Taxpayers and patients unnecessarily pay hundreds of millions of dollars in medical costs because of arcane regulations, turf-protective hospitals, and a state regulatory agency that opposes reforms, say physicians seeking legislative relief to open more doctor-owned same-day surgery and diagnostic clinics.

“We’ve had a problem [for] many years” with the certificate-of-need laws that place restrictions on free-standing ambulatory surgery centers, Richard Bruch, chairman of the North Carolina Specialty Hospital Board, told a March 18 meeting of the Market Based Solutions and Elimination of Anti-Competitive Practices in Health Care Committee, a legislative task force.

Two bills were debated in last year’s General Assembly following an 18-month legislative study of health reform. The bills never reached a full vote due to conflicts between doctors and hospitals about the need for competition. As a result, the task force was created.

Speaking as an individual, Bruch, an orthopedic surgeon who also is team physician for the Durham Bulls, said one of the biggest impediments to cost-saving innovations is a state agency on whose board he serves — the North Carolina State Health Coordinating Council.

He said the SHCC’s goal appears to be “to protect the certificate-of-need holders and not allow for enough competition.” The agency oversees the legal process required to obtain certificates of need. The CON law is intended to prevent unnecessary market duplication of equipment, facilities, and procedures that could drive up health care costs.

Existing hospitals most often have the resources and clout to obtain certificates of need, as they have the capacity to tolerate the high regulatory costs, long waiting times, paperwork, and, sometimes, lawsuits involved to navigate the CON process and build new facilities.

Having a certificate of need gives unfair advantages to hospitals to enhance off-site operations not available to new applicants, physicians say.

Medicare rules pay hospitals higher reimbursements for their small satellite centers than physician-owned surgery centers can receive, and hospitals vigorously oppose attempts by competing hospitals and single-specialty surgery and diagnostic centers to secure certificates of need.

“It ain’t been good for physician ownership of regulated medical assets,” Bruch said, because SHCC has a history “of not taking action.” He gave lawmakers five separate examples in which requests were stymied.

The national trend is to move toward more ambulatory surgery centers, Bruch said, but when he asked the SHCC chairman if he foresees any change to allow more of the facilities in North Carolina, “The answer was one word. ‘No.’”

Triangle Orthopaedic Associates, for which Bruch is a consultant, owns 13 physical therapy sites, seven urgent care locations, and a specialty hospital in the Triangle. Blue Cross Blue Shield of North Carolina pays the physician-owned network 22 percent less for services than anywhere else in the Triangle, Bruch said. Patient surveys give the network a 97 percent satisfaction rate.

Sixty percent of the specialty hospital’s caseload is Medicare, Medicaid, Tricare, or charity cases, Bruch said. The hospital also accepts charity patients from Lincoln Community Health Center, a federally funded community health center.

Despite that record, SHCC has said it will not allow more physician-owned specialty hospitals to open in North Carolina, Bruch said.

Bruch said Triangle Orthopaedic’s ambulatory surgery centers “clearly exceeded” the annual State Health Plan’s requirement that at least 7 percent of patients rely on Medicaid and charity care.

David French, a consultant representing the North Carolina Orthopaedic Association, said data compiled by staff at the legislative Research Division verifies state government saved money in both 2011 and 2012 when patients used ambulatory surgery centers.

The average cost per North Carolina Medicaid case at hospitals was $493 in 2012, but only $332 at ambulatory surgery centers, according to the data. The data further show the State Health Plan that insures government employees paid 63.54 percent more in 2012 than it would have paid at ambulatory surgery centers, French said.

The cumulative cost savings for Medicaid and the State Health Plan would range from $70 million to $147 million from 2014-20, depending on how many ambulatory surgery centers are added, French said. Those numbers do not take into account additional millions of dollars privately insured patients would save.

“Are we going to continue to perform cases at the highest-cost facility or encourage the shift to lower-cost facilities?” he asked committee members.

Nationally, there are 2.01 ambulatory surgery centers per 100,000 people compared to 1.17 in North Carolina, French said.

“If I’m a specialist and I’m getting out of medical school, would I want to go to a state that strictly limits my opportunity to own ambulatory surgery centers, or would I want to go to a state where I could have ownership?” French said.

State Rep. William Brisson, D-Bladen, said he worries that ambulatory surgery centers would cherry-pick the most lucrative surgical procedures, depriving struggling community hospitals in rural counties of a cash stream they need to survive while being required to provide less profitable services.

French said hospitals have many ways to offset money-losing services not available to privately owned, single-specialty clinics.

Most hospitals have nonprofit status and pay no property taxes, which saves hundreds of millions per year. They have access to money from foundations and grants, receive sales tax refunds of over $300 million per year, and impose overhead charges to patients ranging from 400-1,000 percent for costs of treatments and drugs, he said.

French said legislation being advanced would bar creation of ambulatory surgery centers in counties with populations of less than 100,000 unless the local hospital approved a joint venture with them.

By entering a joint venture, “That community hospital would reverse the trend of patients leaving the county” to obtain greater health care choice at an urban hospital that then requires additional travel for follow-up care, French said. Those patients “are getting care in a fragmented way” under the current setup.

The North Carolina Radiological Society opposes changes to the certificate-of-need laws for imaging services.

David Levin, professor and chairman emeritus of the Department of Radiology at Thomas Jefferson University Hospital in Philadelphia, recited numerous studies to lawmakers indicating physician-owned centers with self-referral privileges (allowing doctors to order tests for their own patients without third-party referrals) tend to order more imaging and treatment, a natural outgrowth of a need to pay for facilities and equipment, driving up health care costs.

But French countered that numerous hospitals, including a few in North Carolina, are being investigated by the U.S. Department of Justice for pressuring physicians to raise inpatient admissions and paying kickbacks to physicians.

The Federal Trade Commission and the Justice Department have said that certificate-of-need laws create barriers to entry and expansion in the medical market, to the detriment of health care competition and consumers, French said. Hospital mergers and acquisitions of physician practices in North Carolina further restrict patient choice and limit competition, he said.

Dan Way (@danway_carolina) is an associate editor of Carolina Journal.