Physicians Unite!

How to capitalize on your ASC by teaming with specialists from other fields.

BY VICTOR A. HOLMES, MD

Ophthalmology led the charge into outpatient surgery. At one point in the 1990s, half of all ambulatory surgery centers were owned by ophthalmologists. Indeed, many cataract techniques evolved so that the surgery could be done on an outpatient basis.

Other specialties followed our example. Between 1996 and 2006, the number of freestanding surgical facilities tripled.

Since those boom years, growth has slowed and the market has matured. There is less demand for new centers, and legal and regulatory hurdles make opening new facilities more difficult. In the face of increasing overhead costs and a low percentage of private payers, many single-specialty ophthalmic ASCs have faltered, despite cost control and efficiency measures.

The solution lies in combining operational efficiency with a preponderance of privately-insured cases. High-volume, multispecialty centers with a diversified payer mix stand to weather the impending changes in the reimbursement climate very well. For ophthalmology, this means partnering with surgeons who have a greater volume of high-paying, high-margin cases. Examples include orthopedics, gastroenterology, podiatry and pain management.

Standing Together

Can anyone familiar with the last 20 years of healthcare history doubt that on some level an adversarial relationship exists between certain business interests and those who provide medical care? “Out of network” patients serve as a recent example. Some 70% of those with health insurance choose plans that allow them to be treated by practitioners outside the insurer's network, and pay extra for this privilege. While happy to collect the higher premiums, insurers often prove less enthusiastic about paying out-of-network claims. Last year a New York state Attorney General investigation of insurers accused of manipulating rate data to shift greater out-of-network costs to patients resulted in a large out-of-court settlement, and prompted Senator Jay Rockefeller to accuse the insurance companies of outright fraud.

In New Jersey, an insurance company sued a group of physician ASC owners for failing to charge co-payments mandated by an insurance plan the physicians were not even part of.¹

On other fronts, few believe federal efforts to reform health care will fail to result in cuts to Medicare reimbursement. The funding Congress has set aside to cover 32 million uninsured citizens is likely inadequate, and that combined with the creation of the Independent Medicare Advisory Board, which will exert unprecedented power over Medicare spending, all but assures a curtailing of fees at some point in the near future. And where Medicare goes, private insurers soon follow.

Ambulatory surgical centers offer physicians an opportunity to stand together against such trends. By taking a little more ownership in the business side of what we do, physicians can protect their bottom line and ultimately provide better care for our patients.

ASC Harmony

A typical Medicare cataract payment is $1,000. In an efficient environment with diligent attention to cost control, this can yield a profit of $200. Compare that to a private, out-of-network case for something like a shoulder replacement, which may pay $60,000 with a far higher profit margin.

Frequent big-ticket paydays like that can keep a center in the black. And because all the owner-physicians share in the center's profits, you will benefit as much as the orthopedic surgeon, who will be happy with any profit sharing above the zero that hospitals offer.

The downside of high-profit, out-of-network cases is that payers often drag their heels in every way possible before cutting a check. They may throw up bureaucratic hurdles for as long as a year, and then end up mailing the check to the patient.

But here is where ophthalmologists earn our keep. Most of our patients are covered by Medicare, which does not pay particularly well, but pays on time. I've found that seldom does Medicare take longer than two weeks to pay a claim. So while the center waits for large private payouts, eyecare billing keeps the electricity on.

Overhead costs are shared among the physician partners. However, levels of partnership tend to vary. In the beginning, ophthalmic owners will enjoy a greater share of the profits, while also being responsible for greater overhead costs. You are not likely to ask a new surgeon to invest money in your center before he or she starts work. New surgeons invest time and expertise, for which they acquire an interest in the center. If a surgeon acquires a 10% interest, he or she receives 10% of all profits. The surgeon then technically shares in the cost of new equipment, supplies, medications, malpractice insurance, etc., since these costs are paid before any profits are distributed. In this way, anti-kickback laws, which prohibit distributing money by splitting surgical case fees directly, are not violated.

In terms of which specialists to target for recruitment, the aforementioned orthopedics rates high, especially spinal surgery. Gastroenterology surgery is easily integrated into an ophthalmic center. Like cataract surgery, procedure times are short and equipment costs are not prohibitive, nor is extra OR space needed. Pain management cases are also appeal ing, though equipment costs tend to be higher. A C-arm costs $50,000 to $100,000, while gastroenterology radiology services can be leased on a per-day basis. Podiatry cases reimburse well, but tend toward low volume, as do ear, nose and throat cases.

Whichever specialty you choose, recruiting new surgeons is paramount. Convincing surgeons to partner with you is contingent upon their recognizing in your center a high probability for success. Although hospitals command higher fees, ASCs, with their lower overhead, can afford to offer surgeons a greater slice of the pie. That is our main recruitment advantage, but you must be prepared to spell out these benefits in great detail before approaching a surgeon. The pool of available surgeons has dwindled in recent years, and hospitals have begun asking physicians to sign non-compete contracts. Competition for surgical talent is tougher than ever.

Valuable Assets

Having so much history with ASCs, ophthalmologists are uniquely positioned to be leaders in this market. And those who feel overwhelmed by the challenges of ASC management can always hire companies like ours to help them out. With the right negotiating skills and surgeon recruitment, a well-functioning ASC can generate yearly income that outstrips a physician's practice. Additionally, with many national ASC companies willing to pay five to seven times a center's earnings to purchase it, ASC involvement represents a viable retirement strategy. Ultimately, there is too much at stake to leave your largest asset undeveloped because of an inability to recruit high-margin cases. OM

Reference

1. Dunn, L. N.J. Superior Court Upholds Ruling That Surgery Center Did Not Violate Insurance Fraud Prevention Act by Waiving Costs for Out-of-Network Patients. Becker's ASC Review. Nov. 18, 2009.

Victor Holmes, MD, based in Greenfield, Calif., practices general ophthalmology and is one of three principal owners of Physician Owned Surgery Centers, a management company specializing in ophthalmic ASCs. He can be reached at (760) 301-2354 or chinalakesc@aol.com.