February 1999 Bulletin

Orthopaedists, hospital battle over ASC project

It seemed a sound economic plan: six orthopaedic surgeons building a $733,000 ambulatory surgery center (ASC), part of a $3.2 million medical facility, where they could perform elective, nonemergency surgery procedures and evaluations in the town of Gildford, New Hampshire.

That was the goal of the Orthopaedic Professional Association (OPA). But to Lakes Region General Hospital, the only hospital in town, just a mile and half from the ASC presently under construction, the fear of competition festered into a heated battle that has spread to the state Supreme Court and the state legislature.

"The hospital is worried about losing revenue," explains John M. Grobman, MD, OPA's medical director. He says the hospital believes this ambulatory surgical center will cost them $3 million in revenues. "That number is based on losing their entire ambulatory surgery volume of 5,500 surgical cases per year, but our group is only talking about taking 700 cases out of the hospital," says Dr. Grobman.

Although the hospital sought an injunction against OPA to prevent the orthopaedists from building the facility unless it obtained a Certificate of Need (CON), the court only enjoined OPA from offering ambulatory surgical services in the building until the CON issue is resolved.

OPA faces two options, completing the project and face the possibility that it will not be able to offer the ambulatory surgical services or halting the project and exposing itself to breach of contract actions.

OPA has appealed to the state Supreme Court. If the OPA is unsuccessful in the appeal, it will have to go back to the New Hampshire Health Services Planning and Review Board to obtain a CON before offering ambulatory surgical services.

"This situation has really exploded into a statewide issue and has gone to the heart of free enterprise and the delivery of health care," says Michael P. Cimon, OPA's administrator. "The root of the problem is this is a state where almost every city or town is a one-hospital town. You've got basically total monopolistic health care coverage by each community's hospital. And hospitals are feeling threatened by these private enterprises or physician-owned groups trying to develop ambulatory surgical centers."

Robert C. Williams, president-elect of the Federated Ambulatory Surgery Association, is not surprised by the conflict. The national association of ambulatory surgical centers finds developers in many other states experiencing similar difficulties and challenges from established hospital organizations.

"The arguments being presented in New Hampshire [fear of competition and decreased revenues] are the same that were heard in 1972 when the first surgical center was formed in Phoenix, Ariz. Today, there are 2,500 surgery centers nationwide, with 1,200 freestanding independent surgery centers. There has been no documented decrease in the hospitals' ability to provide their normal course of service."

In September 1998, the Health Services Planning and Review Board said the orthopaedists required a CON before opening the ASC, however, months earlier, the Board twice gave the orthopaedists a waiver from the CON process. The turnabout came after OPA's plan to build the ASC was challenged by the hospital which said the project's construction costs for the surgical center were above the $1 million threshold requiring state approval. To be exempt from the CON process, capital development costs must be under $1.1 million and equipment costs under $400,000.

"The hospital hired a Boston architectural firm to take our plans and price them out," explains Cimon. "They came up with higher numbers that met their needs. It showed that our project's surgical center was in excess of $1.5 million, even though our contractor was building it for nearly half of that (amount)."

"This is the first time they (the Health Services Planning and Review Board) ever required CON approval," says Ann McLane Kuster, attorney for the law firm of Rath, Young and Pignatelli, that filed the state Supreme Court appeal for OPA. "The other ambulatory surgical centers are mostly hospital-affiliated."

Currently, the state's Department of Health and Human Services is drafting stringent rules which would effectively bar the creation of any new ASCs unless nearby hospitals within a 45-minute radius have more than 80 percent utilization of their services. The process, which involves public hearings, is expected to take several months.

In the midst of this heated battle, Lakes Region Hospital spearheaded the Community Hospital Coalition, comprised of 14 hospitals in the state. Their mission is to enable community hospital members to develop and implement a strategic interaction with legislative, regulatory and other public initiatives that concern ambulatory surgical care facilities.

Statewide, hospitals also are reacting to passage of 1998 legislation authorizing a pilot program that allows 24-hours or overnight stay in an ambulatory surgical center for up to two patients. In July 1, 2000, the pilot program will increase the number of beds for overnight stay to five.

"The reason the hospital is so concerned is if you were to remove all the outpatient procedures to outpatient facilities, you would divert $3 million in revenue which is now utilized to cross subsidize the other core services needed by this or any other acute care facility," explains Chris Gallagher, an attorney and lobbyist who heads the Coalition. "If this [ambulatory surgical center] were located in Manchester, New Hampshire or Boston, it would be different. But the hospital services areas in its rural location that requires that it maintain all of these services at the hospital. That's the core of this dispute. Yes, we consider it a threat to the community hospital."

If the physicians win this battle, Gallagher believes, "The hospital will then be performing surgeries that do not have a positive net revenue margin, but produce a negative net revenue margin."

The coalition supports Senate Bill 0482 that aims to put a moratorium on ASCs until such time as they can study the issue.

To help physicians groups do battle with hospitals, two other bills have been introduced by state Rep. Francine Wendelboe (R); one would repeal the CON law and the other would remove outpatient surgery from the oversight of the Health Services Planning and Review Board.

"As times change, hospitals will either have to move along with that [ASCs] or become cost-efficient and put more effort into the areas that they continue to dominate like in emergency care, acute care or any major procedures you can't have done on an out-patient basis," says Rep. Wendelboe.

The New Hampshire Medical Society will file an amicus curiae brief with the state Supreme Court on behalf of the OPA. "We're trying to create a fair environment for all physicians-it's just not orthopaedists," explains Palmer Jones, executive vice president. "It's how physicians are going to be part of the health care decision-making process in New Hampshire."

The New Hampshire Orthopaedic Society is contributing to OPA's legal costs. "This battle represents one dimension where physician efforts are beginning to reestablish control of their medical practice," says president Gary L. Woods, MD.

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