Ambulatory Surgery Centers and Physician-Owned Hospitals - What Causes the Political Chasm

Ambulatory surgery centers and physician owned hospitals each offer similar advantages to consumers and to payors. For example, each, if managed well, can deliver services at lower cost and each, if managed well, can have outstanding clinical results. Thus, it is sometimes hard to understand the difference in the debate and rhetoric, in Washington and in state capitals, between physician-owned hospitals and surgery centers. This article explains some of the reasons for the varied degree of congressional support for surgery centers as compared to physician-owned hospitals.

1. Strength in numbers. There are approximately 5,500 surgery centers in the United States and approximately 200 to 250 physician-owned hospitals. There are approximately 5,000 non-physician-owned hospitals. Washington responds to these kinds of numbers. For example, overall hospital profits hit a record number last year, with hospitals reporting profits of $35 billion dollars and the highest profit margins in nearly 12 years. Notwithstanding this, MedPAC recently recommended a pay increase for hospital procedures and a pay freeze for many other types of providers.

Washington has similarly responded to the surgery center contingent. CMS has recognized that ASCs now carry significant political clout. In essence, almost every congressperson in the country has a surgery center within his district. Thus, when Congress considers negative legislative action against surgery centers, congressmen and women hear from their constituents. In contrast, physician-owned hospitals are relatively focused in 15 to 20 states. Therefore, many in Congress can act with little regard to the politics of the issue. For example, there are no physician-owned hospitals in Iowa. Accordingly, Sen. Charles Grassley (R-Iowa) can act as aggressively as he wants against physician-owned hospitals, without significant regard to the local consequences of his actions. Over the years, political action committees have fought against this type of impunity by taking action to raise funds for candidates opposed to incumbents such as Sen. Grassley.

2. Costs. Because surgery centers are paid approximately 35 percent less than hospitals are paid for the exact same procedures, surgery centers can legitimately argue that each time they offer and perform a procedure they save the government money. Further, because procedures performed at surgery centers are, for the most part, medically necessary procedures, these savings represent real savings to the overall healthcare budget because the procedures would have otherwise been the done at a hospital outpatient department. Physician-owned hospitals, unfortunately, cannot make the same argument. Currently, physician-owned hospitals are paid the same amount by CMS as hospitals are for all procedures. This means that although they may be lower-cost and more efficient providers, the cost savings are not passed on to the Medicare or Medicaid program in a clear and tangible way.

3. Safety and efficiency. Physician owned hospitals on the whole periodically are vilified by any individual aberrational occurrence at a particular physician-owned hospital that was understaffed or had an unfortunate incident. However, because physician-owned hospitals are a political target, these incidents lead to legislative committee discussions and receive excessive negative coverage in relation to the event and the industry as a whole. In contrast, surgery centers and physician offices are so broad in numbers such that when an unfortunate incident occurs at a surgery center or physician office, it may be newsworthy but it does not lead to discussions of eliminating the industry.

With respect to safety and efficiency, there are strong arguments that physician-owned hospitals are often better equipped and staffed than many hospitals and most surgery centers. As surgery centers have proliferated, the quality has remained fairly strong. However, in physician-owned hospitals, there is often a larger nursing staff, greater anesthesia coverage and more physicians present on an average basis tending to a similar number of patients as are treated at a surgery center or hospital. Thus, the patient-to-staff ratio and patient-to-physician ratio is often as good as or better than at physician-owned hospitals than at general acute care hospitals or surgery centers. To that end, certain health grading organizations have ranked some physician-owned hospitals amongst the best in the country in their area of care. Nonetheless, because of the political punching bag that physician owned hospitals have become, physician-owned hospitals continue to battle the instant negative maelstrom that ensues upon the occurrence of an unfortunate incident at a specific physician-owned hospital despite evidence of the regular, high-quality care that physician-owned hospitals on the whole deliver.

4. Evolution from ASCs. It is ironic is that some of the very best physician-owned hospitals are those that evolved from and grew out of experienced operators of ASCs. From a financial and quality perspective, the easiest way to build a physician-owned hospital is to expand from a surgery center. Starting with a facility and business that already has critical mass, experience and strong patient care in a technical facility site can be keys to having the resources to staff the hospital business appropriately on day one. These built in resources also permit the surgery center to expand to a hospital without having to spend capital that could take away from investments in staff and working capital. For example, if someone converts a surgery center to a hospital and it cost $3 to $6 million dollars, with debt of $2 million, it is much easier to manage and still invest in experienced, high-quality staff than starting from scratch and taking on debt of $20 to $80 million dollars. It is ironic that these small, well-managed facilities, the types of facilities the government would seem to favor, are often the targets of federal legislation.

The coming year will likely be a very interesting one in terms of legislation. With the country facing significant economic problems, one would think that the issue of physician-owned hospitals would take a back seat to more pressing issues. Nevertheless, because politicians have to be re-elected, and because organizations like the American Hospital Association have a significant lobbying budget that is used to re-elect politicians friendly to their cause, this is an issue that will likely remain in front of the politicians and their committees throughout 2008.

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