South Bay surgical procedure clinics overbilled, insurance coverage big claims – The Mercury Information
Thomas Elardo is a successful podiatrist — one of Silicon Valley’s best and busiest — but he knows how hard it is these days to make good money in medicine.
So he knew “something wasn’t right” when another doctor one night at a restaurant showed him a $980,000 “bonus check” and invited him to become part of a surgery center.
Aetna Insurance reached the same conclusion: In a $20 million lawsuit, it claims the Santa Clara County company behind that check is making millions of dollars and enriching doctors by sidestepping state laws meant to protect patients and control costs. The suit says Saratoga-based Bay Area Surgical Management has recruited dozens of local doctors to invest in its outpatient facilities and then to refer patients to those facilities, which charge exorbitant prices for medical procedures.
The management firm denies the allegations.
Aetna’s suit reflects the growing discomfort among some local doctors with the network of surgery centers, which they fear creates flagrant conflicts of interest on the part of investing physicians.
“It bothers me that they have been able to usurp the ethics of medicine,” said Dr. Carl A. Bertelsen, a surgeon at Good Samaritan Hospital in San Jose.
The ultimate losers, both the doctors and Aetna contend, are average health care consumers, who will bear the burden of overcharges through surging health insurance premiums.
In the suit, filed in February, Aetna claims Bay Area Surgical Management and its seven facilities violated California law by:
Aetna also alleges fraud because, it said, the centers concealed the physicians’ financial stakes in the referrals and because of “inflated charges that constitute fraudulent billing.”
The co-founders and managers of Surgical Management, named in the suit, are Julia Hashemieh, Bobby Sarnevesht and Javad Zolfaghari.
Surgical Management on average was paid more than seven times what other clinics charged for equivalent procedures, the insurer claims.
The bill for a bunion repair was $66,100 at Santa Clara’s Bay Area Surgical Group, compared with an average of $3,677 at Northern California in-network providers, according to the lawsuit.
Forest Surgery Center in San Jose charged $6,642 for a colonoscopy, compared with $1,044 at centers elsewhere. SOAR Surgery Center in Burlingame billed $23,301 for a knee arthroscopy, compared with $2,085 elsewhere.
“The affordability of health care is being jeopardized, and the ethical principle of social justice is being violated,” said Dr. Steven Jackson of the Santa Clara County Medical Association’s committee on bioethics. The clinics pass on the “higher cost of health care insurance to the citizens of California,” he said.
Disparate care based on insurance coverage, dubbed “cherry-picking” by Aetna, bothered other physicians.
After buying a share in National Ambulatory Surgery Center of San Jose, one doctor said he was told to concentrate on referring patients with high-paying, out-of-network insurance coverage. He said it became difficult for him to schedule surgeries for Medicare patients, workers’ compensation cases, and patients with restricted coverage. He asked for anonymity because of fear of retribution.
Bay Area Surgical Management asserts a “David-and-Goliath” plot by Aetna, accusing it of using the lawsuit and threats to “strong-arm” patients away from its facilities. It has formally rejected all of Aetna’s legal claims.
About 60 Bay Area doctors are investors in Surgical Management facilities, including orthopedist Dr. Michael Dillingham, former team doctor for the San Francisco 49ers who operated on Hall of Fame players Joe Montana, Jerry Rice and Steve Young. Another SOAR partner, Kenneth Akizuki, operated on San Francisco Giants catcher Buster Posey’s ankle.
The doctors are not defendants in the suit.
Aetna says Surgical Management and the clinics have cost it $23 million for about 1,900 procedures over the past two years, $20 million more than it should have charged, according to the suit filed in Santa Clara County Superior Court in February 2012.
It wants that money back, damages and a declaration that Surgical Management’s practices are illegal.
Bay Area Surgical Management appeared at a time when doctors were seeking ways to compensate for the shrinking reimbursements from government and insurance companies. Outpatient surgical clinics have become popular with consumers because they employ medical advances that permit less invasive surgeries and faster acting anesthesia, and they quickly put patients back on their feet.
To attract doctors, Surgical Management offered high returns on investments to physicians who referred well-insured patients to them, Aetna says.
To entice patients, the insurer contends, Surgical Management waived co-pays and out-of-pocket costs that might have deterred them from choosing an “out of network” provider.
California law permits physician investment in medical clinics and referrals to them, but Aetna claims Surgical Management violated laws requiring disclosure of financial interests to patients and prohibiting fees for referrals, disproportionately large medical charges and the routine waiver of co-pays.
Aetna alleges Surgical Management urged its investor physicians to concentrate on patients with top-tier insurance.
In a 2010 text message to an affiliated surgeon, Sarnevesht urged adding cases and advised: “Simple rule of thumb is aetna, united, cigna and blues with no daily Max.”
Aetna concedes that it didn’t catch the problem right away because its computerized “auto-adjudication” does not review the dollar value of each of the thousands of claims processed daily. Only when Aetna more closely studied what was boosting health care costs did it notice that costs for “out of network” surgery centers were high and growing, Aetna attorney Laura Jackson said. Then it zeroed in on Surgical Management centers.
“California case law provides that nonparticipating or noncontracted doctors may bill their ‘reasonable and customary’ charges,” Jackson said. “Where the rubber meets the road obviously is what is considered ‘reasonable.’ That is the heart of the dispute. No court yet has set a bright line or cap on that amount.”
Bay Area Surgical Management categorically denies the allegations. “The numbers that they’re using are complete fabrication and completely inaccurate,” Sarnevesht said.
Aetna “suddenly woke up and said, ‘Oh my god, we overpaid,’ ” he said.
Doctors are angry simply because they finally have competition, he said. “They’re losing patients because they are not as good.”
Aetna is the real problem, one Surgical Management doctor said.
Aetna wants “the cheapest thing rather than the right thing,” said Dr. Shahram Gholani, a San Jose urologist and shareholder at National Surgery Center and Forest Surgery Center. In a response to the Aetna lawsuit, Bay Area Surgical Management accused Aetna of attempting to “bully the surgery centers into signing contracts containing very low rates.”
Even critics of Surgical Management say the insurer bears some of the blame.
“Who was minding the fort?” Elardo said. “Every year, insurance premiums climb. I blame the insurance company for not doing due diligence, and not seeing that on one block, doctors charge $50 and $500 for the same procedure.”
The high billings brought the high rewards.
An undated Surgical Management statement of anticipated financial returns at National Surgery Center promises an 805 percent annual return on investment. A 20 to 30 percent return is more typical, said doctors.
Elardo recalled that late-night Christmas party in 2010 in Los Gatos.
“Bobby (Sarnevesht) and Dr. Sam Sharma were there. … They held a check, for almost a million dollars, right to my face,” he recalled. “They said, ‘This is what it’s like if you come to Bay Area (Surgical Management). … It’s just one month, for one center.’ “
Sarnevesht did not return phone calls seeking a comment.
“If it sounds too good to be true, then there’s something fishy, as far as I’m concerned,” said Good Samaritan’s Bertelsen.
But he knows “plenty of people who jumped on board,” Bertelsen said. “They’re dangling a lot of carrots … at a time of economic unrest.”
Contact Lisa Krieger at lkrieger@mercurynews.com.
Outpatient surgery centers
Bay Area Surgical Management operates these centers.
Bay Area Surgical Group, Santa Clara
Forest Surgery Center, San Jose
Knowles Surgery Center, Los Gatos
Los Altos Surgery Center, Los Altos
National Ambulatory Surgery Center, Los Gatos
SOAR Surgery Center, Burlingame