1. ASCs with no physician ownership. ASCs without any physician owners can continue to be licensed pursuant to §§ 1200 et seq. of the California Health and Safety Code. This section requires “surgical clinics” (defined as “a clinic that is not part of a hospital and that provides ambulatory surgical care for patients who remain less than 24 hours”) to have a license to perform operations. Section 1204(b)(1) excludes physician owned and operated clinics from the definition of “surgical clinic,” and thus from the licensure requirement.
2. ASCs with partial or total physician-ownership. ASCs with partial or total physician-ownership should be able to begin or continue operations as long as they are either accredited or Medicare certified, even though they will no longer be able to obtain a license from the department. The key code section states as follows: Code §§ 1248 et seq., prohibits any person or entity from managing, operating, conducting or maintaining a “facility, clinic, unlicensed clinic … where anesthesia … is used … in doses that, when administered have the probability of placing a patient at risk for loss of the patient’s life-preserving protective reflexes” (an “outpatient setting”) unless such outpatient setting is, among other things, 1) certified to participate in the Medicare program or 2) accredited by one of the following accreditation agencies: American Association for Accreditation of Ambulatory Surgery Facilities, Accreditation Association for Ambulatory Health Care, the Joint Commission, or the Institute for Medical Quality.
An ASC with partial or complete physician-ownership is excluded from the ability to obtain licensure. Thus, the ASC must be Medicare-certified or -accredited to be exempt from the “outpatient setting” prohibition in order to begin or continue operations. There is some risk that partially physician-owned ASCs will be deemed unable to operate with only accreditation or Medicare certification (i.e., without a license). However, the plain language of the code appears to permit operation as long as the ASC has accreditation or Medicare certification. There is also some risk that certain payors and Medi-Cal, which historically have required a license for reimbursement, will not reimburse ASCs without a license.
3. Key risks. The core risks under this evolving situation include: (1) the state agency will determine that ASCs which are solely accredited cannot operate as ASCs (this appears unlikely but possible); (2) an ASC will not be able to receive Medicare certification; (3) ASCs will face significant delays in being accredited, or certified (e.g., a previously licensed ASC may face a lapse in licensure and not be accredited at the time such lapse, and thus could lose its Medicare certification); (4) payors and Medicaid will not pay unlicensed ASCs; (5) ASC financings, mergers, sales and changes of control will not be able to occur (due to confusion regarding these issues and/or others regarding licensure); and (6) an ASC will face corporate practice of medicine issues.
4. Court decision that has led to the change in position. This change in the licensure of wholly and partially physician owned ASCs stems from a specific court case, Capen v. Shewry, 155 Cal.App.4th 378 (2007), which was decided on Sept. 19, 2007. The court determined that because the surgical clinic was owned and operated by a single licensed physician, the department had no authority to license the clinic under Code § 1200 et seq. The court instead determined that the California Medical Board, the agency charged with oversight of physicians, was also responsible for oversight of the physician-owned facility, under Code § 1248. The department has instituted, in light of this ruling, a policy whereby it will no longer issue or renew surgical clinic licenses if the surgical clinic has any physician owners, even though Capen dealt with a wholly physician-owned surgical clinic.
5. Legislation and follow-up. Several parties appear to be working toward a legislative clarification of these licensure and accreditation provisions. From our discussions, it appears the general perception of ASCs operating in California is that an ambulatory surgery center can continue to operate in California if it has any one of the following: (1) licensure, (2) appropriate accreditation or (3) Medicare certification. We understand that many centers are moving quickly to obtain accreditation if they traditionally have not been accredited.
