Tyler Merrill, vice president of acquisitions & development at Ambulatory Surgical Centers of America in Hanover, Mass., makes seven points about developing surgery centers in highly regulated states with strict CON laws.
1. CON states still have room for ASCs. The ASC market hasn't become oversaturated in states with strict CON laws such as New York, Virginia, North Carolina, Georgia and Connecticut. This means new ventures are more likely to attract efficient surgeons not yet aligned with an ASC and achieve high volumes. Even in less populous areas of these states, Mr. Merrill figures a community of 60,000 people could support an ASC.
2. ASCs without a hospital face high barriers. Physicians who do not partner with a hospital on an ASC face very steep challenges in CON states, Mr. Merrill says. For example, ASCOA and partnering physicians just opened an ASC in New York that took five years develop because of the stringent and litigious nature of the CON process.
3. Hospital is a key partner in CON states. Because of the challenges of the New York project, ASCOA has no plans to join another de novo project in the state without a hospital partner. But the company is involved in several physician-hospital joint ventures in the state because it is "the most expeditious way to get through the approval process," Mr. Merrill says.
4. Hospitals more open to partnerships. As in the rest of the country, hospitals in strict CON states often see ASCs as a way to prosper under upcoming payment models, such as accountable care organizations, that emphasize savings. "Having a low-cost, high-quality surgical alternative that focuses on efficiency will be an important tool to help hospitals succeed," Mr. Merrill says. While a hospital might earn a 6 percent profit from its ORs, an ASCOA-managed ASC makes a 40 percent profit. "Even with reduced outpatient reimbursements, the advantage of an ASC with a proven partner is clear," he says.
5. A hospital partnership benefits from a third party. While there are many reasons for hospitals and surgeons to partner in strict CON states, surgeons would probably be rebuffed if they approached a hospital with a partnership plan on their own. "The hospital would most likely try to block the project," Mr. Merrill says. "Hospital representatives are not interested in creating competition. They would say, 'come and use our ORs.' " He says surgeons would have more success putting together a plan with a reputable third-party company and presenting it to the hospital as a win-win situation.
6. Physicians should own biggest share. Inside or outside strict CON states, physicians who partner with a hospital need to have the largest share in the ASC so they cannot be dictated to. "It gives them autonomy so that they can make decisions," Mr. Merrill says. ASCOA's hospital-physician partnerships are typically owned 50 percent by physicians, 25 percent ASCOA and 25 percent by the hospital.
7. OON fading in states like New York. While highly regulated states can yield high volume, states like New York provide relatively low per-case payments because the out-of-network option is fading. When United Healthcare sued OON centers in New York for waiving the patient's copay and deductible, many ASCs in the state signed contracts with payors and went in-network. Since in-network rates are lower, New York centers need to achieve higher volumes to maintain profitability.
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