the trump card: Patients follow the physicians. Always have. Always will. "Yet you almost get the impression that the hospitals think the patients are theirs," says Michael Koumas, MD, an Ohio anesthesiologist and a partner with Ambulatory Anesthesia Consultants. "They want to see me whether I'm at your hospital or the ASC. Hospitals downplay the physician-hospital relationship."

Many still fear that the financial interests of acute hospitals will drive the new laws if physicians don't become politically active and do a better job of representing their interests. With more lobbyists, more dollars and more to lose, the hospital industry is taking no prisoners in this turf war.

"Be active and respond," says Mr. Zimmerman. "Respond aggressively to any threat that emerges. Don't underestimate these challenges to physician ownership. If legislators only hear from the hospital and not from the ASCs, don't be surprised if some of these proposals actually advance or become law of the land."

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