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Understand pros, cons before investing in surgicenters

Issue: October 2005

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Douglas W. Jackson, MD
Chief Medical Editor:

This is the second in a series of round tables we will be doing on alternative sources of practice income for orthopedic surgeons. Dr. David Mauerhan, co-moderator in this series, suggested that we explore these sources of alternative income for our readers. While physicians obtain most of their income from face-to-face and hands-on time with patients, these round tables will examine sources of revenue outside of the direct patient-physician interaction. Dr. Mauerhan felt we could learn from sharing our various experiences with alternate revenue sources.

In this issue we look at surgeon-owned surgicenters. While I participated in building one more than 10 years ago, I no longer have an ownership and for a number of personal reasons and preferences work entirely within our hospital surgical setting. Many of my partners as well as our invited experts have elected to participate in various ways in physician-owned surgicenters. We are fortunate that our panelists agreed to share some of their thinking and decision making as well as give excellent advice for those considering this option.

While we cannot ensure that any of these ventures will be financially successful for you, this round table offers some of the thinking that has led others to incorporate owning surgicenters into their medical practices. We hope those of you who disagree with any of the concepts and statements made or thos who have had success in a different manner will share your experiences by writing a letter to the editor.

David Mauerhan, MD
Co-moderator:

As orthopedic surgeons become increasingly interested in ancillary revenues, development of surgicenters continues to top the list of potential income generators. There are significant financial impacts to these “bricks and mortar” type investments as well as regulatory issues from state to state. Before physicians invest in these partnerships, they need to understand all the pros and cons of different financial relationships that exist. Poor understanding and lack of planning can lead to financial loss and significant disruption of the practices’ core business of orthopedic surgery.

Moderators: What are some future considerations in complying with regulations with Medicare in particular and the private insurance sector?

Kurzweil: Nationally, more payers are reducing their out-of-network benefits, which in the end means the center will need agreements with most managed care payers in the area. In some instances, the payers are also penalizing the surgeon who does cases at an out-of-network facility. Medicare rates at surgery centers are not currently favorable for most orthopedic procedures, and the rates are frozen through 2008. However, there is a proposal to tie ASC rates to HOPD (hospital outpatient department) rates, which could pass within the next 24 months. This may result in an 80% increase in facility fees, making these procedures considerably more desirable for surgery centers.

Legal compliance with changing rules and regulations is always a serious issue with potentially significant ramifications. We rely on the professional management of our corporate partner and their legal/advisory team to guide us through any upcoming proposed changes and reduce our risks. The physicians are motivated to stay current and informed on related medical business issues.

Knight: Our biggest challenge in regard to Medicare is the growing expectation by the patients to have elective surgery performed in the outpatient arena. Unfortunately Medicare has not provided an avenue to reimburse for the orthopedic implants in a free-standing surgery center. We hope with the adoption of APC (which is the same fee schedule as hospital outpatient departments), we will see an increase in revenue for those patients and any associated managed care typed to Medicare groupers.

The private insurance companies are offering an increased number of plans that “walk like and talk like” a PPO, but are actually similar to an HMO; which means it is necessary to become contracted with all of the major players (eg, Aetna, BC, BS, UHC). A corporate and/or hospital partner can provide valuable input when negotiating managed care contracts.

Recently in California, the workers’ compensation fee schedule and the regulation for the employers to participate in medical provider networks has brought additional revenue losses and has made it difficult to schedule our cases.

Prietto: Keeping on top of the new regulations, whether it would be Medicare or workers’ compensation, is a function primarily of the surgery center management development company supported by the physicians. It is important to evaluate contracts carefully, stay updated on new developments and support the lobbying of our major medical associations. This should always be supported by quality care for the patients and ethical pricing to the payers. In addition there are companies available that can help in assisting centers to comply with the latest regulations.

Rettig: The challenge with Medicare will be closely monitoring which cases are excluded from the ASC list and ABN disclosure requirement. New and less invasive procedures are evolving, but the pace of Medicare changes in recognizing these new techniques is not keeping pace with physicians. As far as the private sector is concerned, reimbursement will always dominate this topic. Further consolidation of national and regional insurance companies will make these types of ventures less viable.

Methodist Sports Medicine Center and our physician/health system partners feel that we have constructed a model that will be competitive for the future. Our success will center on our desire to create an all-around win-win venture. Patients win because they get access to a high-quality, patient-centered ASC. The health system wins because they have structured a partnership with some of the regions best surgeons. Physicians win because they have an efficient, well run, financially successful ASC. Insurance companies win because patients are satisfied, outcomes are exceptional and costs are competitive. Next on the horizon is the potential for this combined win-win to set the stage for pay-for-performance incentives. While the regulatory and financial landscape is constantly changing we feel that the partnership that has been created has mitigated much of the threat of this change. In other words, as it relates to the physicians, 50% of something great is much better than 100% of nothing or at best a very risky business venture.