Q&A: Retina in the ASC

The panel answers common questions, from getting started to breaking even to facing what’s ahead.

Dr. Dugel: I think one of the most important and misunderstood topics is that of ASC ownership. Mr. Romansky, will you take us through this from an “ASC Ownership for Dummies” point of view? What is “safe harbor”? What is the “one-third rule”? Who is allowed to own an ASC, and who isn’t? Do I have to be a surgeon? Does my partner have to be an owner? What are the regulatory implications of owning an ASC?

Mr. Romansky: It’s important to understand that, from the standpoint of the federal anti-kickback and Stark laws, the ASC is a very safe investment. Most anti-kickback activity has focused on instances where the physician owns an interest in a healthcare provider, such as a clinical laboratory or a radiology practice, and receives remuneration but doesn’t provide services himself. For more than 20 years, OOSS and the ASC community have been successful in advancing the notion that a surgeon’s investment in an ASC is a very different type of investment because he or she is performs surgical services within the facility. In essence, the surgery center is an extension of the physician’s office.

Technically, the Stark laws, which broadly prohibit physician investment in providers, isn’t applicable to the surgeon’s ownership interest in an ASC. Moreover, the anti-kickback law provides a safe harbor exemption for a surgeon’s investment in an ASC provided that certain conditions are met. If one complies with all of the elements of the safe harbor exemption, the investment in the ASC essentially enjoys the government’s stamp of approval, and the surgeon will not be immune from criminal or civil prosecution. ASCs and physician investors are not required to meet safe harbor requirements, and indeed, most facilities fall short of safe harbor status. The key for the physician and the ASC entity is to come as close as possible to meeting these conditions.

Some obvious safe Harbor no-nos would be, for example, paying an investing surgeon based on his referrals to the facility, rather than on his percentage ownership in the facility. If 10 physicians provided equal capital to the ASC venture, each should receive 10% of the profits. The ASC also can’t require that a surgeon investor refer patients to the facility. By and large, ASCs haven’t drawn the attention of regulators.

Dr. Dugel: In establishing an ASC, owners must complete the Certificate of Need, or CoN. What is the CoN, who has to deal with it, and how do they overcome it?

Mr. Romansky: The regulatory side of starting an ASC includes Medicare certification, state licensure where applicable, and the Certificate of Need, which exists in about 20 states. CoN rules vary from state to state, but each essentially says that to establish a new healthcare facility, there must be a documented need for the facility in the community.

Who decides if there’s a need? Generally, it’s a CoN agency or board comprised of hospital officials and bureaucrats who tend to side with protecting the hospital industry. That said, most CoN laws have exceptions for physicians’ offices, and many times, you can get an ASC approved despite this exception, especially if the only surgeons using your ASC are doctors in the associated medical practice. It’s important to examine all of the state regulations — including others that may be “hidden” — with someone who knows your state’s regulations very well.

Dr. Dugel: Hospitals are taking an interest in ASC ownership. Can a surgeon buy into a hospital-owned ASC?

Mr. Romansky: About 20% of the nation’s ASCs have hospitals as venture partners with surgeons. This proportion is much lower among ophthalmic ASCs. A recent survey of OOSS members showed that hospitals have an ownership interest in only about 7% to 8% of ophthalmic ASCs. I don’t project hospitals having a more dominant ownership position going forward. Unlike multi-specialty ASCs that might have many disciplines and a multitude of surgeons from disparate practices the ophthalmic ASC typically serves an individual’s practice, and often is located adjacent to that practice. A hospital will generally be substantially more interested in acquiring an ASC or joint venturing with the entity that offers the referral streams of many surgeons.

A recent phenomenon involves the hospital acquiring an ASC and converting it to a hospital outpatient department, thereby receiving substantially higher payment for the same services the facility performed when designated as an ASC. Regulators are examining these conversions to assess their impact on Medicare program expenditures.

Dr. Dugel: I’m sure you get asked this question all the time: What is the minimum number of vitreoretinal cases that you need to break even in a surgery center?

Mr. Sheppard: The answer can vary widely depending on what it will cost to equip the ASC to do retina, but I have an algorithm that somebody could follow to get at least a first-blush estimate of the cost and the profit timeline.

Let’s say, as we did in our presentations, that we’ll require a $250,000 investment in equipment and supplies to perform vitreoretinal cases. And let’s say we want to recover those costs in 3 years. That requires a marginal contribution to our pretax operating income of about $80,000 a year. Let’s also say that the average vitreoretinal case has a reimbursement rate of about $1600 — and that’s conservative because that’s the Medicare rate — a disposable pack and supplies cost an average $500, and surgery takes an hour, which is marginal labor cost of $200.

From the $1600 reimbursement, we subtract $500 and $200 for an incremental revenue per retina case of about $900. For an existing facility, we don’t need to factor in things like rent and utilities, which are the same regardless of whether or not you offer retina surgeries. Performing 100 cases a year would generate $90,000 in incremental revenue, $10,000 more than you need to recover your costs over 3 years. And again, these numbers are conservative.

Dr. Pepose: I’ve followed the same guidance in adding retina to my ASC. Our reimbursements average around $1700 a case, while our costs are in the $500 to $600 range. When you look at those numbers, it’s easy to see how cost savings will benefit you. Mixing anterior and posterior segment surgeries allows us to balance out things like silicone or perfluorocarbons. It evens spreads out the equipment costs, allowing us, for example, to upgrade a phaco unit instead of starting from scratch. A balance of per diem and full-time staff gave us some flexibility, too. Conservatively, I’d say that enabled us to become really profitable after around 400 retina cases.

Dr. Dugel: As surgeons work to make vitreoretinal surgeries profitable in the ASC, does it help to stay opening late and work on the weekends?

Mr. Sheppard: The idea is tempting. Even if all of the staff is exceeding 40 hours per week and getting time and a half, driving the labor cost per hour from $200 to $300, retina surgery still has a profit margin. However, there are other considerations.

If your staff started working on anterior segment cases at 6 a.m., consider the quality of their work — and their morale — at 6 p.m. What will their morale look like? And to regularly add Saturday hours without building in a weekday for staff members to take off, you’ll have to add staff. If you changed the “work weekend” to Sunday and Monday, you could perform a limited number of cases on Saturdays with your current staff.

Most ASCs that push for evening and Saturday hours are multispecialty centers competing for younger, working-age patients. And in my experience, I’ve seen most weekend hours occur at the busiest times of year to handle the anticipated increase in case volume, not year-round.

One final note: some states have regulations that impact ASCs’ allowable hours of operation. You may need to re-file your hours of operation with the State Department of Health. Be sure to check.

Dr. Dugel: In the past, many people assumed that to operate in an ASC, we had to be operating in the cheapest way possible to make things work. In your experience, do you have to choose the cheaper devices, instruments or disposables, even if they aren’t the things you prefer? Is that part of operating an ASC?

Dr. Gonzalez: No. As Steve pointed out, the capital equipment costs are pretty similar for vitrectomy units, microscopes and so forth. Cost isn’t the deciding factor.

Supplies have the potential to erode your profits, so they’re an important long-term cost saver. We don’t have to do things cheaply; we have to handle supplies wisely and efficiently. For example, you don’t need to open every single toy available to you to do a procedure well, and any retina surgeon you partner with should feel that way, too.

Dr. Dugel: I think those are important points. We all have choices, no matter what the setting. The equipment available to us is exceptional, so we can provide the best surgery to our patients and also get a good return on investment. It’s a win-win situation for surgeons and patients.

I’ve chosen the equipment and supplies I want and worked to be as efficient as possible, and in our ASC, we've shown that disposables are never more than 20% of my overhead. Labor costs are actually 60% of my overhead. That makes it important that everyone on staff is used in the appropriate place — skilled staff doing skilled work, not simple tasks. I don’t need an RN pressing a piece of equipment up or down when I can control it with a foot pedal. We need efficiency to achieve a good return on investment from staffing, as well as from equipment and supplies.

Dr. Dugel: I think that manufacturers have shown that they understand the transition from the hospital to the ASC. Do you agree? Do you see them considering what’s efficient in an ASC?

Dr. Gonzalez: Absolutely. I use the Stellaris PC (Bausch + Lomb), which we chose because both retina and anterior segment doctors can use it. I prefer to have my money working hard in the ASC, and that instrument is the only one that fills both roles.

Dr. Dugel: Other companies have caught on to our need for fast turnover and gained name recognition in the ASCs. The quality of work done in ASCs is as good or, I think in many cases, better than what hospitals provide. The ASC advantage will only increase as companies tailor technologies to us even more.

Dr. Dugel: What do you do when really difficult retina cases come in? If a patient has a PVR requiring silicone oil and Perfluoron, do you take that patient to a hospital that sees these cases only once every 2 months? Or do you treat that patient in the ASC?

Dr. Gonzalez: No, we don’t take those patients to the hospital. We made a decision to handle all cases except children under 1 year of age.

Within our group, we have different skill sets, including some surgeons who love those cases. Because they like these cases and handle them more often, they’re very efficient and achieve very good outcomes. It takes a little while for the group to get familiar with the idea, but it works very well.

Dr. Pepose: We don’t cherry pick cases either. In deciding which cases need to be treated at the hospital, we chose anesthesia as the determining factor. Our center had been doing all its anterior segment cases with topical anesthesia with occasional blocks, and we decided to stick with that and bring general anesthesia cases to the hospital. Those cases are few and far between.

Dr. Dugel: How does an ASC choose whether to use only local anesthesia or both local and general? And how do you decide who does the anesthesia? Does the surgeon perform the blocks, or does an anesthesiologist or CRNA handle them?

Mr. Sheppard: The first thing to consider is whether your physical plant is set up to handle general anesthesia. Do you have piped gasses? Do you want to bring gasses into the OR in tanks? The answers to those questions will be your first guide.

The other point to consider is that there’s a bit of a countervailing impact on the anesthesia providers. Reimbursement rates are typically better for commercial patients than for Medicare or Medicaid patients, and they’re better still for either general or laryngeal mask airway (LMA). That’s encouraging to anesthesia providers, but they need to purchase an anesthesia machine. That makes cost a big issue.

The person performing the block varies widely. Retina surgeons often perform their own retrobulbar blocks. It used to be that anesthesiologists or CRNAs did a great deal of peribulbar blocks, but in retina centers, unless an experienced anesthesia provider is already in place, surgeons usually perform the blocks.

Dr. Dugel: You’ve said that you don’t cherry-pick cases. What about the issue of emergencies? How do you handle emergency retina cases that come into the ASC?

Dr. Gonzalez: Our hours don’t make us the primary destination for emergencies. (We close at 4 p.m.) And if we see something like a macular detachment, the literature shows that we can wait until the next day for the procedure. I think that as long as you properly consent the patient, offering the options to go to the hospital or wait until the next morning, we can wait. Of course, if the emergency is an infection or an intraocular foreign body, we take the patient to the hospital.

Dr. Dugel: I agree with you. When we were in training, we’d treat a macular detachment at 2 a.m. Now we realize how unnecessary that is, and perhaps even how we put the patient and staff at a disadvantage in categorizing it as an emergency. Substantial literature supports our ability to perform surgery the next day in a proper setting.

Dr. Dugel: Today we inject many patients in the office. Should physicians who own ASCs take their injections to the ASC to get a higher reimbursement? And should they do the same for laser treatments?

Mr. Romansky: Both lasers and injections get the same answer. There is no reason not to bring your procedures over to the ASC, except for convenience. If your ASC is in the same building, obviously it’s easy. That said, the government is starting to get wise to this. As early as late 2012, MedPAC may act on a proposal to keep hospitals from charging more for procedures that can be performed in office. If this happens on the hospital side, no one will allow ASCs to get paid more than hospitals, so reimbursements will get reduced for these procedures on the ASC side as well.

Dr. Dugel: We’ve talked about what a good opportunity we have with ASCs and retina. What do you see as the single biggest challenge in the next 5 years for retina entering the ASC?

Mr. Sheppard: I’d suggest two things. First, consider, how will I affect my referral base if I affiliate myself with one ASC? Retina surgeries have unique considerations as far as the nature of their referral sources, so that’s a very practical problem I run into when we’re looking at developing retina work in ASCs. Second, remember it can be a challenge to find available OR time that’s convenient for a retina surgeon’s schedule. This can mean unused time at the beginning of the process. Most centers increase anterior segment cases to make it work.

Dr. Pepose: Most ASCs are looking to increase their utilization. I think that by adding retina, they’ll do so. Our retina surgeon is delighted that she can often add a case at the end of the day instead of handling it at the hospital. The ASC is so much better for the patient and for the surgeon.

Dr. Gonzalez: I think that if retina surgeons are concerned about referrals, they talk to their referring doctors before they do this. By approaching them while you’re in the “thinking about it” stage, you get good feedback and they feel valued. They won’t hear about it in the hospital cafeteria and get upset.

Another way to keep referrals is to differentiate yourself from the competition. For example, we’re using the EndoOptiks ECP endoscope, and we’re one of the few places that provides that type of endoscopic vitrectomy. Our referring doctors think this is a worthwhile procedure, so it can help overcome other issues.

Mr. Romansky: As a lawyer, I’m trained to examine a scenario for my clients and apprise them of the risks as well as the rewards. Others on the program have addressed factors that will make the individual facility’s integration of VR into the ASC a boom or a bust. From the vantage point of financial feasibility, Medicare has certainly done its part by having doubled facility reimbursement for these services in recent years. However, the burden of complying with Medicare certification requirements will not be materially enhanced by offering VR capacity to surgeons and patients. These issues are bumps in the road, to what is a very promising industry. ■