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The Battle for Surgery Patients
Published Thursday, September 29, 2011 7:00 am

When the founders of Stratham Ambulatory Surgery Center applied to NH’s Certificate of Need board to open a free-standing ambulatory surgery center in the Seacoast in 2008, it did so as Paradigm Clinical Associates. No hospitals spoke out against the project—likely because they didn’t know exactly what it was—and it was approved.

“[The hospitals] likely had not noticed that Paradigm could be a potential competitor of them at the time. There was a great concern that hospitals have huge lobbying, political connections and the like to try to stop Paradigm from moving forward,” says Thomas Menke, medical director of Stratham Ambulatory Surgery Center, one of the few 100 percent physician-owned Ambulatory Surgery Centers (ASC) in NH. Menke, former head of Portsmouth Regional Hospital’s outpatient surgery department, joined the center after it was approved.

Competition for patients and health care dollars has become heated. For most of the 1900s, hospitals had a monopoly on surgeries. Not anymore. The ASCs, or stand-alone outpatient centers, doubled nationally between 2000 and 2010, and 40 percent of surgeries are now performed at them, according to Regent Surgical Health, a developer, designer and manager of ASCs.

While growth in the number of ambulatory surgery centers (ASCs) is now flat, patient volume is up at centers across the Granite State. And with insurers incentivizing patients to shop around in exchange for lower premiums or even monetary rewards, the trend is likely to continue.

Competing on Cost and Efficiency

Here in NH, there are 28 ambulatory surgery centers, 82 percent of them located in Concord and further south. About a dozen specialize in urology, pain care, endoscopy, vision or orthopedic services. Most are affiliated with one of the state’s 26 acute-care hospitals though some, like Menke’s, are owned solely by physicians. Nationally, there are over 5,200 ASCs, performing more than 22 million surgeries a year, according to the Ambulatory Surgery Center Association. One claim the Association reports they all share: Higher efficiency and lower overhead compared to hospitals.  

For insurance companies, ASCs offer more choices for patients and more competition that drives down prices. For example, patients covered by NH’s largest health insurer—Anthem, which has 502,000 clients—have 25 options if they need arthroscopic knee surgery with prices ranging from $3,305 to $11,885, according to, a NH Department of Insurance web site. The three cheapest choices, and the only ones below $4,000, are all ASCs.

ASCs argue they offer more than affordability. To start, there are no sick people, as sick people don’t qualify for outpatient surgery. Then there’s the atmosphere. “It’s a nicer place to go,” says Menke. “It’s a more personalized care. I see the people before they go to sleep. I see them afterwards. I say goodbye to them.”

Most ASCs do not operate on nights and weekends, which makes working at one preferable for many doctors and nurses. ASCs medical professionals can spend more time with patients and can more easily take time off. The pay, says Joshua Siegel, a founding member of Northeast Surgical Care in Newington, is on par with hospitals.

Being efficient, says Siegel, also leads to higher surgeon satisfaction. Northeast Surgical Care, which is 100 percent physician owned, has one operating room and completed about 2,000 cases last year. Orthopaedic caseloads can easily be seven to eight a day with eight- to 10-minute turnover times. That compares to four to five surgeries a day in a hospital with 30-60 minutes between cases.

“It’s really about the quality that can happen because of the skilled team you have and the lack of emergency and infectious cases. The surgery itself is also slightly faster because you have the same team over and over again doing the same thing,” Siegel says. Surgeries are also more likely to be on time as there are generally no emergency cases.

Common procedures performed at ambulatory surgery centers include: colonoscopies, endoscopy, laproscopic and other minimally invasive surgery, eye surgery, hernia operations, urology, and orthopedic surgery. And the list—and complexity-—keeps growing. “We do outpatient spine surgery—[such as] a herniated disc in the cervical spine or lumbar spine,” says Dr. Peter Noordsij, CEO of Concord Orthopaedics in Concord, which is collaboration with Concord Hospital is opening a second surgery center in Derry this fall.

Many other NH hospitals are also investing in ASCs. Hillside Surgery Center in Gilford, an ASC primarily owned by LRGHealthcare, expanded in 2010 from one surgery room to three to accommodate increased outpatient surgeries. Salem Surgery Center, partly owned by Hospital Corporation of America (HCA), is one of 100 ASCs the health care company owns. The Salem center is looking to move into a new, bigger facility.

The Cost of Quality

While health care policy experts talk about the triangle of cost, quality and access, these days much of the focus is on cost.

Remember that arthroscopic knee surgery? A patient with a $1,000 deductible—which is 46 percent of people working for employers with fewer than 200 people in 2010 nationally—would pay out-of-pocket $1,000 no matter where they go. That’s why both Anthem and Harvard Pilgrim offer incentives for patients to choose lower-cost  providers. With Anthem’s site-of-service option, a qualifying ASC costs patients only $75, not their deductible. Harvard Pilgrim’s newly  rolled out tiered plan ranks both hospitals and ASCs, based on cost and quality when assigning reimbursement.

These new incentives rankle hospitals, who depend on simple surgeries to offset the costs of more expensive services and to cover overhead. And hospitals must serve residents whether they can pay or not by offering expensive emergency rooms that ASCs don’t have to offer. “I think this tension is always going to be in the system of health care financing and delivery,” says Paula Rogers, director of government relations for Anthem Blue Cross and Blue Shield. “I remember when there was tension between big hospitals versus smaller community hospitals. Now it’s tension between hospitals and ambulatory surgery centers. Labs that are freestanding and independent are emerging. I think these dynamics are natural evolutionary things and I don’t think you can stop them.”

While existing ASCs in NH continue to grow, they do so on tight margins and under difficult circumstances. The Salem Surgery Center performs 300 surgeries a month, (about 40 percent of which are endoscopic or related to the digestive tract) in three surgery rooms. Business has grown 15 to 25 percent annually for the past few years though insurance reimbursements have not. Nick Tzavalas, medical director and anesthesiologist at the Salem center, says while they are fair rates, “nobody is getting rich from it.”

Reimbursement rates for Medicare patients at ASCs have dropped from 87 percent in 2003 to 56 percent of hospital outpatient department rates currently, according to Regent Surgical Health, a developer, designer and manager of ASCs, and Beckers ASC Review, an industry trade publication for ASCs, both in Illinois. Medicare accounts for 35 percent of the cases in Stratham, as private insurers are “the ones we survive on,” Menke says, adding the center also provides free and discounted care to those without insurance.  A bill filed in Washington this past summer would bring some parity to rates for patients with Medicare to close the gap between ASC and hospital outpatient reimbursements.

That’s why surgery centers like Salem offer elective plastic surgery. “We’re doing more and more plastic surgery,” says Cathy D’Entremont, administrator and registered nurse at the Salem Surgery Center, which is associated with HCA, which owns Parkland Medical Center in Derry and Portsmouth Regional Hospital. It has 14 partners and 40 physicians in NH and Massachusetts who have credentials to work at the Salem ASC. 

How facilities are reimbursed affects their operations, says Siegel. It is not infrequent for a knee surgery to require three sets of suction tubing, according to Siegel, who points out that hospitals are reimbursed for many supplies that ASCs are not. So while tubing can quickly be switched from one instrument to another, hospitals have less incentive to do that, or to shop for less expensive products. “So ASCs will shop for best values and utilize products only that are necessary,” Siegel says.

Rural hospitals are hit especially hard, says Paula Minnehan, vice president of finance and rural hospitals for the NH Hospital Association. They start with a smaller patient base, and when a patient from the North Country heads south for surgery, not only do hospitals lose business, but continuity of care is broken. Patients may head south for surgery, but, asks Minnehan, “Where do they get their follow up care?”

Anthem officials are not shy about directing patients to ASCs. “Knee arthroscopes, laproscopic surgery, tonsillectomy, tube insertions for allergies, these types of things in the hospital setting are rather expensive and would have members eating up their deductibles with one exposure,” says Bob Benedetto, director of small group sales for Anthem. “It’s worth it for them to take a day off to drive down to a site because it’s big money. A $3,000 deductible, the most common plan we’re selling, or $75 at a site of service. There are a lot of savings to be had.”

What patients save costs hospitals. “Because of our blend of services, our operations overhead is higher than a stand-alone service center,” says Steve Plant, chief financial officer of Cottage Hospital in Woodsville, which offers a birthing center even though other North Country hospitals have closed theirs due to lower use and high costs. “By offering incentives to commercially insured patients to go to those stand-alone centers, it could potentially have a negative impact on the local community hospitals and the services that we are able to offer,” Plant says.

Driving Business

Since Anthem launched its site of service plan in 2009, the number of groups selecting the plan has jumped between 2 and 3 percent, when it was initially rolled out, to 45 percent of those renewing policies in 2011. And roughly half of NH’s 28 ASCs in the state qualify for Anthem’s plan, including many affiliated with hospitals.

Harvard Pilgrim’s new plan puts all ASCs, hospitals and other providers in one of three tiers, based on cost, quality and efficiency. It then offers members lower payments if they choose the most efficient providers. “Our goal is not to strip hospitals of their ability to provide these services; we want to be able to identify the people in the broad network that have overall better efficiency rates,” says Beth Roberts, vice president of NH for Harvard Pilgrim Health Care. “It’s incentivizing patients to be motivated to shop for services.”

These developments have staff at ASCs around the state fielding more calls. Menke is considering opening a second operating room in Stratham to meet increased demand. Siegel had eight patients switch doctors to one at Northeast Surgical Care so their procedure could be done there.

That’s not to say that ASCs don’t face their own challenges. A decade ago, hospitals were fervently fighting the wave of new centers opening nationally. As Northeast Surgical Care was a relatively small facility at the time—less than a $1 million construction project—the center received a waiver from going before the Certificate of Need board for approval to build. Portsmouth Regional Hospital later appealed the decision and lost.

Now the battle has moved from new construction to doctor loyalty as more ASCs are affiliated with hospitals or offer doctors privileges. “The health care industry still recognizes that patients are extremely loyal to their physicians. … So some hospitals will put pressure on their physicians not to suggest ambulatory care centers,” Siegel says, a particular concern for his center, one of the few that has no hospital affiliation. “It’s not overt pressure; it’s standard loyalty. The doctor’s loyalty to the hospital, the patient’s loyalty to their doctor.”

In response, Siegel and others must work hard for patient and provider loyalty. D’Entremont, the Salem center’s administrator, says outreach is now a big part of her job. The center hosts open houses to create awareness in the community that alternatives exist. And she advertises to attract surgeons and contacts primary care doctors, whom she calls the gatekeepers.

“Patients might see a surgeon once, but they see their primary care doctor regularly,” D’Entremont says. “The circle gets completed rather quickly when the patient tells a primary care physician they had a good experience. Then the physician will refer patients to us again.”

A Changing Landscape

While no new ambulatory surgery centers have opened in NH since 2010, that doesn’t mean the outpatient health care landscape isn’t changing here.

Concord Orthopaedics, has seen more surgeries transferred to it in recent years, resulting in 5 to 10 percent annual increases in patient volume during the past decade. That growth led in part to the creation of the outpatient surgery center they are building in Derry. “It is a very collaborative venture with the hospital,” Noordsij says. Rising costs make the current system “unsustainable.” “I think the trend toward outpatient surgery is driven by the cost issue and hopefully to some extent by the quality as well,” Noordsij says.

For hospitals, affiliating themselves with ambulatory surgery centers and having their physicians having privileges there, or building one, are two options. In some cases, however, hospitals are choosing a middle ground, which expanding or building their own outpatient surgery centers. Physically separate from the hospital, they share administrative functions and are not independently owned.

Dartmouth-Hitchcock Medical Center in Lebanon opened a 41,000-square-foot outpatient surgery center in June 2010 with eight operating rooms, four of which are currently in use. While driving down costs is an ultimate goal of the center, the more immediate goal was to siphon simpler surgeries away from the main hospital to insure Dartmouth-Hitchcock could still accommodate the critical cases referred to them.

Based on current numbers, Douglas G. Merrill, medical director for outpatient surgery, says the center expects to have served 3,500 people from September 2010 to 2011.

“There was no need or intent to increase market share,” Merrill says. “This was just looking at the current growth. If this hadn’t opened last June, we would have had to turn 1,000 people away this past year.” Those patients he says, were people being transferred to Dartmouth needing specialty care.

The practice of outsourcing health services traditionally provided in hospitals is not limited to ambulatory surgery centers, though they are the focus of current insurance plan incentives. Stand-alone imaging centers and labs, for example, are also a part of the evolving health care landscape. Derry Imaging Center did 33,000 exams last year and has 100 percent digital imaging, allowing physicians to immediately see the results of MRIs, X-rays, CAT scans and other procedures. Heidi Clark, director of diagnostic imaging, says rising premiums, insurers encouraging patients to shop around and high deductibles have all driven business her way. “We’re extremely accommodating and we have walk-in service,” Clark says of the center, which is open until 8 p.m. and also on Saturday mornings. “And we are about a third less money.”

Clark says she’s noticed in uptick in patients calling around for prices in recent years. Five years ago, price shopping for medical imaging wasn’t something she ever saw.

“We have a very pricey health care system,” says Richard Lafleur, medical director of Anthem. “You have to ask, why can’t we do it better at a lower cost?”

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