FRESNO, CALIF. - When we built the first surgical hospital back in the late 1980's, our 76-doctor investor group didn't have a grand plan or a vision for the future - basically, we were flying by the seat of our pants. As surgeons operating at the Fresno Surgery Center, we wanted a bed unit so patients who needed inpatient care could receive it right in our facility. We also had a sense that we could offer something different and better in terms of patient comfort.

Still known as Fresno Surgery Center, our facility is an amalgam of the existing surgery center with an attached 20-bed hospital unit. Although it has been refurbished and re-equipped since it opened in 1988, I'm proud to say the original building and floor plan have stood the test of time. Our facility continues to compete effectively for patients and generates a positive revenue stream. It also became the model for five surgical hospitals we have in various stages of planning. Here's the story of how the Fresno Surgery Center grew from a surgery center to a surgery center with a bed unit to the country's first surgical hospital.

	FACILITY: Fresno Surgery Center, Fresno, Calif. WEB: writeOutLink("www.fresnosurgerycenter.com","1","sb") IN SHORT: A group of pioneering surgeons created the first surgical hospital, but only after lobbying to change state laws, finding creative ways to finance the facility and facing down sharp competitor criticism.

The right time
Like many pioneering efforts, the expansion of Fresno Surgery Center was possible because of certain events in the healthcare environment. In the early 1980's, California led the nation in sunsetting its Certificate of Need law, opening the door for ambulatory surgery centers. After establishing a 12,000-square foot surgery center in 1984, the Fresno Surgery Center surgeons were frustrated with the inherent limitations of outpatient surgery. We wanted hospital beds so we could perform more complex procedures and patients could recover in the same facility.

In 1986, our doctor group and several others convinced the California legislature to pass a bill permitting surgery centers to add hospital beds. Heavily opposed by the California Hospital Association, the bill passed with certain restrictions. Six outpatient facilities were approved to add 20 beds, but the stay was limited to 72 hours.

Fresno Surgery Center set out to build a surgical bed unit on space adjacent to the center in what is considered a "garden office complex." We acquired the adjacent land and the consent of the business center's building owners. The investor group had grown to 96, but the $5 million price tag (it would cost $16 million today) was daunting. It was a gigantic challenge to find financing, as banks and other conventional lenders were uninterested in our project. The lenders didn't want to take the risk without some kind of operating model, and there was no other surgical hospital in existence on which to base this.

At the time, the building trades were suffering in a weak economy and looking for opportunities to stimulate construction. Our investor group found a willing ear in the Carpenter's Union Pension Fund, which loaned the money on the stipulation that union labor would be contracted.

A challenging start
The construction process was further slowed by three state agencies that reviewed all the plans. Each agency would suggest changes, and our architect and general contractor then struggled to make sure the building conformed.

Even after we resolved these issues and opened our bed unit, we faced several significant challenges. Because the facility was not licensed as a hospital, it did not have Medicare certification for inpatients (only outpatients). In a few unplanned admissions, we chose to treat Medicare patients, knowing that we could not seek payment.

The facility had not yet earned surgeon confidence. Physicians were uncomfortable with having inpatients in a non-hospital environment with a 72-hour restriction. It was a slow start, and we lost considerable money in the first six months. Fortunately, the surgery center was making money, and it offset the losses of the bed unit. Our inpatient caseload would soon rise steadily.

Staff concerns
Another early challenge was staff concerns about the impact of the bed unit on their work environment. Our nurses and techs had all left a hospital setting to come to an outpatient facility. They were concerned that adding inpatient cases would produce hospital hours, surgical emergencies and weekend work. They worried we would ruin the efficiency of the surgery center with longer cases and longer recovery.

Just as with the surgeons, we took it slowly with the staff. We alleviated some worries by not requiring any staff members to be on call. Those who were willing to be on call were rewarded for it, but no one was required to accept it. Because we were providing round-the-clock care, we hired many more nurses. In fact, our full-time equivalents tripled, a large increase in overhead during that initial period when we weren't making any money.

Patient scheduling became much more of a challenge, as the staff learned another set of procedures, many of them more complex. There were equipment issues, logistical issues, contracting and coding issues. Adding a bed unit to a surgery center has a huge impact, and it should never be undertaken lightly.

A new era
Fresno Surgery Center operated into the early 1990's under the special licensure, but surgeons continued to chafe under the 72-hour rule. In 1993, we applied for full hospital licensure. Fortunately, we had built the bed unit to hospital code. We also had a five-year track record of safe surgery and quality patient care, so we received full licensure with relative ease. The limit on patient stays was lifted, and we earned Medicare certification for inpatients.

Our competitors' reaction to our surgical hospital was name-calling, using words and phrases like "irresponsible," "skimming the cream," and "harmful to the community." This escalated into attempts to recruit our surgeons or get us excluded from health care contracts. None of these efforts succeeded, and today, every one of our competitors is paying us the highest form of compliment: They are remodeling or building additions with only private rooms.

Our 22,000 square-foot bed unit offers only private rooms, decorated and outfitted like luxury hotel rooms. It provides amenities like a mini-refrigerator in each room, plush robes for patient use, truly comfortable overnight accommodations for family members (at no charge), and meals prepared by a chef.

You may wonder how we remain profitable as we offer these "perks" to patients. We probably do pay a price in terms of profitability, but it's not a high price. I'd estimate the increase in overhead at one percent or less. This small cost actually buys us many benefits, the greatest one being an exponential increase in patient satisfaction. Over the years, I've read 25,000 patient satisfaction surveys that sing the same song. Patients write in the margin and on the back, going on and on about how happy they are with our rooms and service.

There are several benefits from this kind of patient satisfaction:

• higher caseloads, as patients push physicians in our direction
• improved employee retention, because it's more rewarding to work where patients are happy
• and greater leverage with payors, because we are recognized as "the best" in our area.

In the end, it all pays off in the bottom line, even though we may have spent more on the facility up-front, and may bear a slight increase in overhead.

The test of time
Fresno Surgery Center's partnership (California Limited Partnership) and governance has stood the test of time. The Joint Operating Committee, elected by the MD-investors, includes investors, community business leaders, and the center administrator.

Our center has a caseload of about 4,000 outpatients and 2,000 inpatients per year. The inpatient procedures tend to come from the "big four:" orthopedics, neurosurgery, general surgery and GYN, with orthopedics, general and GYN, representing 85 to 90 percent of outpatient cases. In our area, there are independent, physician-owned ENT and urology ASCs, so we don't see those specialties. We don't seek plastics procedures, because we find that plastic surgeons have unrealistic expectations about our cost of providing services.

Fresno Surgery Center continues to be profitable, although not as profitable as our best year, 1995. Like all other California healthcare providers, managed care has lowered our profits in recent years.

The original dedication to customer service has served Fresno Surgery Center well for nearly 15 years. Back then, we believed that patients responded to ambulatory surgery centers because ASCs gave them what they wanted: Quality care in a convenient setting. We wanted to extend that service to an inpatient setting that offered patients the kinds of comforts they truly wanted from hospitals, but just couldn't get.