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What Are They Thinking!

July 26, 2012

By Brian L. Grant, MD

The article “Silicon Valley’s Surgeons of Fortune” from Business Week should amaze and enrage our readers. It is a compelling read and it certainly got my attention. It describes a chain of surgical centers operated by Bay Area Surgical Management of Saratoga, California that have successfully extracted massive profits for owners and investors, at the expense of insurance carriers and those who pay the premiums – typically employers.

The article is a must read for those wishing to understand one of the many ways that money is made in medicine and how a system, where there is nobody minding the store or watching costs, can be exploited by smart entrepreneurs.


After reading the article, consider where the fault lies, if you agree that something is deeply wrong. Is it the entrepreneur founders who devised a system to entice doctors into their facilities, select patients with rich insurance carefully, and charge multiples of in-network facility charges? Is it the doctors who have lost their ethical compasses by their decisions to sign up and at times, invest? These doctors have been given very low risk investment opportunities that are returning gains stated to be 805% per year! They are referring into facilities that they have a financial interest in, which many consider questionable, especially if they are in essence receiving kickbacks by below-market rent and other enticements. These returns come with strings attached; that one will refer high pay patients into the facilities. And the returns are paid for by the employers who buy the policies.

Or is it the insurance carriers, who accede to paying massively higher rates to such facilities than in-network options, rather than just capping what they are willing to pay by way of benefits and just saying no? Is it the employers who buy such policies that do not police their payouts in out-of-network scenarios?


Patients deserve to make choices, but these choices should be accompanied by fiscal responsibility to pay a significant portion of the differential between available options in-network and their out of network options. One person’s rights stop at the next person’s wallet, or should. In this story, the facilities further abuse the system by writing off the higher co-pays that patients would owe, that might serve as a disincentive towards going out of network because they might feel the pain and consider using in-network doctors and facilities. In a similar move, many drug companies provide coupons to patients taking expensive brand name drugs, to neutralize the higher co-pay they would pay at the pharmacy, while charging the carrier a much higher rate than the available generic or formulary options.

Those who pay for coverage should maintain the right to set reasonable parameters as to how much they will pay, and hold the line when a patient elects to obtain more expensive care. Patients deserve to be educated on the different fee structures well in advance of receiving care, and bear the responsibility themselves when they make more expensive choices. Would these clinics be able to carry on if insurers were not ultimately footing the bills for their charges? It is doubtful that there are enough patients who are indifferent to price. The facilities, if they lost the deep and willing pockets of the carriers, would have to come down to earth in their fees or be empty. Likewise the doctors, whose own charges if out-of-network, have not been described in the article relative to their network peers.

The article describes current litigation by Aetna and other. We will follow it with interest.

Abusive charges by outpatient surgical centers are hardly unique to Silicon Valley but remain a national issue. A side issue is the fact that facility charges have become common in less egregious but similarly irrational and usurious manners. One writer recalls bringing a child to a dermatologist clinic at a well-respected Seattle hospital. He was dismayed to find that he was being charged a facility fee in excess of $100.00 for a basic office visit merely because the office was located in a hospital-owned building connected to the main hospital. No value was obtained by such proximity. A subtle disclosure was made but the implications of this only set in when the non-covered expense was presented. It was the last visit to that doctor and clinic.

Below are two articles that provide additional examples of this issue:

Virginia Mason Agree to Refund “Facility” Charge

When Hospital Fees Catch You Off Guard

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