In every successful ASC’s journey, there comes a point when it’s faced with the same dilemma: how to respond to growing pains. Whether you’re considering expansion or building a new facility, you’ll find the experiences of two distinctly different ASCs enlightening.

Staying Small, Modern, and Efficient

William J. Fishkind, MD, opened his one-OR surgery center in Tucson, AZ, in 1989, after becoming dissatisfied with the constraints of operating in the hospital setting.

“We were among the early adopters,” Dr. Fishkind recalls. “We asked, why should we be paying to operate in a hospital that slows us down, when we can create our own environment and move more quickly, more safely, and provide a better product? Those of us who recognized those advantages built ambulatory surgery facilities.”

By 2014, a combination of factors — increased case volume, the addition of two surgeons, and the need for advanced surgical equipment requiring space in the OR — underscored the facility’s shortcomings.

“Our OR had become too small and too old, but the overarching issue was our inability to meet the increasingly stringent Medicare conditions for coverage,” Dr. Fishkind says. “We needed to house a number of lasers within the surgical facility to qualify for reimbursement, and we also needed space for the additional nursing assistants required by Medicare.”

As new regulations went into effect over time, the ASC had been grandfathered in, but eventually meeting requirements — such as separate HIPAA-compliant pre-op and post-op areas and a separate entrance for the operating room — became critical.

“The writing was on the wall,” notes Dr. Fishkind. “If we were unable to comply with the latest regulations, we would lose our Medicare accreditation.”

Dr. Fishkind and his associates considered various options, such as operating at other outpatient facilities in the area.

“But we had become spoiled,” he says. “We wanted to schedule cases on our terms. We wanted to use our preferred materials and machines. We wanted to perform surgery in our own facility, so our patients would recognize the level of quality that we provide. For these reasons, we decided to build a second OR.”

The decision to expand the surgery center as opposed to building a new center was facilitated by Dr. Fishkind’s purchase of a parcel of land adjacent to the ASC about 15 years ago. With a minor zoning change, an addition to the existing ASC could be built to house an OR, a laser room, and space to accommodate support staff — an expansion that would serve the center’s needs and business philosophy.

“The question we ask ourselves all of the time is, ‘How big do we want to be?’ and frankly, we don’t want to be that big,” Dr. Fishkind says. “Our primary goals are efficiency and superb quality. If we meet those goals, profitability will follow.”

Having decided on their approach to expansion, it was time for Dr. Fishkind and his associates to find an architect.

Twenty-five hundred miles to the east, a group of ASC owners took a different route to alleviate growing pains.

Responding to Rapid Growth

Island Eye Surgicenter, in Westbury, Long Island, NY, opened in December 2000 as a three-OR facility designed for an annual capacity of about 2,000 cases per OR.

“That was the general formula that people followed back in the day,” explains Robert B. Nelson, PA-C, the executive director of the Long Island-based ASC. “But within the first 3 years, we were already running out of space. We were having difficulty accommodating even the organic growth within the facility, let alone doctors from the community who wanted to be on staff.”

Adjustments made within the building circa 2003-2004 created some additional administrative and clinical space, but that was only a short-term solution. By 2012, the facility was at 90% capacity — 10,000 cases per year — with 32 surgeons on staff.

“We were totally cramped in our facility,” Nelson recalls, “and we had outgrown our parking capacity to the point where we didn’t have enough parking for the staff every day, let alone our patients.”

The partners briefly considered adding one or two ORs to the current facility, but that idea was quickly abandoned. Construction would have required closing the ASC for several months and interrupting cash flow, while not solving the parking issue. Instead, they decided to relocate, and after reviewing several options, voted to build a six-OR facility.

“It was a huge leap of faith,” says Nelson, “because we had retired much of our building and capital equipment debt, which yielded very nice distributions for the partners. That was hard to walk away from, but the partners recognized the opportunity before them.”

After scouting a dozen or more locations, Nelson found a property about a half-mile from the original facility, and negotiated a land lease. “Once we had a deal in principle, we embarked on the project,” Nelson says.

Hey…Not So Fast!

Among the many notable differences between Dr. Fishkind’s surgery center and Island Eye Surgicenter is the fact that New York State requires a certificate of need (CON) for ASCs, while Arizona does not.

“New York is one of several states that require ASCs to obtain approval from the state department of health to relocate a facility or add ORs, and the application process can be lengthy and complicated,” Nelson says. “It took us about 4 months to pull together all of the components of the application, including a comprehensive narrative explaining why we needed to relocate and expand, detailed financials, and initial building plans to be reviewed by the state architect. Five months after we submitted our application, our request was approved.”

Prior to the CON application process, Island Eye hired an architect who developed the preliminary plans required to gain approval and then saw the project through to completion.

The Architect’s Pivotal Role

Both Nelson and Dr. Fishkind emphasize the critical importance of hiring the right architect, regardless of the scope of your expansion. To take a project from concept through to completion, an architect must first be a skilled listener and communicator. He or she must collaborate with the principals of the center to understand and interpret their vision — often through several iterations — and then communicate a workable plan to all of the entities charged with fulfilling it.

The architect also must ensure that the facility complies with state and local building codes as well as department of health and Medicare regulations. To say it’s a pivotal role is an understatement.

Having built a surgery center, Dr. Fishkind knew what qualities he wanted in an architect, but he hadn’t decided whether to use a local architect or a national firm with local representation for his expansion.

“When we built our surgery center, there were very few national architects, so we chose a local firm,” Dr. Fishkind says. “For our expansion, we hired a national architect first, but found that the approach was extremely cookie-cutter and not personalized. We soon decided that was not the approach we wanted. So, we jettisoned that concept and hired the local architect who had designed our original OR. We charged him with meeting all state and Medicare requirements, and together, we designed a 7,000-square-foot, two-room surgical facility.”

Like Dr. Fishkind, Nelson had prior experience with the architect he hired to design the new Island Eye facility. He first became aware of his work through word of mouth.

“I knew of Richard T. Hardaway, our architect, by reputation, because he had built more than 100 ASCs and probably eight or nine were ophthalmic surgery centers,” Nelson says. “I knew other facility administrators who had worked with him, and they spoke highly of him. He and I had worked together on a smaller project in our original facility, so we had an existing relationship. I had done my due diligence, and it was a good fit.”

What Makes a Good Fit?

“First and foremost, your architect must be willing to listen to your needs, and design accordingly,” Dr. Fishkind says. “This person must work with the state architect on a regular basis while also adhering to Medicare regulations to avoid surprises. These basic concepts are non-negotiable.”

Finely tuned listening skills and the ability to translate concepts into a workable design kept Hardaway and Nelson on the same page. “Hopefully, your architect is open to your ideas and suggestions,” Nelson says. “Hardaway and I worked well together. I relied on his experience, and he relied on my ideas. Most importantly, he was accessible and responsive to my many calls, which was a key factor in our decision to retain him for the final design and construction management. Together, we designed a space that made sense, based on my nearly 40 years in the operating room and his many prior ASC projects.”

But How Will You Pay for That?

Financing an expansion or a new facility puts your financials under a microscope. Likewise, as borrowers, you need to scrutinize the terms of any loan offer.

With minimal outstanding debt, a high credit rating, and longevity in the community, Dr. Fishkind was able to secure favorable terms for a construction loan using his existing building as collateral. The loan converted to a conventional mortgage upon completion of the project.

“We knew the banker we wanted to work with, but we did talk to two other lenders to see where we could get the best terms,” Dr. Fishkind says. “We chose our current bank, because it had our best interests in mind, gave us very good terms, and was flexible in designing and implementing the loan.”

Like Dr. Fishkind, Nelson also interviewed several lenders.

“After evaluating the pros and cons of each institution, we decided to stay with the bank that we had been with for 15 years,” he says. “At that point, we had a property. We had retained an architect who was actively collaborating with me on a design, and we had construction financing in place,” Nelson recalls. “Now, we had to find a contractor, someone we could trust to build the new facility as designed.”

Finding a Builder

Once your building plans are finalized, your architect will spearhead the search for a construction company, beginning with a call for bids for your review.

In interviewing candidates, Nelson was particularly interested in the number and types of medical facilities each firm had completed. “Building a doctor’s office is significantly different from building a complicated surgery center,” he says. “It’s an entirely different animal.”

“Once we were satisfied with each company’s experience, we looked at the individuals who would be running our project day to day,” Nelson continues. “We wanted to verify their experience running out-of-the-ground projects, such as ours, as opposed to renovating existing buildings. We also wanted to get a sense of their personalities, particularly the project manager and the construction supervisor, to be sure all of us would be compatible. This is a stressful situation, and getting a sense of how we would work together was essential.”

After narrowing down the list of candidates to two, Nelson met with them again, and took the bids to the managing partners. Based on his and Hardaway’s recommendations, they approved hiring a construction company. Before sealing the deal, however, one more entity needed to weigh in: the lender.

“I arranged a meeting with our bank and the principals of the construction company to make sure the bank was satisfied that the construction company had the experience, resources, and credit-worthiness to handle a project of this scope and size,” Nelson says. “The last thing we needed was to engage a company that was unable to take delivery of materials because they didn’t have access to capital. The bank worked with us to make sure the company we chose was credit-worthy and capable of handling our project.”

Do We Need a Lawyer?

The short answer is yes, Nelson says. Far from being a boilerplate document, a construction contract is complex and will likely involve a series of negotiations between you and the builder with input from your architect — all of which should be reviewed by an attorney, because the stakes are too high.

“If you’re not comfortable with some of the language in the contract, you should recommend that it be modified, which we did in several instances,” Nelson says. “We also inserted terms for performance, which included a concept called liquidated damages. Basically, the builder specified a project completion date, and if that deadline was missed, a daily penalty would be incurred. In our case, the penalty was $5,000 per day. On the flip side, we offered a bonus of $5,000 per day for early completion.”

Another consideration when contracting with a builder is whether you will “pay as you go” or if the builder will agree to take an “at risk” position.

Dr. Fishkind explains: “With the first option, you make payments as the project progresses. If problems occur, you pay more. If the work proceeds faster than expected, you pay less.

“With an at-risk agreement, which is what we decided to do, the construction company sets the cost of the project at the outset and is responsible for staying within budget,” Dr. Fishkind continues. “You may pay a little more overall to have the construction company assume more risk. On the other hand, you’re not held financially responsible for unexpected overages.”

Bumps Along the Way

Periodic check-ins by your architect with regulatory entities can help avoid costly oversights. A case in point was a state requirement for a separate room for surgical records at Dr. Fishkind’s ASC.

“This was not even on our radar, but it was brought to our attention when our architect showed our drawings to the state architect,” he says. “We ended up redesigning a room to comply.”

Underestimating ancillary costs is another pitfall in financial planning, as Nelson learned.

“Quite honestly, I didn’t expect some of these unanticipated costs,” he acknowledges. “For instance, for every payment requisition made by the contractor, the bank required an inspection by its own engineer or architect — at our expense — to certify that the work was completed satisfactorily and that we were not being billed for incomplete work or materials not on site. With an average fee of $500 to $700 per inspection for approximately 17 payment requisitions, those costs added up.

“In addition, our local building department required detailed engineering reports during construction. Concrete had to be tested, steel and welds had to be inspected, and an outside engineering firm had to certify that various aspects of the construction met building codes.”

Other potential hits to the budget occur when you alter your design. Depending on the extent of the change and when it occurs, the cost can become exponentially higher.

While cost overruns and unexpected delays aren’t uncommon in any construction project, Nelson notes it is also possible to realize some savings.

“We value-engineered much of the project from its original design,” he says. “As the project progressed, we saw opportunities to eliminate some items that were luxuries, which resulted in significant savings.

“For example, our main waiting room was to accommodate 81 guests in distinct seating areas defined by low-paneled walls with smoked glass above,” Nelson says. “While that design was beautiful, it was also expensive. So, we eliminated the low walls and glass and accomplished the same effect of comfortable seating areas with our furniture design, which saved more than $40,000.”

Nelson adds a stern caution when considering cost-saving measures: “Do NOT value-engineer your HVAC system. Invest in a robust air conditioning system. You can’t do that cheaply.”

When the Dust Settled

Since the completion of the expansion, the surgeons of Fishkind, Bakewell, Maltzman, Hunter & Associates have reduced their surgery times as well as increased their case volumes.

“Our surgeons can now accomplish in a half day what used to take a full day,” Dr. Fishkind says. “During the other half day, they see patients they wouldn’t otherwise have been able to see to schedule more surgeries.”

Although they weren’t in the market to add surgeons to their roster, Dr. Fishkind and his associates welcomed a local plastic surgeon who had been searching for an ASC where he could operate comfortably.

While still aiming to stay small — “We’re getting leaner and meaner,” Dr. Fishkind says — the group hopes to increase their reach in the community by offering new services, such as glaucoma care.

Island Eye Surgicenter lies at the other end of the size spectrum, having moved from a 9,500-square-foot facility with three ORs, two laser rooms, a 20-seat waiting room and 39 parking spaces, to a 27,000-square-foot facility with six ORs, four laser rooms, an 81-seat waiting room, and 141 parking spaces.

“Being able to design our surgery center from the ground up gave us the opportunity to improve flow and efficiency,” Nelson says. “For example, we incorporated 15 pre-op stretcher locations for our six ORs, so that we can have patients ready for surgery at all times. We also were able to wire the building appropriately for data sharing, Wi-Fi, Internet connectivity, and SONOS music in each OR. In fact, we are about to go live with EMR, which we didn’t have in our old facility.”

According to Nelson, the partners in Island Eye Surgicenter were at a crossroads 4 years ago. “We knew our only options were to accept the status quo or to grow.”

Judging by the community’s response, they chose well.

“I receive new applications from surgeons literally every day, and we’re close to 70 on staff now,” Nelson says. “We’re on a trajectory of growth that is off the charts.

“There’s an expression ‘If you build it, they will come.’ We relied on that to happen, and it did. We are very pleased with our beautiful new facility, and it looks like our decision 4 years ago is paying off, thanks to our careful planning, an amazing architect, and the trust of the partner-physicians in their decision that the status quo was not an option.” ■