Renovation or Construction? Understanding the Basics

Best practices and core strategies needed for any successful ASC project.

Since 2015, Brent Stackhouse, managing director of Mount Sinai Ventures, has been involved in developing ASCs for the Mount Sinai Health System to meet market demands. This push was driven by a cost-saving payor culture as well as a push to fulfill his organization’s surgeon recruitment needs.

“When I took over, our [Mount Sinai Ventures] original strategy was to invest a minority stake in ambulatory surgery centers for the financial benefit of the health system, but there really was no strategic alignment between the ventures,” says Mr. Stackhouse. “In 2018, we realized that there’s a tremendous amount of opportunity for the health system and a real need for driving growth in ambulatory surgery outside of traditional hospital outpatient department settings.”

Though there were many reasons for this shift, the most compelling argument for developing ASCs was to help Mount Sinai increase its footprint geographically. “It’s hard to justify specialty care and certainly surgical specialty care in communities where we don’t have a facility,” he says.

Unkept promises

Mount Sinai’s journey, however, has been far from easy. Mr. Stackhouse was burned by a former management company he partnered with, and the experience was quite a wake-up call. “You need to be careful about who you partner with because some management companies will come in at the beginning of the project and sell you on this and that — they’ll promise you the moon and the stars,” he says. “By the time the place is open for business, they’re long gone, and you’re stuck dealing with no one who can be held accountable for things that were said and done.”

Enter Bill Mulhall, RN, CASC, a partner with Merritt Healthcare Advisors (MHA), a small, privately held and family-owned firm with a huge presence in the tri-state market and what Mr. Stackhouse calls an ability to “really understand the esoteric regulations around ambulatory surgery in the state of New York.” When Mr. Stackhouse’s division partnered with Mr. Mulhall’s company, they formed a joint venture company call Peak Point Partners, with Mount Sinai serving as the majority shareholder and MHA as the minority partner. Merritt was able to provide the accountability Sinai needed because it had a longstanding reputation in the tri-state market — developing around 30 surgery centers over the course of 24 years — and because it had skin in the game. “We’re not necessarily picky, but we never take on a project that would be on the verge of collapse if one thing goes wrong — because it’s our money,” says Mr. Mulhall. “We’re not out there spending everybody else’s money — we’re 100% responsible for every dollar that goes into any of the projects we’re involved in.”

The joint-venture arrangement has been in place since 2018. Although every surgical construction and design project is different, these best practices and core strategies employed by Mr. Stackhouse and Mr. Mulhall are essentially transferrable to any stakeholders looking to develop and operate a successful ambulatory surgery center.

Access above all

When it comes to selecting a location for a surgery, it’s all about access for individuals on both sides of the table. “My top priority in terms of selecting a location is access,” says Mr. Stackhouse. “Geographically, your center needs to sit somewhere that patients and doctors can get to easily.” The latter is sometimes overlooked in the research and development phase of a project. Outside of the physical access to the facility, the cases and the surgeons who will perform them need to be in proximity to where the center is placed, adds Mr. Mulhall. “You can’t build your center 30 miles away from your hospital hub. Many of Mount Sinai’s surgeons are employees of our surgery centers, so it’s important that we plot our facilities in locations proximate to where they are working every day,” he says.

Expertise in overlooked areas

There is a premium placed on the architects and designers used to create surgery centers — and rightly so. But it’s important to carefully consider the expertise you’ll need in other areas of your project as well. Compliance with federal and state regulations is a prime example. This means having a broker who is well versed in the specifics of your project. “In our case, it’s an ability to meet New York State health law regulations around ambulatory surgery centers, which gets updated every few years,” says Mr. Stackhouse. He recalls one center that lost out on approval due a critical oversight in these regulations. “It turned out the building wasn’t fully sprinkled, and that prevented it from getting approved,” says Mr. Stackhouse. “That’s an expensive mistake to make.”

If your facility is located in a state that requires Certificate of Need (CON) approval, your broker and landlord should be experienced in the CON laws and the corresponding approval process. “The most critical thing is your ability to negotiate with a landlord, one of the issues in the state of New York is the Certificate of Need process,” says Mr. Stackhouse. “It takes a very long time to get approvals, and you need to lock up space to get the approval, but you need to sign a lease in order to get that approval without confidence that you’re going to be approved.”

Despite the Catch-22 inherent in the process, there are landlords — albeit not many — who are willing to accept the terms involved in a surgery center build because of the potential upside down the road. “You have to find a landlord that is willing to accept certain terms, such as a termination clause, because they want a tenant that’s going to take between 15,000 and 30,000 square feet and sign a 10- to 15-year lease with multiple extensions built into it.”

Finding that special landlord requires patience — and the assistance of savvy, seasoned legal counsel. “You need attorneys who know how to negotiate leases — especially with the New York City landlords,” says Mr. Mulhall.

As you can see, the process of an ASC construction project is a bear, and we’ve only scratched the surface of the blood, sweat, tears and money involved in seeing the process through from conception to completion.

All the more reason you need the right partner, like the one Mr. Stackhouse found in Mr. Mulhall’s firm. “From financial details to quality standards to navigating the reputational risk of a project, you need someone who’s going to be there with you for the long haul and can be held accountable for the entire arc of that journey,” says Mr. Stackhouse. OSM

Note: This three-part article series is supported by Zimmer Biomet.