Alliance Nixes Surgery Centers

December 27, 2005
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GRAND RAPIDS — If the Michigan Department of Community Health's track record of following the Alliance for Health's recommendations holds up, two West Michigan surgery centers will be voted down in Lansing next month.

At a Dec. 15 meeting, the Alliance's evaluation board voted to advise the state not to grant certificates of need (CON) for proposed ambulatory surgery centers (also known as "surgicenters") in Big Rapids and Muskegon. The state will weigh the board's recommendations when it makes a final determination no later than Jan. 31. Alliance President Lody Zwarensteyn said that the department of community health has historically agreed with the Alliance's recommendations "99 percent of the time."

The evaluation board found that neither the Big Rapids proposal nor the Muskegon proposal satisfied the statutory requirements necessary to be granted a CON.

In the case of the Big Rapids surgery center proposed by West Michigan Surgery Center LLC, the board's major argument was that the applicants could not provide a satisfactory revenue forecast. More than one third of the proposed second-year revenue for the single operating room facility was forecast to come from Medicaid and Blue Cross Blue Shield of Michigan payments. That, according to the Alliance, is not realistic.

"It apparently is the practice of Blue Cross Blue Shield of Michigan not to accept rural, single-room, multi-specialty surgical facilities, and the proposal indicates that 29 percent of its revenue will come from Blue Cross in its second year of operation. This is questionable at this time," the evaluation board wrote. "If unrealized, such a large proportion of revenue would seriously jeopardize the financial feasibility of the project. The state CON statute requires a positive finding that funds will be available to meet the project's operating needs."

In addition to the potential Blue Cross shortfall, the state's Medicaid program does not currently pay for treatments performed in ambulatory surgery centers. That may be in the process of changing, but not by 2006.

Medicaid officials recently indicated they may consider opening the program for participation … in 2008," the Alliance wrote in the evaluation.

The Alliance, which has a role in the CON process hinging on its mission to contain health care costs for the West Michigan community, also found that the Big Rapids area did not have enough demand to require the construction of a new facility.

"There is no pressing community need for the added capacity that will be represented by the WestMichiganSurgeryCenter in Big Rapids," the report stated. "The proposed center would dilute efficiency of the existing hospitals by drawing cases (and revenue) away from the hospitals."

In the case of Muskegon SC LLC's application to initiate a three-room surgicenter in Muskegon, the evaluation board found several of the same issues as it did with the Big Rapids application. The Muskegon group expressed its desire to participate in Medicaid, and accounted for 3 percent to 4 percent of its revenue coming from that source. As mentioned previously, the board did not consider the possible changes in the state's Medicaid regulations certain enough to allow the applicants to include Medicaid revenue in their forecasts.

The proposed Muskegon facility would not have the same problems as the Big Rapids facility regarding the Blues. Shortly after one year of operation, the applicants could expect to begin receiving payment from the insurer.

However, the evaluation board seemed to consider some of the math in the application to be a bit fuzzy. The Alliance hired an independent consultant to perform an analysis of the financial aspects of the application. Removing the Medicaid revenue that was determined unlikely to appear before 2008, and adjusting some Medicare reimbursement allowances, the analyst calculated the potential first-year revenue at $1,529,202. The application had predicted $2,298,469.

In addition to these financial concerns, the evaluation board also found that the facility's plan "intends to offer desirable working hours and competitive wages and benefits to help attract staff. If successful, this may have the effect of aggravating shortages at other locations." The facility's potential to take business away from HackleyHospital and Mercy GeneralHospital, as well as the threat of it taking away skilled workers, added to the board's reluctance to approve the project.

The evaluation board did say that if the applicants could "clearly address questions raised about financial feasibility" that "the project can be considered to meet the minimum CON review standards for surgical services and is eligible for endorsement at that time."

However, changes in those standards were just approved by the CON Commission, allowing that only surgical procedures performed in licensed operating rooms can be counted in a CON application. If the legislature and the governor sign off on the changes before the department of community health makes a decision on the Muskegon center, that application will be moot. The evaluation board found that none of the 3,951 cases cited in Muskegon SC LLC's application was performed in an operating-room setting.

In addition to the Big Rapids and Muskegon proposals considered at the Dec. 15 meeting, the evaluation board also looked at a proposal for an ambulatory surgery center in Holland. Because a representative for that project was not present at the meeting, the board voted to table its decision on the matter until its next meeting Jan. 19.    

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