Vicious Lawsuit Erupts Over Payer Bullying in Colorado

On August 30, 2012, representatives of Colorado’s largest hospitals and insurers met in secret to conspire to drive competing physician-owned ambulatory surgical centers (ASCs) out of business.

That’s the claim made by four Colorado physician-owners of ASCs in a lawsuit filed on November 16, 2012 in a Denver U.S. District Court against HCA Inc., owner of HealthOne; Centura Health, a hospital operator co-sponsored by Catholic Health Initiatives and Adventist Health System; Kaiser Health Plan of Colorado and CASCA. The physicians say the defendants violated the Sherman Anti-Trust Act.

HCA’s HealthOne, in addition to being largest hospital chain in the U.S., owns 110 surgery centers in 20 states, 14 in Colorado. Centura owns 11 centers in the state.

Driving Physicians Out of the ASC Business

The physicians are alleging that HealthOne and Centura Health asked CIGNA, United, Anthem, Aetna, Humana, and Kaiser to join them in a boycott of the physician-owned surgery centers.

After that meeting, which was held at the offices of the Colorado Ambulatory Surgery Center Association (CASCA), physician owners of the Kissing Camels, Cherry Creek, Arapahoe and Hamden surgical centers claim that a number of health insurers took actions “designed to further their agreement to attempt to marginalize or put out of business” the physicians. And that those actions were a result of that meeting and the agreements reached with HealthOne, Centura, and CASCA.

Terminating Practices

For instance, one insurance company terminated from its networks a number of physicians and practices affiliated with the four (Kissing Camels, Cherry Creek, Arapahoe and Hamden) ASCs. “These terminations were designed to deter referrals of patients and surgeries to these facilities, ” states the lawsuit.

That same insurance company has allegedly threatened many other physicians and practices with termination if they continue to treat patients at the four physician facilities and has threatened primary care physicians with termination if they continue to refer patients to surgeons who perform surgery at those facilities.

“In fact, that insurance company went one step further and threatened to terminate primary care physicians who referred patients to specialists who ultimately performed surgeries and procedures at the Plaintiffs’ facilities, ” continued the allegations.

The day after the “secret meeting” at CASCA, that company allegedly sent a letter to Metro Denver Pain Management purporting to terminate that practice “for cause” for “continued use of SurgCenter on Dry Creek [Arapahoe].”

The lawsuit continues that another health insurance company present at the meeting has threatened practices affiliated with the physicians with termination from their provider networks on the basis of their treatment of patients at those facilities.

On September 6, 2012, that insurer sent letters to providers that performed surgeries and other procedures at SurgCenter facilities including Colorado Hand Center and Interwest Rehabilitation, purporting to terminate those practices from its provider network for “inappropriate referrals.”

After the meeting Kaiser notified Kissing Camels that it no longer intended to finalize its previously negotiated participation agreement with the physicians.

In addition Kaiser has refused to authorize the treatment of its members at Kissing Camels Surgery Center on an out-of-network basis, even when surgery is urgently needed.

A Centura administrator named Brent Ashby allegedly said it was his goal to put Kissing Camel out of business.

Anticompetitive Restraint of Trade

As a result of HealthOne’s and Centura’s “anticompetitive restraint on trade, ” the physicians say patients who sought treatment at Kissing Camels have been required by their health insurers to seek treatment at ambulatory centers owned by the hospitals.

Hospitals Accuse Physician ASCs

The real culprits, according to the hospitals and insurers reported in a Denver Post story on November 21, are the physicians who own surgery centers. Their attorneys claim the physician ACSs are illegally waiving co-pays and deductibles for patients, then “purposefully” charging insurers out-of-network fees at up to 1000% markups.

Colorado isn’t the only place were insurance companies and physician-owned ACSs are fighting it out. According to the Post, a California lawsuit claims physician-owned ACSs have cost insurers tens of millions in overpayments.

Aetna alleges fraud, unfair competition and unjust enrichment, “cherry-picking” of patients with the best insurance plans, and promises to doctor-investors of 800% annual returns on their money. The California suits focus on Bay Area Surgical Management. The doctor-owned surgery centers’ method of doing business “shocks the conscience, ” said an Aetna lawyer.

CASCA Pawn of Hospitals

CASCA sent a letter to Colorado state regulators asking for an investigation of the new centers and their financial arrangements.

The physicians’ lawsuit says CASCA is a tool of its biggest hospital members, who are trying to protect their own surgery centers.

Argument for ASCs

Hospitals generally require large amounts of capital expenditures and employ significant staffs, both of which result in costs that are allocated across all procedures performed at the hospitals.

As healthcare costs increased, ASCs developed as an alternative to hospitals and provided comparable procedures at lower costs for patients who do not require hospitalization. While hospital systems have formed surgery centers, those hospital systems have, according to the physicians, an inherent conflict of interest to direct as many patients as possible to the hospitals where the hospitals are paid more for the services in order for the hospitals to cover their significant costs.

In fact, through their relationships with doctors and otherwise, hospitals have the ability to direct many patients to the site where they will receive their procedures.

In a fair and open market, the physicians who own their own ASCs claim that hospital ASCs cannot compete in terms of price or quality with the physician-owned model.

Advantages of the Physician Owned ASC

According to physicians who own their ASC, the treatments performed at their centers are less likely to result in infection than if similar procedures were performed in hospitals.

They also point out that the treatments performed at their centers are almost always less expensive than similar procedures performed at hospitals. Patients can schedule procedures at their centers with more flexibility than if they were scheduling similar procedures at hospitals, where surgeons must compete with longer, less predictable and emergency surgery procedures. Patients find that they have fewer cancelled and/or delayed procedures when they come to the physician-owned center.

And the list goes on. In general, patients find more convenience such as closer parking and shorter wait times when they have procedures at the centers instead of at hospitals such as the Defendants in this action.

Prices are lower. For example, the lawsuit claims Medicare pays $1, 332.19 for carpal tunnel surgery when performed in a hospital in Colorado, but pays only $762.31 when that same surgery is performed in a free-standing ASC.

As a further example, Medicare pays $4, 246.76 for reconstruction of a wrist joint when that surgery is performed in a hospital, but pays only $2, 457.95 when that same surgery is performed in a free-standing ASC.

So, as a result of these factors and others, say these physician owners, hospitals are unable to compete with physician ASCs with respect to surgical procedures that can be performed on an outpatient basis.

“Defendants have experienced an increasing number of patients exercising their rights to make their own healthcare decisions by choosing these lower cost, more efficient, and generally safer facilities. As such, the Defendants have resorted to the concerted activity and anticompetitive practices, ” alleged in this complaint.

Fighting Over Patients

The physicians and hospitals aren’t fighting over the law. They are fighting over patients who don’t require hospitalization. They’re not even fighting over science, they’re fighting over billings.

According to the 2006 National Survey of Ambulatory Surgery estimates, 53.3 million surgical and nonsurgical procedures were performed during 34.7 million ambulatory surgery visits in 2006.

Figure 1 – Ambulatory surgery visits and discharges of hospital inpatients with procedures : United States, 1996 and 2006 (revised)

Of the 34.7 million visits, 19.9 million occurred in hospitals and 14.9 million occurred in freestanding ambulatory surgery centers.

Freestanding ASCs on the Rise

The rate of visits to freestanding ambulatory surgery centers increased about 300% from 1996 to 2006, whereas the rate of visits to hospital-based surgery centers remained largely unchanged during that time period.

Figure 2 – Rates of ambulatory surgery visits by facility type: United States, 1996 and 2006

Average times for surgical visits were higher at hospital-based ambulatory surgery center than for visits to freestanding centers for:

• the amount of time spent in the operating room (61.7 minutes compared with 43.2 minutes),
• the amount of time spent in surgery (34.2 minutes compared with 25.1 minutes),
• the amount of time spent in the postoperative recovery room (79.0 minutes compared with 53.1 minutes),
• the overall time (146.6 minutes compared with 97.7 minutes).

Most patient visits were related to the digestive system with musculoskeletal related visits coming in second.

Good Business

Considering that over 1 million hospital discharges for just hip and knee replacements took place in 2010, the market opportunity for surgery centers is huge. Kenneth Pettine, M.D. told us that he believed over 40% of those procedures could be performed at surgical centers. “Hospitals are full of sick and dying patients with an epidemic of infections.” Infections are practically non-existent at ASCs said Pettine. He plans to open his own center in Colorado in the near future.

Medicare encouraged the development of ambulatory surgery over concern about rising health care costs. The new health care law does not prohibit their growth as it does for physician-owned hospitals.

In the early 1980s, the Medicare program was expanded to cover care in ambulatory surgery centers, and a prospective payment system based on diagnosis-related groups was adopted for hospital inpatient care that created strong financial incentives for hospitals to shift less complex surgery to outpatient settings.

According to the 2006 survey, ambulatory surgery has been increasing since the early 1980s. Two major reasons for the increase are advances in medical technology and changes in payment arrangements. The medical advances include improvements in anesthesia, which enable patients to regain consciousness more quickly with fewer after effects and better analgesics for relief of pain. In addition, minimally invasive and noninvasive procedures have been developed and are being used with increasing frequency.

Controlling Means of Production

As orthopedic surgeons find themselves increasingly on the receiving end of a paycheck from their hospital employers, opportunities to keep control over their own means of production seem to be shrinking. Four physician-owned surgical centers in Colorado are fighting to keep that opportunity alive.