Surgical Hospitals Vie for Surgery Center Business

Edition: May 2003 - Vol 11 Number 05
Article#: 1541
Author: Rick Dana Barlow

Back in the 1990s, pundits began writing eulogies for acute care hospitals. They usually went something like this: As ambulatory surgery centers lure more lucrative outpatient procedures to their facilities, acute care hospitals are left with the oldest, sickest and most resource-intensive patients, contributing to their ultimate demise.

Indeed, outpatient surgery centers have been siphoning revenue from hospitals for the last two decades. But they haven’t drained the batteries of traditional inpatient acute care – just yet. In fact, a handful of entrepreneurs and companies have refused to buy the idea that inpatient care is on the outs. Instead they’re revving inpatient surgical facilities with fuel injectors – hybrid models that blend the ambience, customer service and operating efficiencies of outpatient surgery centers with the surgical breadth and depth of inpatient acute care hospitals.

Physicians favor these new facilities because as owners, they retain control of patient care and clinical issues and are actively involved in shaping the policies and management operations of the facilities.

National Surgical Hospitals

Sometimes labeled as boutique or specialty surgical hospitals, these facilities actually are licensed as acute care hospitals. Owned and managed independently by physicians, established and operated as joint ventures by physicians and hospitals, or developed by investor-owned chains, these specialty surgical hospitals run the gamut of models.

For example, the 15 facilities of Chicago-based National Surgical Hospitals provide inpatient and outpatient surgical services, including basic laboratory and radiology services, primarily for orthopedic, spine and pain management, in a surgery center-like setting.

John Rex-Waller, chairman, president and CEO of National Surgical Hospitals, says that his company fills a niche between the ambulatory surgery center and the acute-care hospital. It offers more capabilities than a typical overnight-stay unit without the scheduling and convenience hassles, he says.

“We believe the specialty surgical hospital is the next logical step in the ongoing evolution of the ASC model,” notes Rex-Waller. “It will extend the reach of outpatient care as we now know it, allowing another tier of elective cases – requiring more than a single night’s stay – to move away from the setting of the general acute-care hospital without compromising the quality of care and level of capabilities that patients and physicians demand. The non-emergency nature of these typical cases, the predictability of operating room times and the surgical focus of the staff allow the specialty surgical hospital to offer the same kinds of advantages that surgery centers have revealed to the marketplace over the past three decades.”

Quick to React

Most specialty surgical hospitals today are independently owned and operated. A prime example is Modesto, Calif.-based Stanislaus Surgical Hospital, which opened in the mid-1980s as an ambulatory surgery center, but was converted to a specialty surgical hospital in 2000.

CEO Michael Lipomi and the Stanislaus Surgical physicians decided to change the status of the facility for two primary reasons. First, physicians were doing procedures at the facility that were “borderline cases” where the patients would require some hospitalization. “For example, in some lap chole cases, patients might need to be admitted to the hospital and as an ambulatory surgery center we couldn’t do that,” says Lipomi. “So in order to protect the patient and provide the best care they could, the physicians did all their lap choles in the acute care hospital.” Second, surgeons favored the services provided by Stanislaus Surgical, but they lamented that they couldn’t provide those same services to their inpatients.

Stanislaus Surgical ( a little more than 50,000 square feet with eight operating room suites and 23 inpatient beds. Only four other such facilities exist in the state, says Lipomi, whose hospital competes with two profitable general acute care facilities – one owned by Tenet Healthcare Corp. and the other by Sutter Health. “Because we’re a smaller facility, we can react quicker and do more for patients. We’re not as bottom-line oriented, and we’re responsive to physician needs.”

The hospital spends between $3.5 million and $4 million annually on supplies, says Lipomi. It uses St. Louis-based AmeriNet Inc. as its group purchasing organization and Temecula, Calif.-based Professional Hospital Supply as its primary distributor. A director of materials management who oversees a small staff of buyers takes care of inventory.

Because of the relatively small size of the hospital, Lipomi not only runs the facility, he also makes most of the purchasing decisions. “The physicians allow me to make certain budgetary and purchasing decisions, but I would classify it as more of a collaborative effort with the doctors,” he says. “I’ll give them my recommendations and present a bottom line financial picture and they’ll decide based on what they think is best for patient care.”

In terms of surgical procedures, Lipomi says physicians at the facility perform everything except for procedures related to “hearts, brains and babies.” Last year they recorded 7,600 surgical procedures, compared with 3,000 in 1984. This year, they expect to perform 8,300 procedures, he adds. The hospital has about 140 employees with a “very high” nurse-to-patient staffing ratio based on acuity, according to Lipomi. The average length-of-stay for patients is 2.5 days.

Another benefit involves postoperative infection rates. At a general acute care facility, post-op infection rates can be 3 percent to 5 percent, says Lipomi. “In our facility, that rate is one-tenth of 1 percent,” he says.

Chef Takes Meal Orders

Stanislaus Surgical promotes itself as focusing on patient-centered care. It tries to provide each patient with the comfort and privacy they would find in a fine hotel. “We’ve designed the room, so that they make the patient feel comfortable and encourage the patient to do a lot on their own,” says Lipomi. As a result, patients recover from surgeries and go home quicker, which represents a much healthier environment, he says. Carpeted rooms, tiled bathroom facilities, reciprocating beds and wood-paneled cabinet-stored equipment define the décor. Patients control such services as lighting and nurse calling from bedrail consoles. And an actual chef does rounds and takes meal orders from patients.

“We are very similar in culture and operations to a surgery center, but we have the same license and legislative requirements as a general acute care hospital,” says Lipomi. “We had to surrender our license as an ASC and get re-licensed as an acute care hospital. It was quite an ordeal, but we made the decision to do it as anyone would with a new business.”

Don’t think for a minute that the hospital enjoys any reimbursement advantage over other facilities. “There’s no difference in reimbursement,” Lipomi contends. “We get reimbursed the same way as an acute care hospital.”

And, no, Stanislaus Surgical doesn’t cater to the wealthy or pursue private payers at the expense of others, Lipomi says. “We’re over 30 percent Medicare,” he says. “We do very few private pay patients. We have a similar mix to most hospitals, with insurance, managed care and Medicare and MediCal patients. There’s no magic to our mix. We don’t discriminate at all.”

But Lipomi notes that the facility prescreens patients carefully, to make sure that the sickest ones go elsewhere. In fact, the case-by-case surgical profile specifies relatively healthy patients with no major diseases. It’s with good reason. Stanislaus Surgical doesn’t have an emergency room, an intensive care unit or a coronary care unit. And clinicians maintain regular business day schedules, so they’re not overtaxed.

Fitting in

In 2001, Lipomi and colleague Alan Pierrot, M.D., CEO of FSC Health in Fresno, Calif., founded the American Surgical Hospital Association ( Lipomi serves as the current association president.

Lipomi says that he and Pierrot are pleased with ASHA’s growth in its two years of existence. At a time when the industry only had about 20 facilities in operation, the two decided to take a risk and plan a conference. “We thought it would be great if 80 people attended,” he says. Actually 130 came. So they planned for 150 at its second annual conference in Arizona. Two hundred and sixty showed up. The third meeting is scheduled for this fall in San Diego.

Lipomi recognizes “the market is growing like crazy” and estimates that there are roughly 60 specialty surgical hospitals in operation and probably another 40 to 50 in development. But there’s no model or industry standard that defines what a typical specialty surgical hospital is, he adds.

Lipomi doesn’t see his facility or others like his as filling any gap between ASCs and hospitals, or operating at the expense of surgery centers or hospitals. “We’re all part of the same continuum,” he says. “In some communities there’s not enough participation or volume to support a surgical hospital. And hospitals face the same old problem - dedicating themselves to providing quality care at affordable prices."

In fact, Lipomi views hospitals as providing general services like that of a department store that may not satisfy customers with specialty needs. Surgical hospitals, then, provide specialty services while surgery centers concentrate on outpatient subspecialties. "Why should we think that you can go to one facility and get the same level of care that you could get in a specialized facility like ours?" he asks. "If you've got bad eyes, you don't see a urologist. We do surgery. We do surgery well. The real incentive for physicians to invest in and operate facilities like ours is that they provide a better level of care for patients."