Ambulatory surgery centers (“ASCs”) continue to demonstrate strong growth nationally, as the same-day surgical care model offers advantages to both patients and providers. On the patient side, ASCs boast higher convenience and lower overall cost. For providers, well-designed and well-managed ASCs are uniquely positioned to capitalize on operational efficiencies. While offering many potential advantages, ASC development and investment also presents unique risks that providers, practitioners and investors must consider.
ASC Growth
The ASC market in the United States was recently valued at approximately $40 billion. With several higher-acuity procedures being added to the ASC Covered Procedures List (“ASC-CPL”), together with relaxed certificate of need (“CON”) requirements, some analysts predict the ASC market has the potential to exceed $75 billion by 2030.
On the revenue side, CMS’s 2024 final payment rule added 37 surgical procedures to the ASC-CPL, including 11 surgical codes. The addition of shoulder arthroplasty is particularly noteworthy as a growth opportunity for ASCs given the projected increase in demand for this particular procedure in the coming years.
On the regulatory side, CON requirements continue to serve as a barrier to ASC growth. Roughly half of the states currently require a CON for ASCs; however, as state and local regulatory agencies become more familiar with the ASC model and the associated cost savings, there are signs that CON regulations may be trending less restrictive for ASCs. For example, Tennessee, South Carolina and North Carolina recently relaxed their CON requirements for ASCs, paving the way for ASC expansion in these states. Analysts, providers and investors will be watching this trend carefully given its impact on ASC growth potential.
ASC Safe Harbor for Joint Ventures
ASCs frequently involve joint venture structures. One of the most important initial considerations with any ASC joint venture is regulatory compliance. Structuring joint venture arrangements to comply with all elements of an Anti-Kickback Statute (“AKS”) safe harbor continues to be the best practice and only way to ensure AKS protection. However, applying OIG Advisory Opinion No. 21-02 (“Advisory Opinion”), which we previously discussed here, parties may be more willing to enter into joint venture ASCs that do not satisfy all elements of the applicable ASC Safe Harbor so long as the arrangements include sufficient safeguards such as those highlighted in the Advisory Opinion, which include:
- Physicians who would not meet the one-third tests of the ASC Safe Harbor use the investment ASC on a regular basis as an extension of their practices, and the physician investors do not cross-refer ASC-qualified procedures to other investors to increase the ASC distributions;
- The health system does not encourage or track referrals by its affiliated physicians or otherwise create incentives to refer; any compensation it pays to the affiliated physicians would be fair market value and not take into account the volume or value of referrals; and it does not include any costs related to the ASC on its cost report unless required to do so;
- The manager does not make or influence referrals to the ASC and does not have physician ownership;
- No offers of investment are based on the potential for referrals, no loans are made to investors and all distributions are proportionate to the investments;
- The ASC and its investors provide notice to the patients of the investment interests and do not discriminate against those patients receiving assistance under any federal health care program; and
- Ancillary services performed at the ASC are related directly and integrally to primary procedures performed at the ASC and are not billed separately to any federal health care program.
Hospital-physician arrangements often include the ownership of real estate that is leased to the venture, along with other various compensation arrangements. The Advisory Opinion makes clear that, when leased real estate and other ancillary arrangements are involved, the parties to ASC arrangements must ensure that related arrangements comply with an applicable safe harbor and/or that a risk assessment has been conducted if certain safe harbor elements cannot be satisfied.
ASC Development and Construction Considerations
Investors vying to advance an ASC project focus significant time and energy on pre-construction analyses and planning. Making wise, calculated decisions at this stage is crucial to efficient ASC development and sustainable operations upon opening. For example, overestimating case volume or hiring an architect or contractor with no prior ASC construction experience can, and often does, result in higher initial costs and decreased profit margins throughout the life of the facility.
The design of the facility is critically important to an ASC’s success. ASCs maintain lean operations to maximize their intended operational and economic benefits. ASCs designed with surplus space tend to result in higher upfront costs and increased long-term operational expenses. On the other hand, ASC facilities designed with adaptable operational areas and an efficient space allocation based on reliable, data-driven estimates of procedure volume are much more likely to capitalize on the economic benefits associated with ASC operations. Planning for adherence to CMS requirements for Medicare-certified facilities is also an important design consideration. Retrofitting facilities to meet Medicare requirements is costly and can undermine the financial upside potential of an ASC.
When planning a new ASC, it is recommended that the parties obtain independent feasibility and market studies to provide essential data regarding the sustainability of any proposed ASC arrangement. Reliable data that supports the projected case volume and intended operational area to sustain an ASC is crucial. If the proposed ASC is affiliated or partnered with a larger network, the network’s historical data can inform procedure volumes and other data sets. In some cases, independent feasibility and market data can also support more favorable loan or financing terms.
Practical Takeaways
- ASC growth is poised to continue in the near term, albeit with some stubborn barriers, such as CON laws. Relaxed or repealed CON laws could accelerate ASC growth in those states.
- Early in the planning for any ASC, parties are advised to seek qualified legal counsel to ensure that a regulatory risk assessment has been performed and that the arrangement is structured for compliance with ASC Safe Harbor requirements and/or relevant OIG Advisory Opinions.
- Independent feasibility studies and market analyses should be used to support key business plan projections such as site selection, case volume and facility design to maximize operational and economic efficiencies.
If you have additional questions or would like more information on this topic, please contact:
- Danielle Bergner at (414) 721-0913 or dbergner@hallrender.com;
- Mark Adams at (248) 457-7868 or madams@hallrender.com; or
- Your primary Hall Render contact.
Special thanks to Zachary Renier, Summer Associate, for his assistance in preparing this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
