🔒Optum move to buy Bloomfield surgical center highlights post-pandemic shifts in care

Surgical Care Affiliates, a subsidiary of UnitedHealth Group’s Optum division, filed a certificate of need with the state late last year to take a controlling interest in the Bloomfield facility, along with another bid to take control of a Stamford ambulatory surgical center.

Surgical Care Affiliates took over management of the Bloomfield center in December, adding to its roster of eight other surgical facilities across the state. Optum has also made recent moves to add to its portfolio of Connecticut physician practices, which includes one of the state’s largest groups, ProHealth Physicians.

Nationwide, Optum runs 200 surgical facilities, employs 56,000 physicians and is on track to add 10,000 more doctors to its roster in 2021, CEO Wyatt Decker said in the company’s April earnings call.

In Bloomfield, Optum outlined plans to ramp up eye and foot surgeries to boost volume from 6,005 in fiscal year 2019 to 6,759 in 2024. The average growth rate for Optum’s surgical centers is 3% over a four-year period, according to the CON filing.

Optum’s investments in ambulatory surgical centers reflect an industry shift toward the standalone facilities, which offer high-margin procedures and top-line amenities, said Jeff Hogan, the northeast regional manager in Farmington for employee benefit consultant Rogers Benefit Group and a healthcare consultant to employers. Data also shows the centers deliver care at a quality level equivalent to or higher than many hospitals, he added.

“The notion behind these surgicenters is to create a mechanism to allow people to change to a less expensive site of care that has predictable cost and quality outcomes,” Hogan said. “That’s a huge advantage and value driver for employers and their employees.”

Optum has been a leader nationwide in keeping surgical center costs low and innovating by setting prices and offering patients a “warranty” guaranteeing a good outcome for their procedure. The company has set its sights on expanding its network of surgical centers as part of a national strategy to drive patients to lower-cost facilities, Hogan said.

And with the pandemic raising concerns about safety in healthcare settings, patients are looking for alternatives to hospitals as well, Hogan said.

“The Optum strategy is to keep people out of the hospital, hence the surgicenter strategy,” Hogan said. “From a tactical point of view, it’s a very intelligent strategy and actually the marketplace is moving to that sort of thing.”

Competitive pressures

The losers in the shifting marketplace could be hospitals, legacy institutions that have to care for all comers and offer every service.

“Hospitals are getting disrupted not just by things like surgicenters but by other healthtech investments that have arisen of late,” Hogan said.

As one example, a company called Dispatch Health in Colorado has “Uber-ized” the role of the emergency room, a major revenue center at most hospitals. When summoned by an app, Dispatch sends a physician’s assistant or APRN to your home to give stitches, simple X-rays, infusions and other treatments. A simple procedure can cost $2,000 in an ER, $750 at an urgent care center and as little as $250 for a Dispatch home visit, Hogan said.

As technology spawns competitors, hospitals are increasingly setting up their own urgent care centers and expanding into surgical centers. Texas-based Tenet Healthcare struck a $1.1 billion deal at the end of 2020 for 45 surgical centers — after selling off its urgent care business. It owns a surgery center in North Haven.

Hartford-area hospitals are responding to the trend by upgrading their surgical facilities: St. Francis cut the ribbon on a new $26.5 million outpatient orthopedic and spine surgery center last January.

State lawmakers have also taken note: Current legislation under review would drop the 6% ambulatory surgical centers gross receipts tax and replace it with a 6.35% sales tax. An industry group has argued the state’s existing tax on the centers is triple that of other states.

Even as it grows nationwide, Optum has drawn scrutiny both from lawmakers and physicians’ groups, which accuse the company of using its size to steer patients away from independents. U.S. Anesthesia Partners sued Optum in Texas and Colorado in April, accusing it of “unlawful tactics and pressure campaigns” to drive patients to its doctors, the New York Times reported.

Some doctors see an inherent conflict between profits and proper medical practice. State Sen. Saud Anwar (D-South Windsor) proposed a bill in January “prohibiting insurers from acquiring any ownership interest in medical practices.” Although supported by the Connecticut State Medical Society, the bill failed to advance out of committee.

Ongoing search for solutions

Optum’s Connecticut expansion highlights larger disruption ahead in the healthcare industry nationwide as costs mount, said Arnold Menchel, a partner at Hartford law firm Halloran & Sage who specializes in health care. Before joining the firm, Menchel spent three decades at the state attorney general’s office working on cases involving Medicaid rate-setting, HIPAA enforcement and health insurance coverage.

“I think this should be viewed in the context of a much bigger picture — which is the question of what has been at the forefront of health care for decades now — which is the competing goals of providing the highest quality care at the lowest possible price,” Menchel said. “As a result of that ongoing search for a solution, we are seeing permutations and combinations that we haven’t seen before ... for example a provider buying an insurance company, insurance companies buying providers, and all sorts of combinations in between such as accountable care organizations.”

As an example on the provider side, pharmacy giant CVS bought Aetna in 2018, promising “a new innovative healthcare model that is local, easier to use, less expensive and puts consumers at the center of their care.” On the payer side, Centene Corp., Humana and Anthem have joined UnitedHealth Group in recent years in buying physician groups and other providers to supplement their insurance businesses.

Menchel said the difficulty of providing quality care at a low cost has stymied many past efforts over the decades, including several health plans started in Connecticut by doctors in the 1990s.

“In some ways, we have seen this before with for example, physicians creating entities to fulfill the function of an insurance company, such as M.D. Health Plan and Physicians Health Services,” Menchel said.

A California managed care company bought out both companies in the late 1990s amid ongoing losses and industry consolidation.

Providers and payers are likely to continue to combine and recombine to figure out the right recipe, he added.

“Which one or ones of these will ultimately prove to be successful, we don’t know at this point,” Menchel said. “We keep searching.”