Cutting Hospitals Out Of Surgery

February 11th, 2018 | Uncategorized

When someone has minor outpatient surgery in a hospital, payment includes the cost to
cover the procedure, plus an extra few thousand dollars in so-called facility fees. If Rock
Rockett has his way, more doctors will ditch the hospital and stitch out of their own offices–
in theory capturing a fraction of those facility fees that insurers no longer have to pay.

Happy result: Docs make more dough, insurers save money and, just maybe, the overall
cost of health care drops.

A 30-year health-insurance industry vet, Rockett is now the head of San Ramon, Calif.-
based Validare, a small firm formed in 2001 to help physicians apply for formal accreditation
to perform office-based surgical procedures. Today the company also negotiates pricing with
insurance companies and even handles doctors’ back-office payment services.

If that sounds like a boring business, the opportunities are scintillating. There are now
hundreds of different types of procedures–a bunion shaved or a chin tucked–done in an
office setting. And the stakes just got higher.

Prompted in part by some well-publicized office-surgery deaths, last week the state of New
York passed a law mandating that all doctors who perform in-office surgeries have to be
accredited within the next two years, or face penalties from the state medical board. (Until
now, accreditation had not been required, though doctors who boasted the designation
generally commanded higher fees from insurance companies.) Similar legislation is up for
debate in Arizona and other states.

All of this could be a boon to Validare, now with just $2 million in revenues. Rockett
estimates that there are roughly 2,000 office-surgery facilities in New York, of which
Validare services only 100. Meanwhile, the Joint Commission–one of three regulators of
office-surgery facilities in the U.S.–estimates that only 5% of the nearly 40,000 physicians’
offices where surgeries are performed have the necessary accreditation.

“This is a huge shot in the arm for us,” says Rockett, 55.

Better yet, the overall pool of customers has been growing. Between 2000 and 2005, the
number of freestanding outpatient surgery centers in the U.S. increased 76%, to 5,063,
according to a report by Verispan, a health care research outfit. Credit the trend to
overcrowded hospitals, better technology (allowing more surgical procedures to be done
safely in an office setting) and the doctors’ desire to get paid.

“Physicians can control their time more if they’re doing it in the office,” says Michael
Kulczycki, executive director for the Ambulatory Accreditation Program at the Joint
Commission. “Also patients prefer to have surgeries at a time and place convenient for

Dr. Richard Delmonte, a Manhattan podiatrist, is a big believer in office-based surgery. With
Validare’s help, he recently spent six months worth of nights and weekends adding
equipment, overhauling his record-keeping processes and updating his operations manual–
all to snag accreditation to perform minor surgeries in his office.

Accreditation isn’t cheap. Upfront costs for the certification: $11,000, including $6,000 for
Validare’s consulting services and $5,000 in fees to the Joint Commission. In addition,
Delmonte pays Validare a kingly 15% on the fees he generates in excess of what he would
have earned performing surgery in a hospital. All well worth it, says Delmonte, who claims
he now pulls in an extra $1,000 or so per procedure and is able to perform more surgeries
by avoiding costly hospital delays.

Insurance companies like this strategy too. Health Insurance Plan of New York, the state’s
largest health maintenance organization, typically forks over $3,000 in hospital facility fees
for basic outpatient surgeries, says Eddy Reynoso, the HMO’s director of ancillary

“It’s a big plus in terms of reducing the cost,” says Reynoso, whose company is working
with Validare on a trial basis. “The fact that the legislation was approved [also helps] in
terms of quality. One of the concerns was that even though the trend was to move
procedures from the hospital to an office, we were concerned about the quality of care.”

Validare is cultivating relationships with giant insurer UnitedHealth Group and GHI, another
New York HMO. Rockett also works with other surgery-pricing consultants, such as
Omniplan and Concentra, to get the best deals for his doctor clients. Some big carriers like
Aetna still refuse to reimburse for office-based surgeries. And Medicare and Medicaid are so
big and standardized that they don’t need a middleman like Rockett.

Dr. Scott Tenner, a Brooklyn-based gastroenterologist, signed on with Validare in 2005. A
year later, he says, revenues shot up 50%, to $1.5 million, and net income jumped about a
third. (He had to add staff and equipment to handle the flow of new patients and to meet
more stringent safety standards.) “This has revolutionized my practice,” he says.

And that New York law has revolutionized Rockett’s fee structure. Starting on Aug. 1,
Validare will boost its upfront fees 50%, to $9,000 per accreditation. Sounds like this rocket
is ready for launch.