Silicon Valley’s Surgeons of Fortune

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July 24, 2012 by newsgetting

The anesthesiologists’ ball was raging when Dr. Thomas Elardo and his wife arrived on a December night in 2010. It was 11 p.m., and the Opera House in downtown Los Gatos, Calif., was packed with nurses and doctors dancing to ’80s covers by The Microbes, an all-doctor band. Elardo climbed the stairs to the mezzanine bar and was immediately gladhanded by Bobby Sarnevesht, a local entrepreneur, and orthopedist Samir Sharma, who pulled Elardo away from his wife. Elardo had known Sharma for years, but the orthopedist had never given him the time of day. That night was different—he had something to show Elardo. At the bar, Sharma flaunted a $960,000 check. Sharma said it was for his work as a surgeon and investor in an outpatient surgery center in Los Gatos, operated by Sarnevesht. “They were saying, ‘This is the kind of money you can make. You’ve gotta come in!’ ” recalls Elardo. “I was speechless.”

Sharma and Sarnevesht aggressively worked the room that night. In the days afterward, word of Sharma’s check raised eyebrows and spurred debate among local physicians about the surgery-center chain operated by Bay Area Surgical Management of Saratoga, Calif. The facilities count some of the area’s best doctors as partners, including Michael Dillingham, a longtime San Francisco 49ers orthopedist who now works with the San Francisco Giants. By rejecting the discounted contracts that participating in-network providers sign with insurers, the surgery centers bill insurance companies at their own out-of-network rates, which are 5 to 25 times as much as those in-network facilities charge. They pay profits to some 60 surgeon-partners at rates of return that often exceed 200 percent a year. The doctors who buy into the centers get the return on their investments plus a fee for performing surgeries. Patients pay little—the chain sometimes waives or reduces their co-pays—and high-quality care keeps the chain’s reputation rock-solid.

“You feel like an idiot for not doing it,” says Nathaniel Cohen, a Los Gatos orthopedist who attended the party. Both Cohen and Elardo, who declined opportunities to invest in Bay Area Surgical Management because of legal and ethical concerns, own shares in competing centers that have network contracts with insurers.

Founded by Sarnevesht and his mother, Julia Hashemieh, Bay Area Surgical Management has marshaled decades of doctor rage against insurance carriers—and envy of neighboring tech tycoons—into a profitable business. Hashemieh, the boss of the operation, likens herself to Robin Hood, pursuing justice in a medical community seething with discontent. She takes from rich insurers, keeps 15 to 25 percent of the profits, and gives the rest to surgeons—whom she calls “the poor slaves” of managed care. Her seven Silicon Valley surgery centers, plus an eighth in Doral, Fla., collect about $100 million a year in revenue, according to Sarnevesht. “I always tell Bobby, America is good to us, and we’re going to pay them back,” says Hashemieh, a 55 -year-old Iranian immigrant.

While insurance companies don’t pay all of the centers’ bills in full, they pay enough so that Hashemieh’s facilities typically collect four to seven times what participating providers receive for the same services, according to data cited by Cigna (CI) and Aetna (AET). Nationally, Aetna spent more than $500 million on out-of-network surgeries in 2011, an increase of more than 20 percent since 2009. The added cost helped drive up health-insurance premiums by 9 percent in 2011, while contributing to a 4.4 percent rise in U.S. health-care costs—already the highest in the world at $2.6 trillion. While insurance companies are often pilloried for driving up health-care costs as middlemen, in this case it’s doctors who are “using deceptive tactics to exploit unsuspecting patients,” says David Lansky, president of the Pacific Business Group on Health in San Francisco, a coalition of corporate health-insurance buyers. “These exorbitant prices are ultimately taken out of everyone’s wages and contribute to the continuing escalation of health-care premiums.”

Fed up, Aetna sued Hashemieh and partners in February, claiming they gouge on rates, pay surgeons excessive compensation for referrals, and defraud health plans—that they threaten the possibility of affordable health care. Aetna’s separate complaint with the Medical Board of California could shut the centers down and jeopardize the surgeons’ licenses. Aetna executives say they’re going after Hashemieh and a few providers in Texas, New York, and New Jersey to send a signal that out-of-network pricing is out of control. “We intend to take a very hard line,” says Carl King, Aetna’s head of national networks and contracting. The case continues to wind its way through the courts, but Hashemieh denies wrongdoing, insisting she is saving America’s doctors from corporate consolidation by helping them earn a respectable living.

 

http://www.businessweek.com/

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