Surgery centers cry foul as managed care organizations, hospitals team up
Outpatient surgery patients being shifted to hospitals But is it legal?
The caseload at your surgery center is dropping. You know that the technology is moving more procedures to the outpatient setting, and the patients are happy. So who’s the culprit? You’ve got three guesses, and the first two don’t count.
Across the country, surgery centers are reporting that hospitals in their areas are developing exclusive contracts with managed care organizations and snagging all the outpatient surgery patients in the process. Sometimes the action is subtle, says Ruth Beller, RN, director of Physicians Surgical Center in Norman, OK.
"Instead of saying, We have an exclusive arrangement with the hospital,’ they say, We have all of the hospitals and affiliations we want in that area for our patients. We don’t need anymore,’" says Beller. "I know otherwise. I’ve been around so long that eventually a representative of the insurance company will say something off the record."
The problem has become so serious that the Federated Ambulatory Surgery Association is meeting with the antitrust divisions of the Justice Department and the Federal Trade Commission to discuss the problem. However, other areas of country are seeing the opposite problem: Some managed care organizations are insisting that outpatient surgery be performed in freestanding centers in some cases, managed care-owned surgery centers. (For more information, see Same-Day Surgery, August 1997, p. 93.)
Should you fight or join them?
What are your options if your surgery center is facing exclusive arrangements between the hospitals and managed care organizations? Here’s advice from your peers:
• Fight a legal battle.
Some providers warn that surgery centers don’t have strong legal precedent and will need millions of dollars to take hospitals and managed care providers to court for having exclusive arrangements. However, there have been two court cases that bolster the argument against hospitals with substantial power in the market having exclusive arrangements.
In 1996 in Connecticut, a hospital, an independent practice association (IPA), and the federal government negotiated a consent decree after the government claimed the hospital was using its monopoly in the acute care inpatient services market to exclude access of competitive outpatient providers to area physicians and managed care arrangements.1
"Basically, the claim was that you were leveraging your power in one market to exclude competition in another," says Neil Motenko, partner in Nutter, McClennen, and Fish, LLP, in Boston.
The consent decree had the practical effect of enjoining some of the allegedly exclusionary conduct by the hospital and the IPA, Motenko says.
In a similar case in Missouri, the government claimed that the physicians in one county made certain agreements on how they would work with health plans.2 The physicians and the only hospital in the county formed a corporation, ostensibly to provided managed care but without sharing risk or integrating their practice; that corporation effectively excluded managed care plans from entering the county unless they contracted with the managed care plan, the government said. The consent decree barred the hospital from conditioning the provision of inpatient services on the use of only its ancillary, outpatient, or physician services, to the exclusion of competitive providers of those services.
• Form a joint venture with the hospital.
At Physicians Surgical Center, the motto was, "If you can’t beat them, join them." On July 1, 1997, the local hospital purchased 30% of the surgery center business (not the real estate). The impact was instant, Beller says. "Immediately I have a new contract with a local managed care company that we could not get before now and that we’ve been fighting to get for two years."
Additionally, the surgery center was able to negotiate with Blue Cross/Blue Shield (BCBS) to provide lithotripsy that previously was provided by the hospital. BCBS is paying the center’s actual charges for the service, Beller adds.
Another bonus: The managed care staff person at the hospital handles the contracts. She provides information on the surgery center’s services to the managed care companies and works with Beller to obtain the contracts. It’s a stark contrast from the way things worked previously, Beller says.
"She just does contracting," Beller points out. "I, on other hand, run a facility of 50 employees, 60 physicians and ancillary staff, the nursing end, the business end, take care of patients, and I’m supposed to get managed care contracts. I’m not an expert. [Now] I have an expert to consult with. It’s great."
Is there a downside? No, Beller says emphatically. "We’ve had some physicians who weren’t sure this was going to work, but they’ve been pleasantly surprised," she says."The hospital is their partner, and they want to see you be successful."
• Develop a good relationship with your physicians.
Surgical Center of Greensboro (NC) faced an exclusive contract between the local physician practice organization (PPO) and the hospital, says Lee Youngblood, former administrator in Greensboro and now administrator of Physicians Surgical Center.
The doctors, however, insisted on taking their patients out of the network and back to the surgery center. Why? They had a good relationship with the surgery center, Youngblood says. It wasn’t rocket science, he emphasizes. The center simply focused on rapid turnover time and adequate block time.
Eventually, the PPO changed the contract with the hospital and removed the exclusive arrangement portions, Youngblood says.
The battle isn’t over, however. A hospital merger is in the works, and Youngblood expects the hospital to leverage inpatient pricing for outpatient exclusivity. What will the surgery center do then? "That’s a good question," Youngblood replies.
• Compete by demonstrating your worth to managed care organizations.
Impress upon the managed care groups the benefits of contracting with your center, suggests Allen Hecht, executive vice president and chief executive officer of ASC Network Corp. in West Hartford, CT.
"Continue to be accredited, focus on being effective, and appeal to as many managed care companies as possible in the spirit of competition," Hecht says. "I don’t think most payers want to exclude efficient providers getting quality results."
Michael Romansky, JD, partner in the health law practice of McDermott, Will, and Emery in Washington, DC, agrees. Romansky represents the American Association of Ambulatory Surgery Centers in Chicago and the Arthroscopy Association of North America in Rosemont, IL.
"In the absence of getting some assistance from the government, which up until this time has not been forthcoming, the surgery center is left with a marketing job," Romansky says, "that is, that the quality enhancement and cost savings are so significant that the plan should contract with the ASC."
This marketing is similar to the promotional activity that surgery centers had to engage in 10 or 20 years ago when payers, employers, and patients were skeptical of treatment outside the hospital, he says.
And if that doesn’t work? Get on your knees and beg, Youngblood says. "We made numerous phone calls to the insurer begging and pleading. They knew we were interested. We were friendly to work with and willing to negotiate on price. But what drove it was insistence from the surgeons."
References
1. United States v. Healthcare Partners, Inc., C.A. No. 395-CV-01946RNC. Federal District Court in Connecticut (Feb. 15, 1996).
2. United States v. Health Choice of Northwest Missouri Inc., Heartland Health System Inc., St. Joseph Physicians Inc. C.A. No. 95-6171-CV-SJ-6. Western District of Missouri (May 17, 1996).
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