Andrew Hayek, president and CEO of SCA, says that rather than bringing in new doctors to invest, the deals involve bringing corporate partners to work at established locations.
“Physicians continue as investors,” he says. “What we're seeing is more interest on behalf of physicians to bring in a management company and a not-for-profit health system.”
Hayek says SCA manages 130 surgery centers with 20 not-for-profit system partners. “Their interest is high,” he says of the growing not-for-profit involvement with surgery centers.
ASCs do appear to be becoming attractive joint venture vehicles between physician investors and hospitals.
As part of 323-bed Swedish Covenant Hospital's $55 million expansion of its Chicago campus, an eight-story medical office building is being built that will house the Swedish Covenant Surgical Center—a joint venture between the hospital, a group of 23 physicians and Regent Surgical Health. Based in suburban Westchester, Ill., Regent Surgical has 22 surgery centers in operation—11 of which are joint ventures with hospitals and doctors.
Last month, a group of 25 surgeons closed on a $3.34 million deal for a 22% stake of the Rex Surgery Center of Cary (N.C.), a facility owned by Rex Healthcare, a subsidiary of the Chapel Hill, N.C.-based UNC Health Care System.
Burriss says Rex Healthcare had not been actively seeking to partner with physician investors, but it set up the legal and operational infrastructure in advance in the event doctors sought them out—which he said is what happened in Cary. “We wanted it ‘on the shelf,' so to speak, just in case we were approached by physician investors,” he says.
Burriss notes that, besides a new orthopedic surgery center planned for Raleigh, no other deals are in the works. And he adds that these moves are not meant to counter anything being done by UNC's regional archrival, WakeMed.
“WakeMed's involvement doesn't really change the fact that the (Blue Ridge) surgery center was already here,” Burriss says.
Russell, however, thinks these arrangements with hospitals will “be fairly rare,” and he questions the legality of some arrangements in light of how the reform law restricts the percentage of physician hospital ownership to go no higher than it was a year ago when the law was passed. “If you're at 0%, you can't go higher than that,” he says.
Hayek and Burriss disagree. “The surgery center is held in a different entity,” Burriss says. “The asset itself is not held by the hospital.”
Hayek says surgery centers provide a safe harbor for physician investors, noting that the moratorium on physician-owned surgical hospitals is not applicable to physician-owned surgical centers. He adds that, while there are roughly 5,200 ambulatory surgery centers and about the same amount of acute-care hospitals in the U.S., physician-owned hospitals make up only a small fraction of that total.
“The overlap between physician investors in surgery centers and physician investors in hospitals is actually relatively small,” he says.
And, while this dealing is going on, two bills have been introduced to repeal restrictions on physician ownership. Rep. Sam Johnson (R-Texas) introduced a bill that would repeal Section 6001 as well as Section 10601, which limits Medicare exception to the prohibition on self-referral. Another bill, introduced by Rep. Doc Hastings (R-Wash.) covers the same territory but would also repeal Section 6002, which requires physicians to report ownership and investment interests. While saying the PHA supports both bills, Russell clarifies that his organization is “100% behind transparency and disclosure.”
The Federation of American Hospitals and the American Hospital Association declined to comment for this article, but the AHA previously issued a statement by AHA Executive Vice President Richard Pollack urging Congress to keep the ban on self-referral to physician-owned hospitals in place. “Repealing it would drive up healthcare costs and will make it hard for full-service hospitals to provide essential public services,” Pollack says.
The bills were blasted by U.S. Drug Watchdog, a division of the consumer advocacy group America's Watchdog, “as a really, really bad idea.” It criticizes the repeal of transparency requirements in Hastings' bill in particular, but spokesman M. Thomas Martin says “the paramount issue is overutilization.”
“This is just not going to fly,” Martin says. “We're going to bury this thing.”
A news release issued by Johnson, however, says physician-owned hospitals drive innovation because “doctors can bypass bureaucracy and eliminate red tape often created by administrative red tape and corporate bottom lines.”
He unveiled his legislation at the Baylor Frisco Medical Center, a facility north of Dallas and where physicians share ownership with Baylor University.
Russell singled out Baylor for praise, but adds that “most hospital systems in Texas have embraced physician ownership” and he calls such arrangements the “ultimate” accountable care organization.