If you poke holes through the politically correct blanket hospital association denials and listen carefully to the ambulatory surgery center industry, there’s a war looming on the horizon.

It may not surface this year; it may not surface next year. But it’s coming. A growing number of industry observers are predicting that battle lines over physician ownership of ASCs are being drawn under the general radar screen as fallout from the specialty surgical hospital moratorium that the hospital lobby successfully engineered through Congress. (See "Spotlighting Specialty Hospitals: Hype, Hope or Harm for Acute Care?" HPN, April 2004, pp.10-12.)

Call it a pre-emptive strike or simply preparing for inevitable conflict but leading ASC observers and players are warning the more than three-decade-old industry to gird for battle over control at the national, state and local levels where hospitals are using such tactics as certificate of need laws, physician economic credentialing measures and grassroots marketing campaigns to rally public opposition to physician ownership of ASCs.

Although the ASC industry is going to great lengths to distance itself from the specialty surgical hospital imbroglio, they’re finding it a tough sell. After all, many consulting, lobbying and research firms classify ASCs as part of a larger group of so-called "limited service providers," also known as "niche" or "specialty" providers. They’re lumped together with surgical hospitals, diagnostic imaging centers, cancer treatment centers and pain centers.

The arguments being raised against ASCs – particularly physician-owned facilities – are similar to those raised against specialty surgical hospitals. ASCs attract and serve the most lucrative patients (those with higher reimbursement opportunities), leaving the sickest and indigent patients to hospitals. That undermines community interests and promotes physician abuse of the system, the hospital lobby contends. Secondarily, they raise questions about quality and cost savings but most view it as more of a competitive threat than anything else.

Brent Mulgrew, executive director of the Ohio State Medical Association, addressed more than 1,000 ASC doctors, nurses and administrators at the Federated Ambulatory Surgery Association (FASA) annual conference in Phoenix in May about the regulatory entanglements he faced trying to block a state law preventing physician ownership in ASCs. "I stand before you as a loser," Mulgrew said. "Our association went before the state government against the hospital association and lost. They framed the issue better. The state hospital association convinced the public and the government that physician ownership of ambulatory surgery centers was a conflict of interest issue and not a quality of care issue.

"We wanted to create a specialty center of excellence with a specialized staff that maintained control over OR scheduling and operations and provided patients with convenience," he continued. "Hospitals eliminated the privileges of those doctors who chose to get involved."

Unless ASCs get involved in the debate and political process, the industry will face more regulations federally and statewide, he noted. "We want a competitive system free of artificial barriers," he said.

"Hospitals have a fiduciary responsibility and wide authority to protect their own interests and they have the courts behind them," Mulgrew noted. "All you have to do is read the strategic plans of the American Hospital Association. [ASCs] are not in them."

Mulgrew said many physicians feel like they’ve lost control in hospitals because they lack job satisfaction, thanks to dealing with malpractice issues and lower reimbursement. He characterized the conflict with hospitals as having more to do with reduced economic opportunity and the decision over who ultimately gets the patients. "We’re in a period of declining reimbursement and growing governmental control," he added.

One ASC administrator asked how physician referrals to ASCs they own is any different from hospitals requiring their physicians to refer patients to their facilities? "The logic is irrefutable but the hospital says so what?" Mulgrew answered.

Towing the line
Wes Cleveland, J.D., director of the Advocacy Resource Center at the American Medical Association, highlighted how hospitals use "good citizenship" policies and conflict-of-interest bylaws in the guise of economic credentialing that has "nothing to do with clinical competency" but only seeks to "thwart competition and prevent physician self-referrals." Essentially, doctors that want to retain their privileges to practice at a local hospital can’t have an ownership stake in a competing facility to that hospital nor can they send patients to that competing facility or perform surgeries in it.

For example, Cleveland said he knows of one hospital that revokes admitting privileges of any staff physician with a financial interest in a competing entity within 15 miles of the hospital. Cleveland sees that policy as nothing less than hypocritical, if not a conflict of interest or even a violation of the anti-kickback statute. "As healthcare dollars shrink in terms of reimbursement, and insurance premiums go up, hospitals are very motivated to work against [ASCs]," he said. "State actions against ASCs are just as important as the federal 18-month moratorium on specialty surgical hospital development," he added. "ASCs will simply be next in line."

But not everyone’s willing to cry wolf yet. "The sky’s not falling yet but it’s a deadly serious threat and it’s looming," said Ron Wisor, J.D., FASA’s regulatory counsel from the Washington, D.C. law practice of Arent Fox Kintner Plotkin & Kahn PLLC. He lobbied for the need to strike a balance on the physician ownership issue.

Making the case
"We need to lay the groundwork and educate policy makers about the very real benefits of physician ownership for the day when [state and federal government officials and hospital lobbyists] try to eliminate physician ownership," he said. ASC administrators and clinicians should emphasize how they revolutionized the delivery of healthcare and surgery, how physician involvement and investment was crucial to ASC development, how ASCs enhance patient convenience and satisfaction and quality of care, and how ASCs have saved Medicare hundreds of millions of dollars through lower rates and lower insurance copays.

Indeed, in an August 10 letter to Speaker of the House of Representatives Dennis Hastert (R-IL), David Shapiro, M.D., president of the American Association of Ambulatory Surgery Centers (AAASC) and senior vice president of medical affairs for Surgis Inc. (Nashville, TN), outlined how ASCs generally offer lower cost alternatives to hospital-based surgery using the government’s own research. Shapiro stated that the Medicare Payment Advisory Commission found that "Medicare payments to ASCs are lower than payments to hospitals for comparable services for 87 percent of procedures." Furthermore, Shapiro noted that the "Inspector General for the U.S. Department of Health and Human Services has found that Medicare saves over $1 billion annually when procedures are performed in ASCs rather than hospitals."

Shapiro also highlighted how patients benefit directly through lower insurance copays. "For example, a Medicare beneficiary would typically pay a hospital $496 in coinsurance for a cataract extraction procedure, $186 in coinsurance for a colonoscopy, and $180 in coinsurance for carpal tunnel surgery, whereas that same beneficiary’s copayment for an ASC for these procedures would be only $195, $89 and $89, respectively."

Wisor also argued that physician ownership promotes accountability. "That’s the true value because they’re almost never passive investors," he said. "They also maintain control over staffing, scheduling and equipment selection."

As a result, physicians are more responsible for their facilities than those who abuse their roles that the federal Stark physician self-referral law was created to address. However, the Stark law actually permits physician ownership of ASCs and the Office of Inspector General established a safe harbor that stipulates how physicians can own and refer patients to ASCs without violating the federal anti-kickback statute.

Still, Wisor urged approaching the issue with alertness, preparation and caution. "It’s important to note that we’re not at a crossroads with anyone," he said. "And we shouldn’t link ASCs to specialty surgical hospitals. There’s a danger in connecting ASCs with something that doesn’t have the same track record of success. Clearly, the arguments are transferable but the conditions are different." Ninety to 100 surgical hospitals can’t compare to 3,700 to 4,000 ASCs, he argued.

Craig Jeffries, AAASC executive director, concurred. "We’ve been right in front of that debate and we’re very concerned about the overall direction the hospital industry is taking," he said. "We were very clear in opposing restrictions curbing physician ownership in surgical hospitals but we recognize that ambulatory surgery centers and specialty surgical hospitals represent two different markets and two different models. Certainly, surgical hospitals are on the front burner but we’re on the radar screen."

Jeffries noted that AAASC is more focused on combating state certificate-of-need health policy restrictions that some states have enacted to constrain surgery center growth. In fact, in July the Department of Justice and the Federal Trade Commission issued a joint report that concluded that CON programs may actually drive up costs by "fostering anticompetitive barriers to entry," meaning that the competitive problems CON programs were designed to solve "generally outweigh purported economic benefits."

Because hospitals have been rather distracted by the specialty surgical hospital debate, as well as reimbursement issues, and because physicians have been distracted by medical malpractice liability insurance, ASC industry observers are urging their members to refocus their efforts before the hospital lobby revs up its powerful machine on Capitol Hill.

Back to business
But not everyone is pursuing the political bent championed by FASA. AAASC, for example, embraces more of a business approach.

Shapiro noted that of the nearly 4,000 Medicare-certified ASCs in operation, physicians have an ownership interest in 83 percent of them. But that doesn’t necessarily translate into a controlling or majority interest.

In fact, Jeffries eschews the term "physician-owned" ASCs in favor of "physician-led" ASCs because that leaves room for physicians to establish joint venture arrangements with investor-owned corporations and hospitals. One benefit of such partnership arrangements is that the physicians tend to maintain clinical and operational integrity while shifting day-to-day ownership responsibilities to others.

"If you look in many communities progressive conservative hospitals are partnering with physicians and ASCs," Jeffries noted. "Certainly, it’s a strategy implemented by the for-profit chains like HCA and Tenet. But the paradox is that the American Hospital Association and various state hospital associations at the same time are fighting this and trying to curb it.

"Patients should show as much interest as the entrenched industry in ASCs so that they can have that choice and can benefit from the convenience, expertise and lower costs that ASCs offer," he added.

Nick Vailas, CEO of Bedford (NH) Ambulatory Surgical Center and an AAASC director, agreed. "If people are going to be asked to make choices about the costs of healthcare then they need to have alternatives, which include ASCs," Vailas said. "Competition is what healthcare needs. The FTC has said that. These debates are nothing more than turf wars about money."

The challenge that hospitals face are that they clinically try to be all things to all people, treating infectious and sick people alongside healthy people, according to Vailas. And their error rates are high. "It’s not that they have bad people," he noted. "It’s just that they’re doing too much and not doing it well. It’s a recipe for disaster. ASCs, like surgical hospitals, are more focused on patients with a tighter nurse-to-patient ratio so they can provide higher quality care. Physicians feel like they have more control over their patients and their costs in ASCs. And patients trust their doctors. ASCs are efficient and safer and their schedules and outcomes are more predictable."

Vailas’ facility, which houses seven surgical suites, had been 100 percent owned by him and the practicing physicians until about three-and-a-half years ago. "As we evolved and matured as an ASC, we started to partner with a local hospital that saw what we were doing," he said. "They made us an offer worth looking at and that hospital (Catholic Medical Center, Manchester, NH) now owns a 50 percent stake."

Vailas praised the forward-thinking CEO. "She’s someone who believes in physician ownership as well as partnerships with physicians," he said. "You’re better off partnering with them than employing them. Either you can coerce or threaten them or you can work with them. Our deal with the hospital worked because we were negotiating from a position of strength. If two parties come together in a position of strength you’ll have a favorable outcome. Otherwise you get coercion and not collaboration. That’s why CON laws need to go.

"If you align people economically you get greater synchronization because they all have a stake in the matter," he continued. "Physicians need to thrive professionally. There’s nothing wrong with that. These political overtures will destroy the profession. We need tort reform, physician freedom and greater consumerism in healthcare that will lead us down a far better path than regulation."

Key trends to watch

William Webb, chief development officer and director of Symbion Healthcare, outlined at the FASA conference five key areas to track ASC progress. They are growth, turnover, valuation, ownership and a host of economic, operational and regulatory issues.

It’s no secret that more surgeries are being performed on an outpatient basis and in ambulatory surgery facilities, Webb noted, and that’s why hospitals increasingly are getting into the act. "Hospitals were in denial about the benefits of ASCs and getting into the ASC business in terms of owning freestanding facilities as part of their healthcare delivery strategy," Webb said. "That has changed dramatically within the last two to three years. It’s now a conscious strategy by many hospital systems."

Webb also sees changes in ownership. "Many of the surgeons who started their ASCs are retiring now and liquidating their interests," he said. "They’re making way for companies like mine and for younger surgeons looking to pick up the ball.

In terms of valuations, case volume is growing so that means higher revenues and profits, which attract more interested buyers, according to Webb. In addition, a number of states have dropped their CON requirements, which provided opportunities for development. And the specialty surgical hospital moratorium makes larger ASCs more attractive to investors, he noted. At the same time, ASCs face complicated reimbursement issues, including frozen or declining rates, federal and state legislative limits to workers’ compensation payments, and some states (such as California) are levying tax surcharges on ASCs that fail to provide a certain percentage of indigent care.

Webb observed that more corporations and hospitals are investing in ASCs, as well as physicians, altering the ASC landscape and muddying the ownership debate.

Finally, Webb noted that ASCs face a growing litany of regulations, including HIPAA, CON laws, licensure and "whatever Pete Stark comes up with next on ownership," as well as frozen reimbursement rates, pressure from payers and the hospital industry over competition, labor issues, including the nursing shortage and unions and unreasonable economic expectations.

"Surgeons are going to be tempered a little during this decade," he said. "In the 1980s and 1990s there was a lot of money made. Now we’re seeing more pressure from payers to improve the cost side." HPN

Editor’s Note: To access "Improving Health Care: A Dose of Competition," the joint report by the Federal Trade Commission and the Department of Justice, visit http://www.ftc.gov/opa/2004/07/healthcarerpt.htm.