Publisher's Letter: March/April 2012

This letter briefly discusses eleven issues facing surgery centers in 2012.

1. Out-of-Network. Centers continue to struggle with managed care contracting and with whether to stay in-network or provide services out-of-network. Certain chains and centers seem to still be making a lot of money by providing services out-of-network. However, it seems pretty clear that chains and centers must work with patients to manage or reduce co-payments significantly to still see patients. In contrast, many centers are either more conservative with out-of-network and/or have faced recoupment claims from payors or other threats to physicians with respect to out-of-network patients and the payors’ efforts to push physicians to drive patients to in network providers. This is an issue that will continue to evolve, particularly as payors become tougher in their contract offers.

2. Relationships with hospitals. Surgery centers often have a love/hate relationship with hospitals. Many of their physicians need to maintain affiliations with both the hospital and the surgery center. Further, many surgery centers have moved to or investigated joint venturing with hospitals. Even with the joint venture, it remains a love/hate relationship where the surgery center often is not certain if they are getting the benefit from the joint venture that they expected to receive. For example, the hospital may not be able to really help with managed care contracting. Further, the hospital may continue to employ physicians.

3. Employment of physicians by hospitals. This continues to be an evolving and challenging issue for surgery centers. As surgeons are employed by hospitals, the great majority of physicians may become unable or less able to work with surgery centers or remain owners of surgery centers. A loss of just a few physicians to hospital employment can be devastating to a surgery center.

4. Contracting with payors. This issue goes hand in hand with the out of network issues discussed above. Payors in some markets are making extremely low offers to surgery centers. Here, the surgery center almost has no choice but to deny the contract and attempt to see patients out-of-network. It is often the case that a surgery center or chain can benefit from the help of an experienced managed care contractor negotiator. However, even with help, this remains a challenging issue.

5. Hiring a great administrator. A great administrator must have a clinical and business mind, must be highly focused on results and must be recruiting physicians and cases all the time. Because surgery centers are not a static business, it requires an intelligent driven administrator to help assure that a surgery center has a chance of great success. The situation where a surgery center relies on the spouse of a surgeon or the office manager of the practice, often leads to a bad situation.

6. Recruiting physicians. Surgery centers must constantly be recruiting new physicians to the center. Here, it is harder than ever to be able to just target specific specialties. Rather, surgery centers must be looking at all available surgeons in the market. There are often not a large number of available surgeons given other ASC investments by surgeons and employment by hospitals.

7. Adding cases. Surgery centers must constantly be working with their existing partners to add cases and examine what types of other procedures can be added to the center. They also must be constantly soliciting non-owners to work at the center.

8. Physicians leaving for other centers. As new centers continue to develop, and certain of the centers promise large returns, it is critical to keep surgeons from leaving to join another center. This competition for a limited number of surgeons is often a zero sum game. This can also lead to different disputes over non-competes and redemption pricing.

9. Safe harbor issues. There remains tremendous debate over the appropriate use of the safe harbors. Can a center rely on the 1) onethird tests, plus the qualitative tests, to redeem physicians 2) if it does so, it should do so on a consistent basis. Further, even if the center has the right to pay the adverse price, it is often legally advisable to pay the non-adverse price. Further, it should take other actions to assure that it is clear that physicians are being redeemed for compliance reasons not case generation reasons.

10. Statistics and benchmarking; keeping costs in line. Centers and their leadership must be great users of data. They must both receive great data on costs per case and compare costs to averages, and then use that data to cajole, persuade and work with center physicians and staff to bring costs into line with benchmarks. Expenses per case and as a percentage of revenue are impacted by numbers of cases and by reimbursement. That stated, centers really need to concentrate on the actual variable cost per case and the staff hours per case.

11. Redemptions and noncompetition disputes; without cause redemption clauses. Centers are constantly facing two kinds of disputes. Disputes relating to redemption and disputes relating to non-competes. Here, many centers have added in a “without cause” termination provision over the last few years simply to help reduce the amount of disputes over redemptions. Here, the physician is typically paid a non-adverse price versus an adverse price. The provisions is arguable not suppose to be used to redeem somebody based on volume or value of referrals.

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For the 10th Annual Orthopedic, Spine and Pain Management ASC Conference, we have 39 physician leaders speaking, 28 spine-related sessions, 18 orthopedic-related sessions and 14 pain management-related sessions. I believe that the conference has the best ASC business agenda we’ve ever had. It also has great keynotes that are particularly timely given an election year. For example, we have Tucker Carlson speaking, Sam Donaldson moderating and Lou Holtz doing what Lou Holtz does. If you’d like a copy of the program, please email Scott Becker @ sbecker@beckershealthcare.com, Kirsten Doell at kdoell@mcguirewoods.com or Rachel Fields at Rachel@beckershealthcare.com.

Register today for the 10th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference Improving Profitability and Business and Legal Issues Call (800) 417-2035 • Fax (866) 678-5755 or Email registration@beckersasc.com or Register Online at http://www.regonline.com/10thorthopedicspineASC.

Should you have any questions or if we can be of assistance in any manner, please contact myself at 312-750-6016 or at sbecker@mcguirewoods.com or Kirsten Doell at kdoell@mcguirewoods.com.

Very truly yours,

Scott Becker

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