The anesthesiologists’ ball was raging when Dr. Thomas Elardo and his
wife arrived on a December night in 2010. It was 11 p.m., and the Opera
House in downtown Los Gatos, Calif., was packed with nurses and doctors
dancing to ’80s covers by The Microbes, an all-doctor band. Elardo
climbed the stairs to the mezzanine bar and was immediately gladhanded
by Bobby Sarnevesht, a local entrepreneur, and orthopedist Samir Sharma,
who pulled Elardo away from his wife. Elardo had known Sharma for
years, but the orthopedist had never given him the time of day. That
night was different—he had something to show Elardo. At the bar, Sharma
flaunted a $960,000 check. Sharma said it was for his work as a surgeon
and investor in an outpatient surgery center in Los Gatos, operated by
Sarnevesht. “They were saying, ‘This is the kind of money you can make.
You’ve gotta come in!’ ” recalls Elardo. “I was speechless.”
Sharma and Sarnevesht aggressively worked the room that night. In the
days afterward, word of Sharma’s check raised eyebrows and spurred
debate among local physicians about the surgery-center chain operated by
Bay Area Surgical Management of Saratoga, Calif. The facilities count
some of the area’s best doctors as partners, including Michael
Dillingham, a longtime San Francisco 49ers orthopedist who now works
with the San Francisco Giants. By rejecting the discounted contracts
that participating in-network providers sign with insurers, the surgery
centers bill insurance companies at their own out-of-network rates,
which are 5 to 25 times as much as those in-network facilities charge.
They pay profits to some 60 surgeon-partners at rates of return that
often exceed 200 percent a year. The doctors who buy into the centers
get the return on their investments plus a fee for performing surgeries.
Patients pay little—the chain sometimes waives or reduces their
co-pays—and high-quality care keeps the chain’s reputation rock-solid.
“You feel like an idiot for not doing it,” says Nathaniel Cohen, a
Los Gatos orthopedist who attended the party. Both Cohen and Elardo, who
declined opportunities to invest in Bay Area Surgical Management
because of legal and ethical concerns, own shares in competing centers
that have network contracts with insurers.
Photograph by Boris BerenbergJulia Hashemieh (left) and Bobby Sarnevesht
Founded by Sarnevesht and his mother, Julia Hashemieh, Bay Area
Surgical Management has marshaled decades of doctor rage against
insurance carriers—and envy of neighboring tech tycoons—into a
profitable business. Hashemieh, the boss of the operation, likens
herself to Robin Hood, pursuing justice in a medical community seething
with discontent. She takes from rich insurers, keeps 15 to 25 percent of
the profits, and gives the rest to surgeons—whom she calls “the poor
slaves” of managed care. Her seven Silicon Valley surgery centers, plus
an eighth in Doral, Fla., collect about $100 million a year in revenue,
according to Sarnevesht. “I always tell Bobby, America is good to us,
and we’re going to pay them back,” says Hashemieh, a 55-year-old Iranian
immigrant.
While insurance companies don’t pay all of the centers’ bills in
full, they pay enough so that Hashemieh’s facilities typically collect
four to seven times what participating providers receive for the same
services, according to data cited by
Cigna (CI) and
Aetna (AET).
Nationally, Aetna spent more than $500 million on out-of-network
surgeries in 2011, an increase of more than 20 percent since 2009. The
added cost helped drive up health-insurance premiums by 9 percent in
2011, while contributing to a 4.4 percent rise in U.S. health-care
costs—already the highest in the world at $2.6 trillion. While insurance
companies are often pilloried for driving up health-care costs as
middlemen, in this case it’s doctors who are “using deceptive tactics to
exploit unsuspecting patients,” says David Lansky, president of the
Pacific Business Group on Health in San Francisco, a coalition of
corporate health-insurance buyers. “These exorbitant prices are
ultimately taken out of everyone’s wages and contribute to the
continuing escalation of health-care premiums.”
Fed up, Aetna sued Hashemieh and partners in February, claiming they
gouge on rates, pay surgeons excessive compensation for referrals, and
defraud health plans—that they threaten the possibility of affordable
health care. Aetna’s separate complaint with the Medical Board of
California could shut the centers down and jeopardize the surgeons’
licenses. Aetna executives say they’re going after Hashemieh and a few
providers in Texas, New York, and New Jersey to send a signal that
out-of-network pricing is out of control.
“We intend to take a very hard line,” says Carl King, Aetna’s head of
national networks and contracting. The case continues to wind its way
through the courts, but Hashemieh denies wrongdoing, insisting she is
saving America’s doctors from corporate consolidation by helping them
earn a respectable living.
In Hashemieh’s telling, the check Sharma waved around at that holiday
party was for six months of dividends, and it couldn’t have been for
$960,000 because she never wrote a check for that amount. (Recollections
of the amount vary, but doctors who saw the check place it in the range
of $700,000 to $960,000.)
Photographs by Dustin Aksland for Bloomberg BusinessweekForest Surgery Center in San Jose (left); Bay Area Surgical Group in Santa Clara
As the community wrestles with the legal and ethical questions
surrounding the chain, one thing is clear: Hashemieh’s centers have
brought a lot of doctors a lot of wealth. “I worry that situations like
this cause doctors to lose our moral authority,” says Cohen. He shares
an office with Ronald Joseph, an orthopedist who invested $40,000 in
Hashemieh’s Knowles Surgery Center. The two remain friendly partners
despite their differences over Hashemieh’s centers. “Doctors, like
everybody else, want to make money. If they see an investment that they
think is legal, what’s wrong with that?” asks Joseph. “I had a chance to
buy Google at $100 a share. Why miss the boat?”
A statuesque grandma with long brown hair and a thick Persian
accent, Hashemieh landed in the U.S. in 1978 as a 21-year-old single
mom fleeing the revolution in Iran. She earned a master’s degree in
economics and held a series of jobs: owning a grocery store, running an
all-you-can-eat buffet, and selling used cars and life insurance. She
put her son to work at age 12, carving roast beef in the family
restaurant. He’s been at her side ever since, acting as her partner in a
string of real estate deals and early Internet startups that sold
computer parts and compact discs.
The 36-year-old Sarnevesht is a natural salesman whose charm has made
him equally loved and loathed in Silicon Valley. He’s become the face
of the family surgery business, and it’s paid off: Sarnevesht has a $4.3
million home on an old vineyard in the Los Gatos hills.
In 2003, Hashemieh was short on cash for spec homes she was building.
Her sister and brother-in-law, a doctor, told her they were pulling in
$10,000 a pop for colonoscopies performed out-of-network in a rented
doctor’s office. Hashemieh was hooked. She and her son tapped out their
credit cards and mortgages, raising about $400,000 from the tightknit
Iranian-American community to start their own surgery center. They hired
Bobby’s father, Nader, estranged from Hashemieh, to remodel a drafty
warehouse in Santa Clara, Calif. “I had my doubts Julia could pull this
off,” says Edward Tennant, who helped launch Bay Area Surgical
Management and is now an executive at
HCA Holdings (HCA), one of the nation’s largest surgery-center operators. “But she’s the epitome of tenacious.”
Hashemieh spent months camped out in government offices obtaining
permits, Tennant says. When state health inspectors delayed the center’s
final walk-through, she said she’d shoot herself and leave a note
blaming the inspectors for tying up her assets, he says. Sarnevesht says
his mother was kidding. She got the permit.
In its first year, 2005, the Santa Clara center, named Bay Area
Surgical Group, did only 54 surgeries and lost more than $400,000,
according to state regulatory filings. Sarnevesht says he was “thrown
out of a hundred doctor’s offices” as he pitched his facility. “You
learn a lot about life getting tossed on the street.” Then he and his
mother figured out how to recruit doctors. In 2006, Sarnevesht
approached several orthopedists with a proposal to give them, free of
charge, a medical office building he was developing in Campbell, Calif.,
if they would do surgeries at Bay Area Surgical Group, according to
three doctors who declined the offer. “It seemed fishy,” said pediatric
orthopedist Jeffrey Kanel, one of the surgeons who declined the offer
and now co-owns a competing center.
Sarnevesht negotiated the $4 million sale of the Campbell
building in the summer of 2006, says Erik Hallgrimson, the real estate
agent for the seller. The deed shows the buyer was Silicon Valley Center
for Sports Medicine, which belongs to Sarnevesht and a group of doctors
that includes two of the busiest surgeons in Silicon Valley,
orthopedist Daniel Haber and spine surgeon Jeffrey Coe. They moved their
medical offices into the building after Sarnevesht remodeled it, city
records show. Sarnevesht “was trying to create an opportunity for
doctors to participate in the ownership of the building,” Hallgrimson
says.
Around the time of the Campbell building transaction, Haber bought a 5
percent stake and Coe took a 3 percent interest in Hashemieh’s Bay Area
Surgical Group in Santa Clara and began bringing their patients there.
Sarnevesht says Haber’s involvement was “a godsend.” The facility went
from break-even in 2006 to nearly $9 million in profits in 2009,
according to the latest state regulatory filings. Its
revenue-per-surgery doubled every year, reaching $21,293 in 2009.
Haber says the office building arrangement was entirely separate from
his decision to invest in Bay Area Surgical and has no bearing on where
he sends patients: “I take my cases where I think is ideal for my
patients.” Sarnevesht also says the real estate deal was not related to
the surgery center and that the doctors who participated put up money
for the building’s downpayment, as did he.
Word of Hashemieh’s returns spread through local operating rooms,
making recruiting easier. The busiest doctors in the Valley were offered
1 percent stakes in Bay Area Surgical Group for $10,000. Each 1 percent
returned $24,000 in annual distributions in both 2007 and 2008,
according to internal documents. In 2009, profits tripled.
By 2009, the company’s surgeon-investors were a Who’s Who of Silicon
Valley doctors, including Dillingham, who operated on Joe Montana’s
elbow, Steve Young’s shoulder, and Jerry Rice’s knee during their Super
Bowl years. Another Bay Area physician-investor, Kenneth Akizuki,
performed surgery on San Francisco Giants catcher Buster Posey last year
and helped reconstruct Giants closer Brian Wilson’s pitching elbow.
Another Hashemieh surgeon, gynecologist Camran Nezhat, pioneered the use
of laparoscopy, a minimally invasive technique that has revolutionized
abdominal surgeries.
Elite doctors attract patients with generous health plans that cover a
high proportion of out-of-network bills. According to investors,
surgeons direct patients with hefty insurance policies to Hashemieh’s
centers, and others are steered away. One former investor, orthopedist
Terence Delaney, says his equity was terminated by Hashemieh and
Sarnevesht after he failed to refer enough patients with plentiful
out-of-network benefits.
“Simple rule of thumb is Aetna, United, Cigna, and Blues with no
daily max,” texted Sarnevesht to Delaney last year, exhorting the
surgeon to bring in more sought-after patients. (In addition to Aetna
and Cigna, he was referring to
UnitedHealth Group (UNH)
and Blue Cross & Blue Shield plans.) Sarnevesht sent Delaney
another text message last month, threatening to sue the doctor for
breaching a nondisclosure agreement. (Delaney is now an investor in
competing surgery centers.) “See you in court,” Sarnevesht wrote.
Hashemieh’s firm sued Delaney on July 10, claiming that he breached a
nondisclosure agreement “that has resulted in lawsuits being filed
against Bay Area over erroneous information.”
Patients who wonder about their co-pays are relieved to learn they
are billed as if Hashemieh’s centers are in-network. “We will get paid
out-of-network from your insurance company, but whatever your benefits
are for in-network coverage, that’s what we will charge you,” explained
Christa Luchetti, office manager of Dillingham’s SOAR Surgery Center, in
response to a phone inquiry.
Ramon Deras, a patient of Coe’s, had lower-back surgery in 2009 that
resulted in a $148,600 bill for Anthem Blue Cross & Blue Shield.
Deras, 31, was supposed to pay a 20 percent co-pay, but Coe assured him
he wouldn’t be charged, says Deras, an electrical-component salesman for
Rexel. “The doctor took care of everything,” Deras says.
In March 2010, Mark Reynolds, the president of Aetna’s
Northern California operations, was attending a meeting of
surgery-center owners when one of them slipped him one of Hashemieh’s
and Sarnevesht’s marketing handouts. For $10,000, surgeons could buy
1 percent shares of National Ambulatory Surgery Center in Los Gatos,
entitling them to projected monthly payouts of $6,709 a share, according
to the document.
That comes out to an annual return of 805 percent—“pretty
outrageous,” says Laura Jackson, an Aetna in-house lawyer. Hashemieh’s
centers were already on Aetna’s radar for billing high; the handout, by
offering such an extraordinary rate of return, “suggested there was this
implicit notion that the doctors would refer their insured cases to the
centers” in exchange for exorbitant profits, Jackson says. The setup
appeared to violate state and federal laws against physician kickbacks
and self-referrals, which are designed to ensure that doctors don’t make
medical decisions based on money. The law bars doctors from accepting
any compensation, including free or discounted office space, in exchange
for providing patient referrals. But these statutes do allow physicians
to send their own patients to surgery centers they invest in, provided
the doctors pay “fair market value” for their shares and only receive
dividends in proportion to their ownership and “commensurate” to the
value of the center’s services.
After a yearlong investigation, Aetna filed a complaint with the
Medical Board of California in November accusing Hashemieh’s “renegade
centers” of charging “unconscionable” fees, and subverting quality of
care, “as physicians seek financial gain over patient safety.” Aetna,
the nation’s third-largest health insurer, cited the case of Lena Pho, a
38-year-old woman who bled to death last June at Hashemieh’s Forest
Surgery Center after a plastic surgeon perforated her liver in a
liposuction procedure, according to the Santa Clara County medical
examiner’s report. “It is highly likely” that Pho was referred for the
surgery “as part of an elaborate insurance gouging kickback scheme,” the
complaint said. Sarnevesht says the charge is ridiculous—health plans
don’t pay for liposuction.
Aetna pressed its claims in its lawsuit this February, saying the
company paid Hashemieh’s centers $23 million from 2008 through 2011 for
1,900 procedures that would have cost just $3 million at in-network
facilities. Hashemieh’s centers collect nearly $20,000 in facility fees
for knee arthroscopies that cost just $3,000 in-network, according to
Aetna. A disc surgery for lower-back pain, called a laminectomy, costs
Aetna about $6,000 in-network yet reaps nearly $120,000 for Bay Area
Surgical. Spinal injections, or epidurals, that cost less than $1,000
in-network bring in nearly $7,000 for Hashemieh’s centers. In June,
UnitedHealth filed suit against Hashemieh’s centers, accusing them of
submitting inflated and fraudulent bills and paying doctors to refer
patients.
The Bay Area Surgical partners countered in a separate suit filed
against Aetna on July 3 in which more than six dozen doctors, led by the
California Medical Association, accused Aetna of illegally pressuring
physicians and patients not to use out-of-network facilities. Both cases
are pending.
In their single-story suburban headquarters in
Saratoga, Hashemieh and Sarnevesht inveigh against their adversaries
while defending their practices. Sarnevesht denies their centers
routinely waive patient co-pays—a practice their lawyers argue in court
briefs is perfectly legal anyway. The reason their surgeon-partners earn
such high rates of return, Sarnevesht says, is simply because he and
his mother take out small management fees. “It’s not rocket science,” he
says. “We provide great service and charge physicians less.”
Hashemieh sees the clash with Aetna as an Old World feud between
herself and Mark Bertolini, Aetna’s chairman and CEO. She arrived in
America with nothing, she says, and now Bertolini wants to deny her what
she’s earned. “They’re bloodsuckers,” Hashemieh says. “I could not be
more honored to have come here penniless with a sick child, and now to
be sued by a Fortune 500 company for helping doctors earn a decent
living and not taking patients’ money. I’m not going to throw my doctors
into the ditch. I’ll fight for them to the last drop of my blood.”
Hashemieh’s partners are just as loyal. Urologist Shahram Gholami
owns shares and does surgeries in two of Hashemieh’s centers, and is the
landlord of one. “Julia and Bobby have put their heart and soul into
protecting doctors,” says Gholami, who bought a $4.5 million home with
an infinity pool in Monte Sereno, Calif., in 2010. “We don’t do this for
the money.”
Ronald Joseph, the Los Gatos orthopedist, waited three years before
deciding to invest his $40,000 in Hashemieh’s Knowles Surgery Center. He
initially declined to join because the profits seemed too good to be
true. Finally, in December, he couldn’t ignore the growing prosperity of
the surgeons who signed on.
“I’m sitting there saying, ‘If it’s a good deal, what am I doing
sitting on the sidelines?’” says Joseph, 70, who has practiced medicine
in Silicon Valley since 1981. With his medical fees falling in recent
years and his overhead costs rising, Joseph needed extra income to shore
up his retirement, he says. “Every doctor I spoke to said the quality
of care in her centers was high. After three years, I felt if something
were wrong, the government would have stopped it. The test of time said
maybe it’s not illegal.”
Since investing in Knowles, Joseph has earned $4,000 a month in
dividends for an annualized rate of return of 120 percent. Still, the
Aetna suit, and the chance of civil action against Hashemieh’s partners,
spooked him. “I don’t need the risk,” Joseph said in March, explaining
that he was planning on dismantling his partnership with Hashemieh and
Sarnevesht. As of mid-July, he hadn’t.
