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Little Rock Surgery Centers Fight ABCBS Over COVID-era ReimbursementsLock Icon

6 min read

More: A judge ruled in favor of the surgery centers. That story is available here

Two Little Rock surgery centers are battling the state’s largest health insurance company over possibly millions of dollars in reimbursements for procedures done during the COVID-19 pandemic.

The medical centers — Freeway Surgery Center LLC and Centerview Surgery Center LLC — became temporary hospitals during the public health emergency. Freeway Surgery Center is known as Legacy Surgery Center.

The companies said in court filings that they should have been reimbursed for procedures as a hospital instead of at the lower rate of an ambulatory surgical center. Ambulatory surgery centers, unlike hospitals, aren’t allowed to keep patients more than 23 hours.

But when COVID-19 swept across the country in early 2020, it filled many hospitals, leaving patients waiting for rooms lining the hallways.

In response to the crisis, the federal Centers for Medicare & Medicaid Services created a “Hospital Without Walls” program that allowed ASCs to be converted to temporarily licensed hospitals during the emergency, which ended May 11.

“We qualified under all the rules to be acting in the capacity of a hospital during COVID,” said E. Scot Davis, CEO of Arkansas Urology, which owns Centerview Surgery Center. “And obviously, our costs increased, just like hospitals and all other medical providers. So certainly, it impacted our reimbursement.”

During COVID, “ourselves and Legacy, the neurosurgery center, were able to do some of these nonemergent cases in our facilities to take the burden off of the hospital,” Davis said.

Scott Schlesinger

Nearly all of the commercial health insurance companies agreed to increase their fee schedules to reflect the new hospital classification, Dr. Scott Schlesinger said in a state Senate Insurance & Commerce Committee meeting on March 30, 2021. Schlesinger is the practice founder of Legacy Spine & Neurological Specialists of Little Rock and operates Legacy Surgery Center.

But Arkansas Blue Cross & Blue Shield of Little Rock and HMO Partners Inc., the joint venture between Baptist Health and ABCBS that does business as Health Advantage, did not agree to raise their fee schedules.

In September 2021, the surgery centers filed a complaint with the Arkansas Insurance Department accusing ABCBS of violating the Arkansas Temporary Hospital Facility Act of 2021, which required ABCBS to offer a hospital contract to a temporary hospital, such as the ASCs.

ABCBS denied that it was violating the act.

The Arkansas Insurance Department investigated and hired a Dallas auditing firm to review the reimbursement rates of three major carriers in Arkansas to ambulatory surgical centers.
The auditor found that “claims from one specific insurer appear to indicate that the temporary hospitals were reimbursed consistently lower than regular hospitals in both 2020 and 2021,” according to Booth Rand, general counsel of the Arkansas Insurance Department, in a filing in Pulaski County Circuit Court. “This specific insurer is ABCBS.”

An administrative hearing on the matter was held in June. ABCBS provided Freeway with a new rate sheet, but Freeway didn’t want it, ABCBS and Health Advantage’s attorney, Joseph Falasco of Quattlebaum Grooms & Tull, said during the more than two-hour proceeding at the Arkansas Insurance Department. And Centerview didn’t provide ABCBS with information to evaluate a new hospital rate sheet, he said.

“We asked to be reimbursed as a hospital well over two years ago,” Davis told Arkansas Business.

Freeway said in its filings that the fees ABCBS offered were “far less than the rates it pays to other hospitals for the same outpatient procedures.”

Falasco said in filings that ABCBS had complied with Arkansas rate statutes. He also said that the requested retroactive application is unconstitutional.

The hearing officer, Gary Arnold, found that the Temporary Hospital Facility Act required ABCBS to offer a hospital contract to a temporary hospital facility and the act is retroactive.

The legal argument was split into two phases. The first phase involved the legal questions, and the second phase, if necessary, would deal with damages. The surgery centers didn’t list how much money they’re owed in their filings, but it’s anticipated by people familiar with the case to be in the millions.

In August, ABCBS and Health Advantage appealed the decision to Pulaski County Circuit Court.

“We don’t comment on pending litigation,” an ABCBS spokeswoman told Arkansas Business via email last week. The Arkansas attorney general’s office has asked to intervene in the case to defend the constitutionality of the act. Pulaski County Circuit Court Judge Tim Fox has denied the request, and the attorney general’s office has appealed that decision, which is pending.

CMS Takes Action

In March 2020, the country and the world were “plunging into death and destruction and our hospital systems were strained to the max,” Legacy’s Schlesinger said in the committee meeting in March 2021.

The Centers for Medicare & Medicaid Services recognized that it needed to take action. It allowed ambulatory surgery centers, which are focused on providing same-day surgical care, to be converted to temporary hospitals during the public health emergency.

“And we signed up for a number of reasons,” Schlesinger said.

Almost all the same procedures that can be done at a hospital that are considered outpatient procedures can be done at an ambulatory surgical center. A hospital could keep a patient as long as medically necessary, but an ASC could not.

“So under this [CMS] development, ambulatory surgery centers across the country were allowed, under Medicare rules and guidelines, to keep people for how many ever days they needed to stay, not just 23 hours and then you have to transfer them,” Schlesinger said. “You could keep the patient for two days, three days, a week, whatever was necessary medically.”

He said that under the program, CMS made it clear that surgery centers that were now temporary hospitals could bill as a hospital.

In Arkansas, nearly all the commercial insurance companies changed the reimbursement rates for the surgery centers that participated in the program, he said.

But a couple of insurance companies have done little to help and have done “all they can to inhibit and ignore,” Schlesinger said.

Freeway Surgery Center moved forward in good faith and kept patients as long as they needed to stay, he said. “We have spent the extra money on nursing care to do so,” Schlesinger said.

He said that he asked Sen. Missy Irvin, R-Mountain View, to introduce the legislation to address the issue.

The bill is “not only about today and about yesterday, but about the next pandemic, so that no insurance company would subject anybody to the discouragement to trying to do whatever they can, either as a medical provider or as a facility provider, to help and save people’s lives or save people suffering and help in their care,” Schlesinger said.

Irvin’s legislation passed and became the Arkansas Temporary Hospital Facility Act.

Accusations Fly

In September 2021, the surgery centers filed a complaint with the Arkansas Insurance Department saying that they hadn’t received a hospital contract from ABCBS.

“The Surgery Centers’ petition is nothing more than another unwarranted backdoor attempt to burden Arkansas patients with additional healthcare costs,” ABCBS’ attorney, Falasco, wrote in its response. “The General Assembly never intended to increase the economic burden of healthcare on patients during the COVID-19 Pandemic while lining the pockets of well-endowed surgical centers.”

An attorney for the surgery centers, Baxter Drennon of Hall Booth Smith’s Little Rock office, said in a filing that ABCBS “certainly denigrates the two temporary hospitals that answered the call of duty and served Arkansans in their most urgent time of need. But ABCBS’s greed knows no limits, and ABCBS would do anything to avoid fair play.”

The surgery centers asked Judge Fox to uphold the Arkansas Insurance Department’s order.

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