Massachusetts Report Finds Hospitals’ Negotiating Clout With Insurers Drives Up Costs

Massachusetts hospitals and physician groups with market clout negotiate rates that are twice as high as for other hospitals, and such clout is the main cause of healthcare inflation in the state, according to a release by State Attorney General Martha Coakley.

Ms. Coakley’s office based the findings on a year-long study of the Massachusetts market, finding that about 10 hospitals enjoy reimbursements 10-100 percent higher, for similar work, than reimbursements for the other 55 hospitals in the state.

The office’s report says the 10 favored hospitals had brand-name recognition or few competitors in their markets, but it did not name any provider or insurer, saying its aim was to identify systemic problems and not blame individual organizations.

Based on its findings, the report recommended against establishing global payments covering a patient’s entire medical care for an illness, an approach recommended by a state commission.

The study concluded that higher healthcare costs are basically caused by rising prices, not increased demand for new services. One major insurer reported provider price increases accounted for 80 percent of the growth of medical expenses from 2006-2009.

The report called on the state to:

• Discourage or prohibit contract provisions that perpetuate market disparities;
• Increase transparency and standardization in payment and quality;
• Reform payments to account for market distortions; and
• Encourage development of a “value-based” healthcare market.

Read the Massachusetts Attorney General’s release on health insurance reimbursements.

Healthcare Spending Reaches 17.3% of GNP, Largest 1-Year Rise Ever Recorded

Independent actuaries working for the CMS reported that the healthcare sector’s share of the economy grew by 1.1 percent in 2009, the largest one-year increase ever reported, according to a report in Health Affairs.

The healthcare sector’s rising share of the economy, magnified by a contraction in other sectors, reached 17.3 percent of the gross domestic product and is expected to reach 19.3 percent of GDP by the end of the decade.

Looking at another measure, healthcare spending growth, 2009 was not a record year. Healthcare spending grew by 5.7 percent to $2.5 trillion last year, higher than the 4.4 percent it logged in 2008 but lower than the 6 percent reported in 2007. This year, the actuaries expect healthcare spending growth to slow to 3.9 percent.

Factors for the 2009 increase included increased spending on Medicaid, which rose 10 percent in 2009, increased spending on COBRA health insurance for the newly jobless, a large number of baby-boomers entering Medicare and treatments for H1N1 patients.

Government healthcare spending in 2009 rose by 8.7 percent to $1.2 trillion, or nearly half of total national healthcare spending. By 2012, the government’s share of healthcare spending will exceed half, compared with one quarter 50 years ago, before Medicare and Medicaid were created.

Private-sector healthcare spending did not grow as fast as government spending and is expected to increase by 2.8 percent in 2010, a slow-down caused by continuing loss of health coverage due to unemployment and the expiration of the COBRA created by the stimulus bill.

The Los Angeles Times quoted analysts who were dismayed by the healthcare sectors’s increases.

Stuart Butler, an analyst at the Heritage Foundation, said the figures show that more aggressive cost controls are needed. “The only way to do this is to simply spend less,” he said.

Len Nichols, health policy director at the New America Foundation, added: “If you believe that much medical care is unnecessary, as I do, then it is criminal that we are spending so much.”

Read Health Affairs‘ report on healthcare spending.

Retail clinics on hit-or-miss trajectory

RETAIL HEALTH clinics have embarked on a period of retrenchment, according to a recent analysis by the Deloitte Center for Health Solutions.

There are currently more than 1,100 retail health clinics in the United States offering non-urgent healthcare services in pharmacies and grocery stores.

Between July 2008 and July 2009, the number of operators increased nearly 40%, including the entry of acute care organizations via contractual arrangements with drug store and grocery chains. In addition to the six largest players in the market, more than 50 organizations now operate nearly 140 clinics, claiming 11% of the market.

But just as new players jump in, many established operators are refining.

Clinic openings slowed from an astounding 350% growth rate in 2007 to 30% in 2008. During the first five months of 2009, the market contracted 5%, although the report forecasts modest growth for the year. Nearly 150 clinics closed in 2008. Although more than half of those were associated with smaller retail stores and startups, established operators likewise contracted.

RediClinic, which operated more than 50 sites in 2007, operated just 21 by mid-2009. CVS Caremark’s MinuteClinics, which dominate the market with 451 sites, shed dozens of locations in stores not owned by the company and closed 104 underperforming clinics in the first two quarters of 2009, according to the report.

But don’t read that trend as a retreat or as a direct effect of a recession, says Paul Keckley, executive director of the Deloitte Center for Health Solutions. Keckley says disruptive innovations in healthcare delivery rarely progress on a smooth trajectory.

For the most part, the report notes, retail clinics are modestly profitable and enjoy adequate patient volume. There’s also increasing evidence that insurers are covering their services.

FORMULA FOR GROWTH

The pullback, Keckley says, “has been a decision by the hosts to really focus on refining the model to make it scalable.”

For businesses accustomed to operating in the retail arena, that means refining business models to manage extended hours, liability and additional personnel costs. The hosts likewise need to determine exactly what range of services they’ll provide in a scaled model. Most clinics offer a limited range, such as diagnosing upper respiratory infections and prescribing the appropriate antibiotic. Potential new services could include injection and infusion services, chronic disease management, smoking cessation and direct-to-employer insurance programs.

Keckley expects retail clinics to emerge from this “breather” period with more refined business models tailored to the type of host site—be it a pharmacy, supermarket, big box retailer or employer setting—where the clinic operates. He anticipates a second wave of cautious growth through 2011 followed by more accelerated growth through 2014 with the market topping out at about 4,000 clinics in 2015. Most of the growth, he says, will occur in suburban markets where clinic users would most likely have commercial insurance.

John Bigalke, national managing partner for Deloitte’s health sciences practice, says the clinics could play an important role in providing healthcare for Medicaid recipients as well. As states grapple with providing primary care for the growing Medicaid population, retail health clinics may offer one way they can “continue to uphold their end of the social contract,” he says.

11 Things to Know About the False Claims Act

1. Initial development of the False Claims Act. The False Claims Act, also known as the “Lincoln Law” after its primary proponent, President Abraham Lincoln, was initially developed during the Civil War. The Act was a response to war profiteering by military contractors who attempted to defraud the government, for example, by sending boxes of sawdust instead of guns or selling the same cavalry horse to the armed forces multiple times. The Act remained in its original form from its initial passage in 1863 until 1943, at which point various amendments de-incentivizing qui tam actions made the statute nearly obsolete. In 1986, the Act was amended again with greater incentives for private citizens to report fraud on the government. The Act has become an increasingly active mechanism to combat fraud and false claims submitted to the federal government ever since. For additional background information, see http://www.all-about-qui-tam.org/fca_history.shtml.

2. Overview of Qui Tam concepts. Qui Tam means “in the name of the king”. The concept of a Qui Tam action is similar to a whistleblower action and allows a private person, referred to as a “relator,” to file suit on behalf of the United States against those who have falsely or fraudulently claimed federal funds. Incentives are built in so that the qui tam relator is able to receive a part of the proceeds of a victory on behalf of the government. Further, the portion of an award amount that the relator retains is greater if the government does not join in the suit and therefore he or she does not receive the help of the government. Alternatively, if the government joins or “intervenes” in the lawsuit, the relator retains a lesser portion of any judgment or settlement obtained.

False Claims Act qui tam actions run the gamut of federally funded programs, from Medicare and Medicaid to defense and other government procurement contracts, federally insured mortgage and other federal housing programs, disaster assistance loans, agricultural subsidies and more. Persons who knowingly make false claims for federal funds are liable for three times the government’s loss plus a civil penalty of $5,500 to $11,000 for each claim. Relators recover 15 to 25 percent of the proceeds of a successful suit if the United States intervenes in the qui tam action, and up to 30 percent if the United States declines to intervene and the relator pursues the action alone. During fiscal year 2009 alone, relators were awarded $255 million. (This figure does not include relator shares awarded after Sept. 30, 2009.)

3. Top hospital recoveries. To see a list of the top 20 False Claims recoveries to date, go to www.taf.org/top20. Several hospitals and hospital companies have paid massive settlements to resolve false claims actions against them, including St. Barnabas Hospitals, a non-profit hospital chain in New Jersey, which paid $265 million in 2006 to settle allegations related to improperly claiming “outlier” Medicare payments (additional payments for particularly difficult or complex procedures). Also in 2006, Tenet Healthcare, a national hospital system, agreed to pay the federal government $900 million for billing violations also involving manipulation of outlier payments, as well as kickbacks, upcoding and bill padding. Similarly, in 2000, Columbia HCA, the largest for-profit hospital chain in the country paid more than $731 million to settle False Claims Act allegations against it. Currently, Toumey Healthcare System in South Carolina is involved in a False Claims litigation based on physician self-referral law violations that resulted in the submission of false claims, a legal theory that proved successful against a medical practice management company in the 2008 case U.S. v. Rogan in the Seventh Circuit Court of Appeals.

4. 2009 recoveries. In 2009, the U.S. government recovered $2.4 billion dollars under the False Claims Act. This was the second highest annual collection amount recorded in history, thanks in large part to an enormous settlement between the government and Pfizer Inc. The Department of Justice made the following statement regarding the Pfizer settlement in Sept. 2009:

American pharmaceutical giant Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. hereinafter together “Pfizer”) have agreed to pay $2.3 billion, the largest health care fraud settlement in the history of the Department of Justice, to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceutical products, the Justice Department announced today.

Pharmacia & Upjohn Company has agreed to plead guilty to a felony violation of the Food, Drug and Cosmetic Act for misbranding Bextra with the intent to defraud or mislead. Bextra is an anti-inflammatory drug that Pfizer pulled from the market in 2005. Under the provisions of the Food, Drug and Cosmetic Act, a company must specify the intended uses of a product in its new drug application to FDA. Once approved, the drug may not be marketed or promoted for so-called “off-label” uses – i.e., any use not specified in an application and approved by FDA. Pfizer promoted the sale of Bextra for several uses and dosages that the FDA specifically declined to approve due to safety concerns. The company will pay a criminal fine of $1.195 billion, the largest criminal fine ever imposed in the United States for any matter. Pharmacia & Upjohn will also forfeit $105 million, for a total criminal resolution of $1.3 billion.

In addition, Pfizer has agreed to pay $1 billion to resolve allegations under the civil False Claims Act that the company illegally promoted four drugs – Bextra; Geodon, an anti-psychotic drug; Zyvox, an antibiotic; and Lyrica, an anti-epileptic drug – and caused false claims to be submitted to government health care programs for uses that were not medically accepted indications and therefore not covered by those programs.

5. Healthcare fraud — Top industry for False Claims recovery. Healthcare fraud represents the largest and most profitable industry for Qui Tam false claims collections. Healthcare fraud recoveries accounted for approximately $1.6 billion, more than two-thirds of the $2.4 billion dollars collected under the False Claims Act in total during 2009. Numerous federal agencies shared in these recoveries, including the Department of Health and Human Services, in connection with its Medicare and Medicaid programs; the Office of Personnel Management, which administers the Federal Employees Health Benefits Program; the Department of Defense for its TRICARE insurance program; and the Department of Veterans Affairs.

6. Pharmaceutical and medical device companies – Main targets. The largest qui tam settlements in 2009 came from pharmaceutical and medical device companies, including Pfizer, Sanofi-Aventis, Bayer HealthCare, Quest Diagnostics and Eli Lilly, amongst others. The DOJ reported that pharmaceutical and device companies accounted for $866.7 million in settlements for federal recoveries, in addition to $402 million being returned to state Medicaid programs.

7. Retention of overpayments now can be considered a False Claims Act violation. In 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 which implemented significant changes to the False Claims Act, including the expansion of prohibited conduct under the False Claims Act to include not just the improper filing to collect monies, but also the known retention of overpayments by hospitals or other health care providers. The 2009 amendments also make clear that false claims submission to a state Medicaid program, although not directly submitted to the federal government, does constitute a violation of the False Claims Act.

8. Hospital sample False Claims policy. All health care providers and businesses submitting claims to the government for payment should have health care regulatory and false claims policies in place to educate its employees and agents and minimize the submission of false claims and the potential liability attached thereto. A good sample policy is available online at www.centralcommunityhospital.com. This sample policy is particularly designed to address a community hospital’s approach to false claims and other policies, and may need to be modified depending on the size of the entity, breadth of practice, or type of industry or provider submitting the claims.

9. Plaintiff’s law firms focus on Qui Tam. Over the past several years, there has been a dramatic increase in the number of Qui Tam suits. As a result, there are now law firms that focus exclusively on qui tam actions. One such firm, Warren Benson Law Group, states on its website, www.warrenbensonlaw.com/medicare-fraud.com:

In recent years, Medicare fraud and Medicaid fraud have been the two most active areas of qui tam litigation, outnumbering qui tam cases involving defense contractor fraud. It is estimated that Medicare fraud and other fraud cost the federal government billions of dollars each year.

There are numerous frauds Medicare and other healthcare providers and companies have devised to cheat the Government…[such as:]

- Services not rendered
- Upcoding schemes and Unbundling
- Kickbacks and Self Referrals
- Falsely Certifying and Giving False Information
- Lack of Medical Necessity
- Fraudulent Cost Reports
- Grant or Research Fraud

These firms generally take qui tam cases on a contingency fee basis, making it enticing for potential relators to come forward and initiate litigation against the alleged wrong-doers.

10. Broad provider responsibility – Scope of liability. In the face of the increasing scrutiny of claims and the relatively new era of Recovery Audit Contractors, parties should understand the broad scope of what can be considered a false claim and their obligations to properly bill for services. A good discussion of the breadth of the provider’s responsibility is set forth in an article by Charlie Artz, a well-regarded healthcare attorney. See False Claims Act Implications in Physician’s News Digest www.physiciansnews.com/law/805artz.html. A few of the key concepts discussed by Mr. Artz are excerpted below:

In Re: Cardiac Devices Qui Tam Litigation, the U.S. District Court in Connecticut refused to dismiss a whistleblower’s case against health care providers who submitted claims for services that were not covered by Medicare, held that the health care providers had a duty to familiarize themselves with all requirements for reimbursement, and allowed the False Claims Act case to proceed exposing the health care providers to millions of dollars in refunds and civil fines.

Although the opinion was close to 100 pages in length, the key facts can be summarized as follows. Then-HCFA published a manual over 1,000 pages in length containing literally hundreds of reimbursement rules and requirements. These billing guidelines were not statutes passed by Congress after the people had an opportunity to debate them. These were not regulations published with notice and comment by the general public or the health care community to make improvements or to object to certain clauses. These were purely interpretive guidelines published by the federal government. One of those several hundred billing guidelines contained a provision prohibiting reimbursement for any non-FDA approved device or service. The 40 hospital defendants in this massive federal court litigation submitted claims to Medicare and received payment for services provided to patients who participated in clinical trials involving several different investigational cardiac devices that had not been approved for marketing by the FDA.
One clause in the hospital payment manual stated that medical devices not approved for marketing by FDA are considered investigational by Medicare and are not reasonable and necessary for the diagnosis and treatment of illness or injury under the Medicare statutory definition of medical necessity. Apparently, the hospitals billed these services by mistake, believing that since the clinical trial was approved, the provider was allowed to bill Medicare for the device and related services.

A whistleblower realized many hospitals were billing Medicare for non-FDA approved cardiac devices and filed a civil false claims case in federal court. The federal government intervened and is now prosecuting the False Claims Act case against hospitals. The hospitals asked the federal court to dismiss the case for several reasons. One of the key defenses is that a simple violation of a statute or regulation does not, by itself, trigger False Claims Act liability. The federal court rejected that analysis and made the following key points that should guide your compliance efforts.
11. Heightened regulatory and enforcement environment – False Claims Act and Anti-kickback Statute. The government has looked to regulatory mechanisms like the False Claims Act to recover money spent improperly as a politically palatable way to attack healthcare providers and healthcare costs. Given the demonstrated success of this strategy, we expect more, not less, recovery of claims of this sort. As William Corr, Deputy Secretary of the U.S. Department of Health and Human Services, stated on October 28, 2009:
As a result of the priority given to combating health care fraud by President Obama, the government has been able to achieve a more rapid response to fraudulent schemes and increase its recovery of more funds lost to fraud than in previous years. For example, HHS Office of Inspector General investigations have resulted in $4.0 billion in receivables for FY 2009, increase from $3.2 billion in DIG investigative receivables in FY2008. Strike force cases typically are indicted and litigated faster than traditional criminal health care fraud cases.

Since March 2007 strike force cases that included HHS agents have obtained 189 convictions, 443 indictments, and total an estimated $227 million in expected recoveries. During this time, the Department of Justice also secured the largest health care fraud settlement in history against a pharmaceutical company for Medicare and Medicaid fraud and for violating the Food, Drug and Cosmetic Act. I refer to the $2.3 billion settlement with Pfizer to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceutical products.

After Meeting With GOP, President Lays Out Reforms He’d Consider

Following a two-hour meeting with Congressional Republicans, President Obama held a news conference in which he laid out the kind of reforms he would consider, according to a transcript from the White House.

President Obama accused the Republicans of being obstructionist but called on Democratic leaders to “put aside matters of party for the good of the country.” He said he would be willing to consider reforms that:

• “bring down costs for all Americans as well as for the federal government”;
• provide adequate protection against abuses by the insurance industry;
• make coverage affordable and available to the uninsured; and
• help the federal government “get on a path of fiscal sustainability.”

President Obama added that he would like “to work on ways to limit medical malpractice lawsuits” but indicted he might not support tort reforms that could only have a modest effect on healthcare costs.

The president, who plans to meet with Republican and Democratic Congressional leaders in a healthcare summit on Feb. 25, seems to have ambiguous support from the American public.

A Washington Post-ABC News poll found that 57 percent of Americans view the loss of Senate Democrats’ filibuster-proof majority as a “good thing,” but 63 percent still want Congress to deal with health reform.

The Post added that the president’s 20-point advantage over Republicans last summer on handling healthcare issues has slipped.

Read the White House’s transcript of the president’s news conference.

Urban Institute Warns of Consequences of Not Passing Any Health Reform

If health reforms are not enacted, there will be higher numbers of uninsured, an erosion of employer-sponsored coverage, increased spending on public programs and big increases in out-of-pocket insurance costs, according to a report by the Urban Institute.

The think tank simulated effects on coverage and costs under three different scenarios:
1. Worst case: slow growth in incomes and continuing high growth in healthcare costs.
2. Intermediate case: somewhat faster income growth, lower growth in healthcare costs.
3. Best case: full employment, faster income growth and slower healthcare inflation.

Read the Urban Institute’s report on health reform (pdf).

Newt Gingrich and John Goodman Offers 10 Health Reform Ideas in Wall Street Journal

Responding to President Obama’s challenge to Republicans, “If you have a better idea, show it to me,” Former House Speaker Newt Gingrich and John Goodman, president and CEO of the National Center for Policy Analysis came up with 10 of them for the Wall Street Journal.

1. Make insurance affordable. Give Americans the choice of a generous tax credit or the ability to deduct the value of their health insurance up to a certain amount.

2. Make health insurance portable. Allow individuals to buy insurance across state lines and encourage employer coverage that goes with employees to their new jobs.

3. Meet the needs of the chronically ill. Foster health plans that specialize in managing chronic diseases, as some Medicare Advantage plans already do.

4. Allow doctors and patients to control costs. Doctors should have the freedom to repackage and re-price services like advising patients by phone or e-mail.

5. Don’t cut Medicare. Don’t carry out the Democrats’ plan to cut Medicare by $500 billion because it would create new unfunded liabilities for the next generation.

6. Protect early retirees. Help employers provide individually-owned insurance at group rates for retirees who have not yet reached Medicare age.

7. Inform consumers. Provide patients with a treasure chest of Medicare claims data to help them make healthcare decisions.

8. Eliminate junk lawsuits. Initiate caps on non-economic damages, “loser-pays” laws, alternative dispute resolution and protection for following standards of care.

9. Stop healthcare fraud. Use approaches such as enhanced coordination of benefits, third-party liability verification and electronic payment.

10. Make medical breakthroughs accessible to patients. Speed up approval of breakthrough drugs, innovative devices and new therapies to treat rare diseases.

Read the Wall Street Journal’s opinion piece on health reform.

No-shows at public hearing not making any friends

Massachusetts Governor Deval Patrick appears to be fighting the good fight, even though it’s making an awful lot of healthcare organizations rather uncomfortable. In October, Patrick and the state’s division of insurance began examining drivers of higher coverage costs for small business in order to find ways to make coverage more affordable. But that probe has now led to a broader, stickier investigation.

As you know, Massachusetts has an individual mandate, which has successfully pushed coverage above 90%, but the state continues to struggle with increased demand and associated additional costs. The state has a concentration of academic medical centers and some of the highest costs in the nation, dating back even before the mandate took effect.

As part of the state’s investigation, hospitals and health plans were invited to a series of public hearings to discuss rising costs at the system level. While the invitations weren’t summonses, they weren’t exactly friend requests either.

The Boston Globe slammed the many state hospitals that were invited and overtly failed to show up. In fact, even after a condemning news story identifying the first day’s no-shows by name, only eight hospitals out of the 70 that were invited ultimately showed up for the subsequent hearings.

LONG LIST OF QUESTIONS

I called up Lora Pellegrini, acting president and CEO of the Massachusetts Association of Health Plans, to find out what was going on. She says invitations were sent by the division of insurance in late December, and sample questions were provided in advance. Health plans received 60 questions to discuss at the hearings, such as how they arrive at prices for specific products.

“Our member health plans spent thousands of hours preparing for the hearings,” Pellegrini says.

The fact that the hospitals didn’t attend could be viewed as a refusal to cooperate or as a suspicious action among organizations that have something to hide—which is ironic since health plans are often accused, rightly or wrongly, of doing just that.

Here’s a situation where the health insurers were at the table, willing to be reasonably open with policymakers, and the providers were not. Criticizing hospitals and physicians who work passionately to save lives and reduce pain might be seen as distasteful, but they probably deserved it in this case. In their defense, many hospital executives claimed scheduling conflicts were the problem.

For high-level discussions—such as public hearings that the division of insurance and the governor invite you to—it would seem to be in the best interest of all the stakeholders to participate, even if their only motive is to show their faces. Perhaps the scrutiny often directed toward “greedy” insurers will start shifting onto providers.

PROVIDE POSSIBLE SOLUTIONS

Pellegrini says her association’s member plans operate on 2% margins, and 90% of their premium dollars are spent on medical services. Many are not-for-profit companies and all are as transparent as contracts will allow, she says.

She seemed a little frustrated by the hospitals’ lack of cooperation, and recommends that health plans in other states take the high road if faced with a similar situation.

“Try to provide solutions,” she says. “Operate your business in a way that you don’t have anything to hide.”

Julie Miller is editor-in-chief of MANAGED HEALTHCARE EXECUTIVE. She can be reached at julie.miller@advanstar.com [julie.miller@advanstar.com]

Julie Miller

California Doctors Agree on Need for Health Reform, Disagree on Which Version

A recent survey of members of the California Medical Association found that although almost all of them would like to see some sort of health reform, they are evenly divided over which kind, according to a report by California Physician.
While 97 percent favored either incremental or fundamental health reform rather than no reform at all, 44 percent supported the Democrats’ stalled health reform legislation and 44 percent opposed it.

Asked what kind of healthcare system they would prefer, 19 percent wanted a single-payer system, 13 percent wanted a free market system without public insurance and 66 percent wanted a pluralistic system with government and private payors.

CMA members showed significant support for the following reform measures:

• 94 percent favor protecting California’s unusual state cap on noneconomic damages in medical liability cases.
• 89 percent wanted to bar health insurers from denying coverage based on pre-existing conditions or changes in health status.
• 88 percent favored providing tax credits and subsidies to low-income families and small employers to purchase coverage.
• 82 percent wanted to expand health insurance coverage to 95 percent of the uninsured.
• 76 percent favored funding the development of best practices and quality measures.

Read California Physician’s report on health reform.

13 Reimbursement and Business Concepts You Should Know About GI in ASCs

GI and endoscopy continue to be profitable specialties for ASCs in spite of some declines in reimbursement. Here are 13 important reimbursement, business and physician concepts you should know for your ASC.

Reimbursement
1. Reimbursement for GI centers will continue to decrease. As has been the case for the last few years, reimbursements for GI procedures have decreased across the board. This has hit ASCs especially hard as surgery centers often receive reimbursement at a percentage of hospital outpatient departments.

“We anticipate that CMS will continue to pressure facility fees in a downward fashion,” says Barry Tanner, president and CEO of Physicians Endoscopy. “It is at least conceivable that freestanding ASCs could get rates at 50 percent of HOPD rates in the next four to five years.” 

With CMS setting lower rates, a problematic trend could be seen across private insurers and third-party payors as their rates are often set relative to what CMS pays for Medicare-covered procedures. As a result, gastroenterologists and GI-driven ASCs must continue to run their centers efficiently and economically.

“Unfortunately, reimbursements are likely to steadily decline over the next few years,” says Stephen Sears, MD, a gastroenterologist in Loveland, Colo. “This effect will cause ASCs to become more efficient or to stop operating. This may also drive more cases into the hospital setting. By doing so the procedural cost will double and in the end healthcare costs will increase. To remain profitable, the GI physician must focus on delivering quality care in the most efficient manner. That can be done with better bowel preps, training, state of the art technology and assessing quality measures.”

One consequence of decreasing GI reimbursements may be a reduction in the number of Medicare patients a GI ASC sees in a year, according to Fernando Bermudez, MD, medical director, and Beth Miller, administrator, of Eastside Endoscopy Center in Saint Clair Shores, Mich.

“Unless Congress changes the existing rules, Medicare will reduce the professional fees for procedures by 20 percent in 2010,” Dr. Bermudez says. “This won’t directly affect ASCs, but it may affect the willingness of gastroenterologists to perform endoscopies on Medicare patients and to do procedures on Medicare patients in the ASC setting.” 

Irving Pike, MD, president of Gastroenterology Consultants in Virginia Beach, Va., has seen some ways in which physicians at ASCs have tried to combat declines in reimbursement. “Several ambulatory endoscopy centers have reported to me that they have recently negotiated an increased fee schedule from non-government insurance companies. In the past when Medicare payments to facilities were decreased, insurance companies did not follow with similar cuts, but ASC fee schedules remain substantially below HOPD fee schedules. In my opinion, insurance companies do not want to discourage physicians performing endoscopy in ASCs. I think at some point it may be plausible for ASCs to move more CMS cases to the hospital and fill the slots opened at the ASC with patients covered by non-government insured patients,” he says.

2. Gaining access to HOPD rates alone is not reason enough to partner with a hospital. Although partnering with a hospital in order to gain access to outpatient department reimbursement rates can be a potentially attractive strategy, GI-driven ASCs should be aware that they may not receive access to full HOPD rates, although they may be better than current reimbursements. Since many hospitals want to own 100 percent of the GI center, physicians may be asked to give up your ownership and access to future distributions.

“HOPD rates can increase GI center facility revenue 35-40 percent for non-Medicare patients,” says Jon Vick, president of ASCs Inc.. 

“If the GI physicians are going to be owners, then the expectation of getting HOPD rates is misplaced,” Mr. Tanner says. “Better rates may be possible, but HOPD rates are highly unlikely.”

In some cases the hospital and an ASC management development company may form a joint venture that then purchases a 51 percent interest in the center, according to Mr. Vick. “I suggest partnering with a management company first and letting the company negotiate with the hospital as the hospital partner will want to control the deal,” he says. “The management company would then work on the side of the physicians and ensure that the hospital doesn’t ’steamroll’ the physicians into accepting less than the center is worth. Additionally, with the ASC management company managing the center it will retain it efficiencies and economies.” 

It is important to remember when considering this arrangement that even if a physician-owned ASC partners with a hospital, it is still a freestanding ASC and it does not become an HOPD nor does it share in the HOPD reimbursement rates, according to Rick Jacques, president and CEO of Covenant Surgical Partners. “Sometimes, however, a hospital may have such good contracts with third-party payors that a partnership with the hospital would increase the reimbursement rates with payors other than Medicare,” he says.

3. Declining pay may force GI physicians to seek new revenue opportunities. The proposed 21.5 percent cut in the physician fee schedule for specialists, including gastroenterologists, coupled with decreasing reimbursements for GI procedures, may encourage GI physicians to consider additional revenue streams.

“We believe that professional fees will continue to be pressured downward, and GI physicians will be forced to resign themselves to reduced income or to capture a portion of the technical fees,” Mr. Tanner says. “Those GI physicians that have not yet captured a portion of the technical fees through ASC ownership are increasingly under pressure to do so by forming coalitions, mergers with larger groups, etc.” 

General business concerns
1. Good case volume depends on the market. While there is no definitive average number of cases GI centers should see to remain profitable, most GI ASCs have a good referral base from which they can pull patients. However, there are some figures to keep in mind to help you determine if your center is on target.

“The key is to maximize utilization of each available procedure room,” Mr. Tanner says. “There is an average of 251 operating days per year, and full utilization for a GI procedure room operating eight hours each day would be approximately 16 cases per day (30 minute time slots per case) or roughly 4,016 annual cases. Sixteen cases per day is rarely achieved due to cancellations, no shows, etc. However aiming for 80 percent utilization is certainly reasonable (around 3,200 cases annually). Achieving that sort of utilization per room, and assuming that the ASC is not overbuilt, should result in a successful GI ASC.” 

Dr. Sears notes that physicians at the ASC where he practices average 12 procedures per day, or one every 30 minutes.

Mr. Jacques agrees that around 3,000 annual cases can lead to a successful center. “Most physicians [who use GI ASCs] have well-established practices, and it is very unlikely that those cases will go away. The key is keeping your relationships within the community strong,” he says.

2. Some GI centers have benefited from providing anesthesia. In the past, most GI procedures were performed under conscious sedation, which the gastroenterologist administered prior to the procedure, according to Mr. Jacques. Since the patient was not fully sedated, monitoring by an anesthesiologist was not necessary. However, over the past decade, the trend with GI procedures has moved toward monitored anesthesia, using drugs such as propofol, which must be administered by an anesthesiologist or CRNA. 

“I believe that monitored anesthesia care is fast becoming the standard of care,” Mr. Jacques says. “Patients who are under monitored anesthesia often allow physicians to provide a more successful colonoscopy, because they are more comfortable. Under conscious sedation, although the patient may not remember the procedure, they are still awake and uncomfortable, which may cause them to react and compromise how well the colonoscopy is performed.”

Mr. Jacques notes that centers have three options to keep them in compliance with what states mandate regarding anesthesia administration: 1) the physicians who own the ASC arrange to ‘employ’ an anesthesiologist or anesthetist who provides anesthesia through their private practice, 2) the ASC employs its own anesthesiologist or 3) the ASC contracts with an independent anesthesiology practice. 

However, anesthesia is not covered for many GI procedures, so some gastroenterologists have benefited by directing the administration by propofol. Mr. Tanner cautions that if physicians choose to do this, they must be aware of the regulations in their area regarding anesthesia administration.

Dr. Pike also notes a trend towards anesthesia in GI procedures but cautions that colonoscopies performed while the patient is under propofol have not been indicated for use by many gastroenterology societies. 

“It is true some ASCs have turned to various models of anesthesia as an additional source of revenue,” he says. “I have seen information estimating that currently 40 percent of GI endoscopy is performed with deep sedation involving propofol. One concern I have about this practice is that as the total cost of GI endoscopy increases due to the additional cost of providing anesthesia [and] the payment for both the professional fee for the endoscopy and anesthesia will be cut to control overall cost to insurers. It should be noted that the three GI societies have jointly written a letter indicating the opinion deep sedation with propofol administered by anesthesiologists or CRNAs is not warranted for standard GI endoscopic procedures.”

3. Beware of potential kickback scenarios with contract anesthesia companies. As more GI centers consider providing anesthesia services, they may look to an outside company to assist them with the process. Mr. Jacques warns that some companies may enter into joint ventures with GI centers in ways that “push the envelope” with regard to the law.

“Some companies have been extremely aggressive when approaching gastroenterologists about these joint ventures,” he says. “We’ve seen gastroenterologists approached at a much higher rate over the past 1.5 years. Some scenarios have the company essentially providing kickbacks to the gastroenterologists for the contract to provide anesthesiology services to the center. The government is now looking very hard at these ‘pay for play’ arrangements.” 

Procedures and gastroenterologist issues
1. The number of procedures performed per endoscopy case can lead to lower reimbursements for secondary procedures. According to Mr. Tanner, the typical number of procedures per endoscopy case is 1.10-1.20. Many payors, including Medicare, often reimburse any secondary procedures at a much lower rate, which can affect revenue and efficiency in the ASC.

“The number of procedures per case impacts upon revenue per case because for many payors, the second and third procedures are reimbursed at half and then 25 percent of the first procedure,” Mr. Tanner says. “Therefore, valuable procedure room time is being utilized at an ever decreasing rate. If the facility is essentially fully utilized, the impact is not as strong; however, if an ASC is struggling with utilization, then it may not be profitable to perform these secondary procedures at one time.” 

2. Payment data for some of the most common procedures in GI ASCs. Here are 2008 CMS payment data for some of the most commonly performed GI procedures in ASCs.

Upper stomach-intestine scope for biopsy (CPT 43239)

• average submitted charge: $1,451
• average allowed charge $408
• average payment: $321

Scope of colon for diagnosis (CPT 45378)

• average submitted charge: $1,502
• average allowed charge: $422
• average payment: $330

Scope of colon with biopsy (CPT 45380)

• average submitted charge: $1,549
• average allowed charge: $406
• average payment: $318

3. With the number of certified gastroenterologists decreasing, it is important to focus on recruiting. As with many medical professionals, the number of practicing gastroenterologists is decreasing as physicians retire or leave practice, and the number of GI physicians coming out of medical school is not enough to sustain the rate of departing physicians. A recent New York Times report indicated an additional 1,050 GI physicians is needed by 2020 to meet the demand, with current employment around 10,390 as reported in the Times. According to Mr. Tanner, around 20 percent (2,000-2,500) of practicing GI physicians are at or close to retirement, and only 300 GI fellows graduate each year. Thus, competition for new, talented GI physicians is high.

“Recruiting new physicians is difficult especially because there is such a demand for their services,” Mr. Tanner says. “They can literally pick a place on the map where they want to work and go there with near certainty of getting a good job. This makes it more difficult for smaller, more out of the mainstream communities to find and recruit GI physicians. Many physicians graduating today are seeking a better quality of life, and, for them, the employment model is a better option.”

Although the outlook for recruiting new physicians may seem grim, Mr. Tanner notes some new physicians may be looking for options outside of the employment model. “There are still many entrepreneurial physicians not seeking employment, but they are looking for ownership in an ASC knowing that the ASC will be responsible for a significant portion of their total medical practice income,” he says.

4. Single-specialty GI ASCs have a lot to offer gastroenterologists. Although some concern has been raised by the trend of many specialists and practices seeking employment with local hospitals, single-specialty GI ASCs offer gastroenterologists an additional source of income and autonomy that may not be available through the hospital. As a result, ASCs should demonstrate the potential benefits of ASC ownership to physicians looking to partner with the center.

“Many GI physicians who have ownership in a single-specialty ASC earn a substantial amount of ancillary income from their ASC ownership, sometimes as much as they earn from their professional fees,” Mr. Jacques says. “A single-specialty ASC is an excellent recruiting tool for practices, because it gives the practice the ability to offer new physicians ownership in the center. A hospital trying to recruit physicians to their [facility] might not be able to offer the new physician the same ancillary income potential an independently-owned, single-specialty ASC can. Typically, once a hospital buys a physician practice and ASC, the physician income decreases substantially.” 

Dr. Sears notes that some GI specialists may turn to the hospital to avoid feeling the financial hit of reduced reimbursements, but that reason alone is not enough for all GI physicians to turn away from private practice and ASCs. “I feel that remaining as a private practitioner, I have more to offer than as a salaried hospital employee,” he says. “In order to keep the edge on the hospitals, we will need to focus on an equivalent or better product for the same cost. Patients will be able to see what procedures cost at different facilities and in the future may refuse to be treated in the hospital setting due to the additional charges.”

5. Although GI physicians aren’t running to the hospitals, primary care physicians are. Primary care physicians, who refer cases to gastroenterologists, are increasingly employed by hospitals. As a result, GI centers and their physicians should develop a positive relationship with hospitals.

“We have seen a significant number of PCPs employed by the hospitals,” says Dr. Bermudez. “This gives the hospitals significant leverage in the referral pattern to specialists, and it is very important that specialists, including gastroenterologists, maintain a good relationship with the hospital and work more like a partner than a competitor.”

6. Surgery centers should look to grow their referral base. When it comes to recruiting new physicians to your surgery center, looking within the local community still remains one of the best tactics. According to Mr. Jacques, there are probably unaffiliated physicians nearby who would jump at the opportunity to invest and perform cases at a single-specialty center, if approached properly and given a fair proposal.

“In order to grow, you also need to expand your referral base,” Mr. Jacques says. “Look into the areas of the community that are not getting screened for colon cancer. The same tried and true techniques that have worked in building a physician’s practice are still successful. Make sure you are consistently making call backs and follow-ups to local referring physicians.”

7. Salary information for gastroenterologists. In respect to other surgical and medical specialties, salaries for gastroenterologists have increased at an average rate. For example, the median salary in 2008 was $389,385, up 3.93 percent from 2007, compared with a 6.58 percent increase for ophthalmologists and a 5.80 percent for orthopedic surgeons over the same period, according to data from the American Medical Group Association’s 2009 Medical Group Compensation and Financial Survey. The average starting salary for GI physicians was $275,000, according to the same report.

Here are regional median salaries for gastroenterologists, according to the AMGA:

• East — $401,615
• West — $385,611
• South — $385,542
• North — $394,417

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