JOHNSON CITY, Tenn. (WJHL) – An orthopedic group’s plan to build an ortho-only surgery center has drawn the support of area political leaders and large physician groups — and opposition from a competitor partly owned by Ballad Health.

Tennessee’s Health Services Development Agency will consider Watauga Orthopaedics’ certificate of need (CON) application Wednesday.

Watauga’s application lays out why the group says the proposed $17.3 million center will bring less expensive, higher quality options for procedures such as total hip and knee replacements, along with other orthopedic surgeries. The facility would be located near Tri-Cities airport and initially have four operating rooms.

Attorneys for Watauga, which has 20 physicians, must convince the Tennessee Health Services and Development Agency (HSDA) that opening the center would meet the state’s requirement. That is, it must be “orderly, economical and consistent with the effective development of necessary and adequate means of providing health care” for Tennesseans.

One Watauga surgeon, Dr. Richard Duncan, said it does just that. He said with total hip and total knee replacement now approved or slated for approval by Medicare, the lower-cost outpatient setting is best for patients, their pocketbooks, and taxpayers who help fund Medicare and Medicaid.

“The costs are about one third less having an outpatient versus an inpatient joint replacement,” Duncan said. “That benefits the patient whether they have a high deductible plan, which a lot of people do, or whether it it’s a government payor, it’s going to benefit that payor — or if it’s value-based care as we talked about before I think it would be a benefit. It’s going to be a cost savings in either one of those.”

Dr. David Moulton, the medical director for SoFHA, one of the region’s largest independent physician groups, backs the idea. So does Dr. Eric Harman, the board president of Mountain Region Family Medicine.

Both wrote letters of support and both said they believed the center would benefit their patients and their practices as what’s known as value-based contracting continues to expand.

That practice allows different groups in a patient’s episode of care — for instance, a hip replacement — to earn financial incentives for keeping the overall cost down without sacrificing quality. Groups that participate realize that if overall cost of such an episode is higher, their own compensation will be lower.

Harman wrote he believes the “physician owned and managed ASC would be the lowest cost for patients.” He also mentioned Watauga’s participation in the CMS (Medicare/Medicaid) “bundled payment care initiative” and their participation in a now-defunct accountable care organization — both part of value-based care systems.

“Clearly, they have a commitment to cost and quality,” Harman wrote.

Moulton wrote that Watauga had served his patients since 1990 and that its application “supports the Triple Aim” namely high quality, low cost, improved beneficiary experience.”

He wrote that internal SoFHA (State of Franklin Healthcare Associates) data show Watauga is “one of the highest quality and lowest cost orthopedic groups in the region.”

Opposition: Market has enough capacity

But attorneys for Holston Valley Surgery Center — co-owned by United Surgical Partners (USPI), Ballad and a group of physicians and practices — will try to convince HSDA’s board that a new “ASTC” (ambulatory surgery treatment center) would not be good for a market already saturated with underutilized centers.

HSDA guidelines recommend denying applications for new centers if operating room utilization in existing centers within a market won’t remain above 70 percent of capacity.

A PowerPoint presentation submitted to HSDA for includes reference to a current OR utilization of 70.1 percent and say that would drop more with the new project. The opposition proposal says opening the proposed center — which Duncan said would be complete in 18-24 months — would have a “significant adverse impact on Holston Valley (as well as other ASCs).”

The vote to oppose the application came from USPI and the other physician group owners with the exception of Watauga, Ballad CEO Alan Levine said in an email to News Channel 11. Ballad did not vote and “has taken no formal position on this application,” Levine said in the email.

Ballad can’t oppose CONs as a condition of the Certificate of Public Advantage (COPA) — though that restriction is one of several that have been lifted during the COVID-19 emergency. It had owned about two-thirds of the center but entered a joint venture last year with USPI that left USPI with 51 percent of Ballad’s previous share.

That left Holston Valley able to oppose CONs, but some observers have said the move amounted to an end run by Ballad around the COPA. The COPA was designed to mitigate Ballad’s market power following its creation through the merger of Wellmont Health System (the original majority owner of Holston Valley Surgery Center) and Mountain States Health Alliance.

Nevertheless, a brief ahead of Wednesday’s meeting provided by HSDA staff to its board did appear to support USPI’s contention that the recommended utilization levels to trigger approval on the criterion of need aren’t met.

While the application ticked all the other necessary boxes, the “application summary” included a staff note that Watauga’s attorneys had included three eye surgery centers in its total utilization statistics. Those centers — perhaps conveniently for the applicants — were performing cases at a rate that drove up the overall utilization percentages.

The brief for board members listed Holston Valley and four other surgery centers as the current competition for any new center. Holston Valley and Mountain Empire ASC in Johnson City both had high utilization rates, but the three others had rates ranging from 32 percent to 42 percent.

The total current utilization, without a new center, was 68 percent, and the brief noted “it appears that this criterion has not been met.”

What’s driving this?

The ability to perform total joint replacements in the outpatient setting was a major impetus for Watauga’s decision, Duncan said. When it comes to value-based care, that move is likely to benefit everyone financially, as in-patient joint replacements cost an average 30 percent more.

But even a transition of cases from Holston Valley and Mountain Empire (also part owned by USPI) should drive consumer savings, Watauga CEO Kim Wishon Marden told WJHL.

She said that’s because the facility costs — what ASCs charge for use of their space as opposed to physician costs for the actual procedure — tend to run substantially higher at those centers due to USPI/Tenet national contracts set with insurors. Tenet, a hospital corporation, owns USPI.

Wishon Marden offered an estimate that those contracts tend to extract prices from insurors about 15-20 percent higher than what local physician owned ASCs charge in facility fees.

Additionally, despite the apparent low utilization rates, SoFHA’s Moulton noted in his letter that a new surgery center should reduce wait times for surgeries.

“Patients in this area may have to wait 6 weeks or longer for a procedure,” Moulton wrote. “Patients that are eligible to have a procedure as an outpatient, which is safer and lower cost, may need to have the procedure inpatient due to wait times.”

As far as Ballad’s concerned, a June 2018 article about the shift from inpatient to outpatient total joint replacement on the Healthcare Financial Management Association’s website is revealing.

The piece covers the coming shift due to CMS approval of those procedures to outpatient and notes that at that time, total knee replacements contributed an average of 6 percent of hospitals’ total inpatient margin even though they only accounted for 2.7 percent of admissions.

The article also covered ambulatory surgery centers and their impact on total joint replacement’s large impact on the market.

It laid out “moderate risk” and “high risk” scenarios for hospital systems, financially speaking.

The moderate scenario saw hospitals capture 80 percent of outpatient joint replacement cases “in its hospital-owned ASC due to the higher rate of surgeon employment and lower penetration of physician-owned ASCs in the market.”

In the “high-risk” scenario, hospitals retained just 20 percent of outpatient cases “due to the higher prevalence of independent surgeons and physician-owned ASCs.”

While the article by Michael Rovinsky, Sean Looby and Laura Zacchigna goes into much greater detail, it seems in a nutshell to describe the factors at play in the battle set to be waged in Nashville tomorrow.