OASC | DEVELOPMENT

Cents and Sensibility: To Update, Renovate or Build a New OASC?

HERE’S HOW ONE GROUP REACHED A DECISION.

By Joseph F. Jalkiewicz, Contributing Editor

If all goes according to schedule, by this time next year, Jeffrey Whitman, MD, and his team at Key-Whitman Eye Center in Dallas, Texas, will be operating out of a new and much larger ophthalmic ASC in North Dallas.

“The key to future success is to deliver high-volume, cost-effective care with technologically advanced services,” says Dr. Whitman, president and chief surgeon at Key-Whitman. “We have extreme space constraints in our current location, so we knew we had to expand. A new center will give us opportunities to network with physicians who are interested in using our center.”

Currently located in the Uptown area of Dallas, Key-Whitman is one of the oldest OASCs in Texas, having been founded in 1984 by Charles Key, MD. Employing nearly a dozen staff members, including two registered nurses, two licensed vocational nurses, three scrub technicians and three ophthalmic assistants, Key-Whitman performs about 5,000 cataract-related and general ophthalmic surgical procedures each year, with revenue totaling about $5.5 million annually, says Executive Director Dan Chambers, MBA, COE.

“We’re known to offer high-technology procedures in a very efficient operation — often patients go from reception to discharge in about an hour,” says Mr. Chambers, noting that the ASC offers such procedures as intraocular lens implants and femtosecond laser-assisted surgeries.

Overcoming Hurdles

But, as Dr. Whitman made clear, the practice has been toughing it out through some significant growing pains in recent years, thanks to steadily climbing patient volumes and local construction projects that have aggravated traffic congestion in the growing Uptown area.

Figure 1. A computer rendering of Key-Whitman’s future waiting area.

“Parking has been a big issue — our patients would call us on the phone en route to the ASC telling us they were a block away and didn’t know if they could get here in time. Some had to walk to our ASC because the traffic was so bad with all the local construction. Even after we hired a valet service, we still had problems,” says Dr. Whitman.

“We also had to ask some surgeons to move cases to other ASCs because we couldn’t accommodate the volume,” Dr. Whitman adds.

The current center’s layout has posed particular challenges to Key-Whitman’s desires for expansion, agrees Associate Administrator Nikki Hurley, RN, MBA, COE.

“At the current location, the clinical and ASC space are located on the same floor, making it difficult to add outside physicians to the ASC,” Ms. Hurley says. “Their patients would have to enter the shared floor space.” In addition, “we wanted better and increased space to add more equipment, create a more pleasing environment and preserve flexibility for future opportunities,” she says.

Figure 2. An architectural drawing of the ASC’s entry level.

The Commitment to Grow

The burgeoning patient base, combined with the looming 2016 expiration of their current lease, led the Key-Whitman team to begin exploring their options. By mid-2014, they had signed an agreement with a local developer to design and build their new ophthalmic office and OASC in North Dallas, and retained Eckert Wordell, a Michigan-based architectural firm, to assist in the ophthalmic planning, design and regulatory compliance review.

At two stories tall and 35,000 square feet, the medical building will host a new OASC as well as an optical center, a LASIK center and a specialty eye clinic and research center. The 12,500-square-foot OASC will include four operating rooms, a separate femtosecond laser OR, an exam room and a YAG laser treatment room and will be more than twice the size of Key-Whitman’s current surgery center.

Decisions, Decisions

At a total estimated cost of $3 milion to $3.5 million, the project is not small by any measure. Why not just update, remodel or expand the current center? For Key-Whitman, the answer came down to two major issues: money and government regulation.

“The expense of renovation, downtime, clinic impact and risk factors of regulatory compliance could result in enormous out-of-pocket opportunity costs — in the millions of dollars,” says Dr. Whitman, noting that the estimated price tag of renovations could have exceeded $1.5 million. Not only that, but the practice likely would have been forced to reduce the size of the clinic to meet state and federal building codes. Even then, Dr. Whitman says, “we feared we might not meet all compliance regulations due to the building limitations, even with a renovation.”

It was a realistic fear, says Jeffery S. Eckert, AIA, senior principal of Eckert Wordell. In considering updating, re-modeling or expanding an existing facility, Mr. Eckert says the first order of business is to determine the feasibility of meeting current codes and standards.

“Whether you’re updating, remodeling or expanding your facility, complying with the Life Safety CMS rules is required for continued licensure compliance,” Mr. Eckert says. While minor cosmetic updates (e.g., new finishes) won’t trigger the need for regulatory review and approval, major changes such as increasing the number of ORs and/or enlarging an ASC will.

Compliance Issues

“In the case of the Key-Whitman project, the regulatory requirements for a four-OR facility wouldn’t have been possible given the footprint of the existing facility, even if they vacated the clinic space for the ASC expansion,” Eckert says.

Figure 3. An architectural drawing of the upper level clinic and office space..

Stephen C. Sheppard, managing principal for real estate and operations at Medical Consulting Group, LLC, in Springfield, Mo., agrees and notes that regulatory mandates have grown in recent years, leading to more complicated and expensive growing pains for OASCs. “Over the last 15 years, the regulatory requirements for ASC physical plants have changed enormously,” says Mr. Sheppard, who is working as a consultant on the project. “In 1999-2000, I worked on small, one-OR ophthalmic ASCs and we could meet all of the requirements in 1,800 to 2,000 square feet. For that same center today, we initially budget 3,500 square feet.”

“It’s very expensive to build a new regulatory-compliant ASC,” Mr. Chambers says. “The expense has escalated in the past 5 years with all the new regulatory demands, infection control requirements, backup systems, and so on.”

Benefits

In addition to these practical financial and regulatory reasons, Key-Whitman cited expected benefits, such as increased patient capacity, operating profits, flexibility and return on investment, as reasons for choosing new construction over staying put and attempting to renovate.

“Changes in technology continue at a rapid rate and it makes sense to create as much flexibility in the physical plant as you can,” Mr. Sheppard says. “Even 3 years ago there were questions about the market penetration of femtosecond laser-assisted cataract surgery. That’s no longer the case. New ASCs need to incorporate space for a femto laser. It’s usually sub-optimal to place the laser in an OR, since it impedes the flow.”

“The cost of the new facility will be more [than renovating], but the return on the investment at the end of a 5-year term would favor a new facility at higher volumes, which is what we expect with the baby boomer growth for eye care,” Dr. Whitman says. “We can increase our capacity, double our size, add revenue and operating profits in a new, highly compliant, state-of-the-art facility with the latest ophthalmic surgical equipment.

“And more importantly,” he adds, “[building new] offers an opportunity to add new physician equity partners to our organization.”

Indeed, Key-Whitman’s new facility will be paid for through a combination of equity contributions from new partners, tenant allowances and debt financing, Mr. Chambers says. The new facility is slated to open its doors in February 2016.

“We already have some potential partners who want to move into our location and there is no way we could have accommodated them in our existing ASC space,” he says. “We expect to have strong utilization for three ORs by the middle of our first year, and good utilization by the end of year 2.” ■