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Business Advisor: Time for Timeshare Surgery Centers?
Surgeons can lease ORs, staff and equipment from an existing facility.
Daniel Cook
Publish Date: June 2, 2016   |  Tags:   Business Advisor
dual-licensed ASC EVERY OTHER FRIDAY Dual-licensed ASCs can't have concurrent or overlapping hours of operation, and they must clearly state their days and times of operation.

Can ASCs operate as timeshare properties? Yes, thanks to a little-known CMS ruling that lets multiple ambulatory surgery centers use the same physical space, including the same operating rooms, on separate days of the week. Timeshare ASCs must be dually licensed by the states in which they operate and they can't have concurrent or overlapping hours of operation.

These condo or "entity within an entity" arrangements let surgeons lease staff and equipment as needed without the multimillion-dollar burden of land acquisition, construction, equipment and staffing. Although some states, including Florida, won't license multiple ASCs for the same address, timeshare centers are popping up across the country.

"Leasing outpatient operating room space is a cost-effective way for single-specialty physicians to acquire ASC space," says Beverly Kirchner, RN, BSN, CNOR, CASC, founder of Texas-based SurgeryDirect, which teamed with a local hospital and a neurosurgeon to develop a dual-licensed ASC that opened last month in Littleton, Colo.

Keeping odd hours
Believed to be Colorado's first dual-licensed ASC, the Functional Neurosurgical Ambulatory Surgical Center hosted its first case on April 15. It's open on the first and third Friday of the month. It occupies the same space as the host center lessor, the Highline South Surgical Center, which is open for all but the first and third Friday of the month.

How can a surgery center subsist when it's only open 2 days a month? Neurosurgeon David VanSickle, MD, PhD, performs highly profitable deep brain stimulation for patients with Parkinson's disease, dystonia, essential tremor and severe obsessive-compulsive disorder. He begins the two-part surgical procedure at Littleton Adventist Hospital, a 51% partner in the joint venture. There, patients are anesthetized while a CT scan and robotic guidance identify where to place 2 electrical devices to slow too-rapid brain activity. One week later, the patient undergoes a brief — 1 hour or less — procedure at the ASC to insert a small battery-powered generator similar to a pacemaker into his chest. Dr. VanSickle needs to do only 8 cases to recoup his investment, which he expects to do after 3 months.

The Functional Neurosurgical ASC cost $465,000 to develop, including the developer's consulting fees, state licensure fees, and the purchase of equipment and supplies. It costs around $3 million to develop a 1-OR, single-specialty ASC and up to $10 million to build a 5-OR facility, says Ms. Kirchner. "Compare that to roughly $500,000," she adds. Development time for a dual-licensed timeshare is also a lot shorter: roughly 12 months compared to 18 to 24 months to build a de novo center.

Filling empty ORs
The timeshare model is also working well in St. Louis, Mo., where a pain management physician leases a plastic surgeon's single-OR center on Mondays and Wednesdays as Mid America Spine Center, while the plastic surgeon operates on Tuesdays, Thursdays and Fridays as Seven Oaks Surgery Center. Cathy Montgomery, RN, of the Excellentia Advisory Group in St. Peters, Mo., who helped develop the project, calls the timeshare model "a wonderful opportunity for physicians who want to remain independent."

Ms. Kirchner points out that younger surgeons often can't come up with the capital needed to invest in established facilities with high market values and, even if they can, won't see a return on their investments for many years. Under the dual-licensed model, a group of young docs could establish a lessee surgery center and generate revenue quickly by operating only on certain days a month in a host center.

Negotiating the red tape
After the host center lessor and the ASC lessee secure separate licenses from the state health department for the days they'll operate the center, they have to agree on a lease fee. Negotiating the lease agreement is one of the biggest challenges of establishing a dual-licensed ASC, says Ms. Kirchner. "One party is leasing an existing facility for a specific amount of time at fair market value," she says.

What's fair market value? That depends on the host center's operating expenses and the financial factors in specific geographical areas. When setting up the Functional Neurosurgical ASC, Ms. Kirchner calculated daily operational overhead expenses to the penny and then added a 32% mark-up, which was in accordance with rates negotiated during Littleton Adventist's previous joint ventures.

The lease agreement also has to be very specific about the days each entity will work and the overhead the lessee will use — from the capital equipment to the hand gels to the post-op snacks for recovering patients. There can be no mixing of supplies. "Any tangible good that you can charge a patient for can't be comingled between the host center and the leasing ASC," says Ms. Kirchner. "Each entity can access supplies only on the days they operate. The other center's supplies must be behind lock and key."

Each center involved in a dual-licensed agreement is required to have its own policies and procedures, and must clearly post signage stating their hours of operation. Multiple Medicare-certified ASCs that share the same space can be cited for the code violations of a single entity. Multiple entities may share clinical and business staffs, as long as each center meets staffing requirements, such as orientation and measuring core competencies.

Visits from outside consultants must also be done separately for each ASC. Both physicians involved in the dual-licensed ASC Ms. Montgomery brokered work with the same pharmacy consultant, who had to make separate trips to review crash carts on the days the 2 entities were open. "She wanted to do it on the same day, but couldn't," says Ms. Montgomery. "I've had state inspectors tell me that they would enforce the rules of dual-licensure to the letter."

Stringent Condo Rules

clear public signage CLEAR SIGNAGE ASCs that operate as timeshare properties must have clear public signage stating the names of each center.

Federal and state regulations for timeshare ASCs are stringent. Here are some of Colorado's dual-licensed rules:

  • Licensed centers shall not operate at the same time or on the same days of the week.
  • There shall be clear public signage stating the separate names of each center and their distinct days and times of operation.
  • Each licensed center must have its own policies and procedures as well as maintain separate, confidential and locked patient records.
  • Each lessee ASC may use the same nursing and ancillary staff under an arrangement with the staff employer and each lessee is required to separately comply with all staff utilization requirements in the ASC.
  • There shall be a written agreement between the licensed centers that establishes responsibilities of each lessee regarding services, supplies, equipment use, quality assurance and infection control.
  • Each licensed center must maintain separate locking storage of its surgical supplies and devices, medications, locked carts and any other material exclusive to that ASC lessee.
  • Each licensed center shall meet all license requirements either directly or by contract.
  • All Medicare-certified ASCs that share the same space are subject to citation for deficient practices even if only one such center violates code.

— Daniel Cook

More to come?
CMS rules strictly prohibit 2 or more Medicare-certified ASCs from sharing space, including the same ORs and common area, "but this prohibition only applies if the use of the space is concurrent," says attorney Jerry Sokol, a partner at McDermott, Will and Emery in Miami, Fla. "Medicare rules have for some time specifically allowed multiple ASC entities to use a single facility, as long as there are no overlapping hours of operation." Medicare requirements are met as long as the 2 entities commit to using a single facility during distinct periods of time, but many state licensing laws prohibit these arrangements, says Mr. Sokol. "To pursue this shared ASC space model, duel licensure by the applicable state for a single facility must be allowed."

Only ASCs can enter into shared arrangements, says Mr. Sokol, who points out that hospital outpatient surgery department rules prohibit the sharing of the same physical space.

While the timeshare model has strong support from some, others warn that it is burdensome (see "Stringent Condo Rules") and fraught with risk management and compliance headaches.

"Dual-licensed facilities provide new areas of potential growth, but also have the potential to present some unique legal, regulatory and clinical risks," says anesthesiologist David Shapiro, MD, the former president of the Ambulatory Surgery Center Association. "However, all of these issues are eminently manageable and, when successfully addressed, these arrangements can absolutely be implemented to provide a high level of patient care and patient satisfaction." OSM