Homer Alaska - Business

Story last updated at 3:47 PM on Wednesday, January 11, 2012

Assembly finds itself in tough position as it considers surgery center proposal



By Brian Smith
Morris News Service - Alaska

A recent announcement by the Kenai Peninsula Borough Assembly has added a new wrinkle to the debate over whether a group of area surgeons should be allowed to build a proposed surgery center in Kenai.

Assembly President Gary Knopp last week announced the assembly would seek to comment on Kahtnu Ventures' proposal to build an 8,365-square-foot, $9-million ambulatory surgical center in Kenai.

"It will not be neutral, it will be in opposition to your venture," Knopp said Jan. 3 while addressing Jim Zirul, a local ear, nose and throat surgeon and one of the founding members of Kahtnu, and Henry Krull, a Soldotna-based orthopedic surgeon also associated with the project.

"But I say that because it has to say something," Knopp added. "I can say it is with great reluctance that we even bring it forward as we choose not to comment on private ventures.

"But it is incumbent upon us as the caretakers of the hospital since we do own it. The borough owns it and we represent the people."

Knopp said the borough would seek public comment on the issue at its Jan. 17 meeting and would submit a letter to the state on the proposal from the results of the comments.

The Alaska Department of Health and Social Services is currently soliciting comments on the proposal through Jan. 23 and will host a public hearing on the matter at 5 p.m. Jan. 19 at the Challenger Learning Center in Kenai.

"I can tell you that I don't think a person up here has got a mind made up about it," Knopp added, speaking of the other assembly members.

"The purpose of the ordinance is not to oppose your project, it is to get the information out there to ourselves and to members of the public."

The surgery debate

Kahtnu consists of eight surgeons all associated with Central Peninsula Hospital, who hope to build the facility in downtown Kenai by the spring of 2013. Kahtnu filed for a Certificate of Need with the state in September, but its initial application was denied because it was considered incomplete.

At the time, CPH officials said none of the hospital's surgeons took ownership of the proposal, but Zirul maintains he and others have been pitching the idea since the mid 1990s, most recently at a June Central Peninsula General Hospital Inc. board meeting.

Zirul and Kahtnu members contend the surgery center — which will house outpatient surgery facilities currently available locally at CPH — will lower the cost of surgeries through efficiencies not afforded to hospital patients.

CPH officials contend the surgery center would pull away one of the more profitable aspects of the hospital, possibly resulting in layoffs and decreases in other, less profitable service lines.

In early December, CPGH Inc. board President Lore Weimer said the two sides had formed a "spirit of collaboration."

However, a Jan. 3 press release from the hospital called for residents to oppose the surgery center.

"I think they would like it for us to think it was a good idea to have a surgery center and want to partner with them," Weimer said of Kahtnu. "But, at this point, in our town, with the numbers we have and the services we offer, what we see is the potential for them to be able to (take) a damaging chunk of our outpatient surgery. That would decrease revenues at the hospital and cause us seriously to look at cutting back some services."

Zirul said if the hospital doesn't participate in the project, it could leave their operations isolated, causing problems as demand rises and the community grows. He said it would be "much more beneficial" for the hospital to spread out to other areas in the long run.

"As far as this group is concerned ... we still believe that collaboration with the hospital and the hospital participating in this venture is mutually beneficial in the long run for both organizations," he said. "We feel that the surgery center will bring more patients into the community that would otherwise leave to have outpatient procedures performed in Anchorage. If you (keep) those patients in the community, they will use the hospital for their other services."

CPH Chief Executive Officer Rick Davis said the hospital is estimating annual losses up to $20 million from surgery charges from a total $150 million the hospital realizes in total charges among all services if the surgery center is built.

The hospital performed about 2,500 total — inpatient and outpatient — surgeries in 2010, Davis said. Of those surgeries, about 1,700 were outpatient.

Davis said CPH regularly does business with 12 to 15 surgeons. A total of 8 surgeons have signed on so far with Kahtnu Ventures.

"But, they are not going to be taking all of their business out of here," Davis said.

"It is something we don't feel is necessary or beneficial to our community," he added. "It is not that we are not wanting to collaborate with our doctors, we just don't want to partner with them on a surgery center."

In a document outlining the Kahtnu proposal, the group claims surgery centers typically charge one-half to two-thirds less for the same procedure performed in a hospital setting.

"With the growing population on the peninsula and the growing number of surgical specialists, there is an identified need for additional outpatient surgery operating rooms as the availability of operating rooms for both inpatient and out patient surgeries at CPH has diminished," the outline reads.

Davis said CPH's fourth operating room — one previously approved by the state — will likely open in May. The three current surgery rooms are at 80 percent capacity, but when the fourth is opened, CPH will be at 65 percent surgical capacity.

"It doesn't mean that 80 percent of the time your (operating room is) full, it is that you are doing 80 percent of the minimum number of cases the state will approve a new OR based on," Davis said.

Davis added that after the fourth room is opened, the state would likely not approve a fifth by "quite a long way."

"According to our CON consultant, we are good through 2019, based on his estimate," he said.

The government's role

Assembly member Bill Smith of Homer said Kahtnu's proposal came up during committee discussions on Tuesday, but added the body didn't want to take a position on it until members heard from the public.

The assembly — which has a hand in many larger decisions CPH makes and represents constituents in the service areas taxed for the hospital's benefit — is likely leaning against the proposal, Smith said.

"If the assembly doesn't take a position, basically we are not protecting the assets," he said. "At this point, I think it is incumbent upon the assembly to voice concerns about the assets the service areas have created with their taxes."

Smith said surgery centers are common in many other areas, specifically in the Lower 48. The state has created the CON application to protect the interests of hospitals, particularly in rural areas, he said.

"The idea is that there are certain, pretty profitable things hospitals do and a lot of things that are not profitable," he said. "What the state has done is create the Certificate of Need system in order to see, especially rural hospitals, that we're somewhat protected from someone skimming the cream off the top of the health care services."

According to the state's website, the CON program is a "review process used to promote responsive health facility and service development, rational health planning, health care quality, access to health care, and health care cost containment.

"Project reviews help ensure that the public will be able to comment on the project during its development, that it fits well within the continuum of care, and that the project will meet the public need while preventing excessive, unnecessary, or duplicative development of facilities or services."

Zirul thinks the borough assembly is in a difficult spot — finding a balance between protecting its hospital and allowing for economic development. By opposing the center, he said they would be making a "very loud statement."

"The borough also has the responsibility to allow for economic opportunity within the borough," he said. "The surgery center will provide tax dollars to both the borough and the city of Kenai because it is a for-profit."

"In a way, the borough is suppressing economic activity ... when you look at it in a broader sense," Zirul said. "It is not only just not agreeing with the CON for a group of surgeons that want to build a surgery center, there are all those practices in the area ... that if the hospital decides to do a project and build like a medical office space they are now directly competing with those other physicians in other facilities in that area that are private."

Krull agreed, adding he perceives the borough to have a conflict of interest in possibly opposing free enterprise.

"I understand the borough's responsibility, the borough owns the asset and the asset is the hospital," he said. "I understand what they are saying when they say they have to oppose anything that threatens their asset."

However, Krull added, the borough assembly has a "duty of loyalty to their constituency," as well.

"I don't know frankly how they can approach this issue and manage all of these responsibilities," he said.

Karen Lawfer, health and social services planner for the state, said the borough assembly's comments would hold the same weight as the rest of the comments received. However, the state also would take into account the borough's — and Kahtnu's — involvement in local health care planning for services and public accountability.

"And there will be review to see how this health care facility has been involved in the planning process in the community," she said.

Zirul said he would recommend the assembly take a neutral stance on the issue and let the state decide if the CON was needed for Kahtnu to proceed.

Weimer said she agreed with the assembly's decision to comment. She said such a decision would re-enforce the community's wish — expressed during the exploration of a whole hospital joint venture — to have a strong, local hospital owned by residents.

"Having a resolution from the assembly shows that the people who are representing their constituents believe that the hospital is providing sufficient resources to take care of the needs of our patients well," she said.

Brian Smith is a reporter for the Peninsula Clarion.

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