Regulations and MD-owned ASCs

How do they stack up against complex laws and a demand for cost control?

By Thomas A. Ciulla, MD, MBA and Rehan M. Hussain, MD

The number of ophthalmologist-owned ASCs continues to rise.¹

As payments for physician services fail to keep pace with inflation, and as practice expenses mount, surgeons have pursued ownership interest in surgery centers.

Despite leveling off in the past couple of years, purchases of ophthalmic ASCs, unlike those belonging to other specialties,² remain the goal of some ophthalmic surgeons. With their own ASC, they can capture facility fee revenue in addition to professional fees, assume greater control over their work environment and enhance operational efficiencies while reducing costs per case as fiscal pressures mount.

However, ASCs and their surgeon investors are subject to much detractor scrutiny. Detractors feel the physician-owners may have a conflict of interest with patients and payers, and could breach the ethical and legal boundaries of running an ASC — being tempted by too much of a good thing, as it were. However, proponents note that physician-owners instead have mutual interest with patients and payers in promoting efficient and cost-effective care while remaining compliant with federal fraud and abuse laws.

What follows is a literature search of both sides of the argument of physician ownership of ASCs, and an explanation of anti-kickback legislation, its importance, and the subsequent impact on your business.

The lay of the financial land

Some 5,400 ASCs were in existence in 2015; the first one opened up in 1970.¹ ASC visit rates increased nearly 300% from 1996 to 2006 to 14.9 million, whereas the rate of visits to hospital outpatient surgery departments (HOPDs) remained flat at 19.9 million. In 2006, the most common diagnosis at ASCs was cataract at 3 million.³ For example, in Florida, 84% of cataract surgeries from 1997 to 2004 were performed in ASCs.⁴

Traditionally, physicians have collected professional fees for services rendered to patients, while hospitals and ASCs collected facility fees for providing space, support personnel and equipment necessary for care. Medicare part B administers professional payments to physicians, while Medicare part A administers facility fees to hospitals and to ASCs that are CMS-certified. While patient premiums partially support Medicare parts A and B, these monies cover a small fraction of the costs of beneficiaries’ medical care. Dedicated payroll taxes support a significant portion of part A, while “soft funding” from federally authorized appropriations support part B. Consequently, Medicare part B is often subject to political pressures for aggressive cost containment or control.

The hospital industry has a much more powerful and well-funded lobby compared to physician organizations, which are often pitted against each other over the relative value unit (RVU) system. This system determines the relative payments for various service CPT codes. The AMA/Specialty Society RVU Update Committee (RUC) scrutinizes each CPT code periodically for revaluation with recommendations to CMS for use in annual updates; primary care is often pitted against specialties as these codes are valued. Consequently, hospital fees have remained relatively stable, while CMS has cut professional payments.⁵

In addition, hospital facility fee payments for surgical procedures are often much greater than surgeon fees for these same procedures. Consequently, physician surgery center ownership yields a diversification of revenue streams via access to (more secure and stable) facility fees funded by Medicare part A’s payroll taxes, in addition to traditional professional fees funded by Medicare part B.

In many instances, surgeon-investors and hospitals co-own surgery centers. Hospitals may co-venture with surgeons if they fear these surgeons will leave hospital-owned facilities to open their own surgery centers. Surgeons, in turn, may co-venture with hospitals if the latter gains contracting leverage with commercial insurance payers.

In addition, Medicare has historically reimbursed free-standing ASCs at a lower facility fee than HOPDs for equivalent services (61% in 2011).⁶ In 2008, CMS started an outpatient prospective payment system, phasing in reduced ASC payments to no more than 59% of HOPD rates by 2012.⁷ The higher rates for HOPDs are supposed to reflect the costs of additional regulatory requirements that hospitals must bear, along with the costs of treating patients with more complex medical conditions.⁷

This may further drive surgeons to co-venture with hospitals to obtain this more favorable categorization as a hospital-(majority) owned ASC.

Migration of outpatient surgical procedures to nonhospital settings.

The positive side of physician ownership

Proponents of physician-owned ASCs cite improved operations, lower costs per procedure, better outcomes and better patient satisfaction than in HOPDs. They feel that physician-owners can better manage and direct these systems, because physician-owners understand the ramifications of everyday business decisions in patient care.

Hospital admission and 30-day mortality rates were lower for cataract surgery performed in ASCs compared with HOPDs (0.84 and 0.87 odds ratios, respectively) when accounting only for the primary diagnosis of cataract, although this trend did not hold true when accounting for all patient diagnoses in the analysis.⁴ Average times in the operating room, in actual surgery, and in the recovery room are lower in ASCs than in HOPDs, supporting the idea that ASCs are more efficient and less costly per procedure than HOPDs, although the effect of patient selection is unclear.^3,5

In 2012, average ASC times vs. HOPD times were 34 vs. 54 minutes for operating room time, 19 vs. 30 minutes for surgery time, 48 vs. 74 minutes for recovery room time and 83 vs. 135 minutes for overall time.⁶

Physician-owners can exert greater control over staffing, equipment, operating room processes, and scheduling, which may significantly lower costs per case. A 2013 study explored this issue in detail, assessing procedure times while controlling for a patient’s primary procedure, number of procedures, and characteristics such as health and demographics.⁷ Patients spent 31 fewer minutes undergoing procedures at ASCs compared with hospitals,⁸ a 25% difference relative to the mean procedure time of 125 minutes.⁷ Using estimated operating room costs of $29 to $80 per minute, the authors estimated that ASCs can generate savings of $363 to $1000 per case, excluding physician payments and time savings outside the operating room.⁷

The negative side of physician ownership; Does ownership corrupt?

ASCs, as all with ownership interest should know, are subject to federal anti-kickback laws. Mark Kropiewnicki, JD, president of Health Care Law Associates, provides this scenario as an example of a situation that would give the Department of Justice a reason to make inquiries:

Reimbursements have gone down. The surgeon’s costs are in place — he has bought his femtosecond laser, he has spent half a million dollars on his technology, he is doing enough cases, but he wants an investor. He finds someone and lets the investor come in for next to nothing; this person would be expected to make referrals. This new investor has been allowed in under what’s called “below fair market value.” Anti-kickback violations apply to owner and investor.

Opponents of ASC physician-ownership cite demand inducement, or potential financial incentives that could bias medical decision making, lowering thresholds for treatment — which potentially leads to unnecessary surgery and spending.^7,9

Hollingsworth et al. analyzed 2003-2005 Florida data for five common procedures, including cataract surgery, and noted a significant relationship between physician-ownership and higher surgical volumes. They analyzed the same surgeons pre- and post-ownership.⁸ The same authors performed a similar study using 2006 Florida data for four common procedures, again including cataract surgery, and noted that areas with high ASC market share were associated with higher utilization of these common outpatient procedures.¹⁰

The authors conceded that it was unclear if ASCs spurred utilization or if they served otherwise unmet needs.⁹

“Cherry-picking”

ASC critics also cite the potential for physician-owners to steer lucrative procedures and well-insured patients to their own surgery center, while steering poorly paying procedures and underinsured patients to community hospitals. This could threaten the economic viability of these hospitals, hence reducing the ability of these hospitals to serve underinsured patients.^8,10 One study revealed that physicians with ownership interest in ASCs are more likely than other physicians to refer well-insured patients to their own facility, while referring Medicaid patients to HOPDs.¹¹

Legislation: Anti-kickback and Stark

Physician-owners of surgery centers could run afoul of physician self-referral bans, which have received attention due to interest in cost containment and some provisions in the Affordable Care Act (ACA). The federal anti-kickback statute prohibits offers, requests, payments or receipt of remuneration in return for referral of federal health program patients and for purchasing, leasing, ordering or arranging for any item payable under a federal health program.⁵

The Stark Act is similar to the anti-kickback law but specifically addresses physician self-referrals. This legislation was designed to thwart overutilization of Medicare services and rising costs that could potentially result from a physician referring patients to a company he or she owns, such as a laboratory.¹²

Are anti-kickback laws effective?

Some authors view physician ownership of health-care delivery businesses as an inherently flawed model, requiring close regulatory oversight with anti-kickback laws and more regulation regarding physician self-referral. However, physician-owners offer a practice environment in which MDs — not MBAs — control administrative decisions that can positively impact patient care.¹⁰

In addition, the ASC industry argues that the potential for abuse and overuse is lower in ASCs than in other regulated entities such as physician-owned labs, diagnostic imaging centers or physical therapy facilities, because the physician’s investment is not passive — he or she uses the ASC as an extension of the office, providing personal clinical care with the ability to generate additional revenue limited by a physician’s time and availability.

Proponents of ASCs note that physician-investors respond to unmet needs by supplying medical services, such as cataract surgery, to meet rising demand from a growing aging population with increasingly sophisticated needs. Furthermore, ASC supporters note that surgery is less likely to be abused than diagnostic labs, imaging or physician therapy facilities, because informed consent for surgery forces patients to carefully consider the necessity of an invasive procedure.

In addition, ASC facility fees are fixed based on the procedure and do not increase with additional testing, equipment or disposables. Finally, as we have noted previously, free-standing ASCs significantly lower reimbursements and may result in further savings to the health-care system.^6,7

The cost effectiveness of anti-kickback laws is unclear. The United States spends more on health care than any other country; common culprits include higher drug prices, expensive health-care technology, high administrative expenses, costs associated with the litigation and malpractice insurance, an aging population requiring more medical care as expectations and life expectancy increase, as well as physician self-referral to physician-owned entities.⁵

However, in the mid 2000s, only 0.4% or $8 billion of the $1.9 trillion U.S. health-care budget was spent on physicians’ extra income generated from ownership in outpatient facilities, including ASCs, imaging centers and diagnostic testing and procedure laboratories.⁵ There is no evidence that transferring all these services to hospitals would have saved a significant amount of this $8 billion. Furthermore, it is quite likely that the significant regulatory costs associated with complying with anti-kickback has added significantly to U.S. health-care costs.

For potential physician-investors, ASC ownership can capture facility fee revenue, provide greater control over the work environment, and potentially reduce costs of care, but physician-investors should be mindful of the controversies surrounding ASCs, as well as the need to consult with appropriate legal experts and to maintain a culture of compliance at all times.

Mr. Kropiewnicki notes that he has never had to defend a client who owns an ASC against an anti-kickback indictment. And as for Stark:

“[While it] doesn’t apply to free-standing facilities right now, don’t get too comfortable,” he warns. “There are reasons [now] it doesn’t apply but” it could in the future. OM

REFERENCES

About the Authors
	Dr. Ciulla is a volunteer clinical professor of Ophthalmology at Indiana University School of Medicine. He serves on the Board of Directors of Midwest Eye Institute, an ophthalmic subspecialty tertiary care center comprised of 19 ophthalmic subspecialists. He is a shareholder at Beltway Surgery Center, a multispecialty surgery center, coventured with Indiana University Health System.
	Dr. Hussain obtained his undergraduate and medical degrees from The George Washington University. He is in his final year of ophthalmology residency at Indiana University School of Medicine.