Image by Cristian Grigore from PixabayFor operators looking to open up a new ambulatory surgery center (ASC), it takes more than just funding, a strategic plan, or even a strong clinical team. In many markets, regulatory stars need to align as well.
A certificate of need (CON), for instance, is a regulatory document required in some states before health care facilities, including ASCs, can be constructed, expanded, or significantly altered.
For ASC operators, the CON process presents both opportunities and challenges. On one hand, obtaining a CON can provide a significant competitive advantage by limiting the number of ASCs in a given area, reducing the risk of market saturation. On the other hand, the process can be time-consuming and complex, particularly in states with stringent requirements.
Some states, such as Tennessee and South Carolina, have CON requirements that are becoming more relaxed, which facilitates the development of new ASCs. However, in states like Florida and Texas, where there are no CON requirements, the market can become oversaturated with ASCs, leading to competition that can dilute the effectiveness and profitability of individual centers.
The primary purpose of the CON program is to prevent the overbuilding of health care facilities, ensuring that new or expanded services are genuinely needed and do not disrupt the existing health care ecosystem.
Yet the process of obtaining a CON can vary significantly from state to state, influencing both the strategic decisions and operational dynamics of ASC operators.
Controlling health care costs
As of August 2023, nearly three dozen states and Washington, D.C., had some form of health care CON regulation in place, according to Definitive Healthcare.
That means ASC stakeholders in most of the country have to face the CON double-edged sword.
The CON process dates back to the 1960s, Joan Dentler, founder of health care advisory firm Avanza Healthcare Strategies, told ASC News.
“The idea at the time was that it would help control the cost of health care if the state made people prove there was a need for that service,” she said. “So, you had to do this whole application – it’s different in every state – and then get it approved to show there’s no place else people can go to have this surgery, or whatever it may be. It’s not just surgery centers; it’s hospital beds, it’s nursing homes. It was about controlling any new health care development, but it was always state by state.”
One of the challenges in building ASCs is the public notification requirement during the CON process, Dentler said. In most states, this process mandates that anyone planning to build an ASC must publicly announce their intentions, including details like the location and size of the facility.
This notice must be available for 30 to 45 days, depending on the state, during which time the public can oppose the project, potentially creating obstacles for the developer.
“During that time, people are allowed to oppose it,” she said.
Operators in some health care sub-sectors experience major problems at this point. In behavioral health, for example, “not-in-my-backyard” campaigns from the public can totally derail planned projects, particularly if they involve substance use disorder (SUD) treatment services.
What’s more, posting information about an expansion or planned development can, at times, expose sensitive business information. In an increasingly competitive ASC market, that could be another potential hurdle in the CON process.
The evidence on whether CON laws have effectively controlled health care costs is mixed.
“Based on the available evidence, CON programs appear to have achieved some benefits,” one study published in 2020 determined. “However, the costs imposed [by] such programs, including regulatory costs as well as adverse effects on health spending, exceed those benefits by an estimated $302 million a year.”
A 2017 research post from George Mason University likewise cast doubt on whether CONs are achieving their intended goal.
A double-edged sword for operators
Market control and reduced competition are two significant advantages for ASC operators working in states with strict CON laws.
CON laws can act as a protective barrier, particularly in states with high barriers to entry like Georgia. The stringent CON requirements in these areas prevent the market from being flooded with new entrants, which helps protect the investments and operational stability of existing ASCs. This controlled environment can be beneficial, ensuring that centers are not undercut by new competitors.
Another advantage of the CON process is the strategic acquisition opportunities it presents. Acquiring an existing ASC that already holds a CON can fast-track market entry and expansion, Aric Burke, CEO of Atlas Healthcare Partners, told ASC News.
In states where obtaining a new CON is challenging, acquiring a facility with an existing CON allows operators to quickly align with physicians and health care systems, accelerating the expansion process while mitigating the risks associated with starting a new facility from scratch.
“There’s a benefit to working with the health systems, because they really are focused on shifting care out of the hospital setting, for capacity reasons and cost reasons, and so that does make the certificate of need process a lot easier,” Burke said.
Atlas Healthcare Partners, a national developer and manager of ASCs, is based in Arizona.
In states with stricter CON regulations, such as Georgia, these barriers can actually protect existing ASCs by limiting competition and ensuring that new facilities are truly needed, Chase Neal, co-founder, chairman and CEO of SurgNet, told ASC News.
SurgNet Health Partners operates and manages three ambulatory surgery centers in Michigan, Ohio and Alabama.
Still, Neal said CON rulemaking should balance legislative requirements with market needs, particularly in suburban and rural areas, to maintain the viability and success of ASC investments, he said.
“What we would like to see is a drop in the cost of health care by providing these outpatient opportunities for patients, whether they’re rural or suburban,” he said.
Cons of the CON process
Despite the aforementioned benefits, the CON process can be a significant hurdle, particularly in states with strict requirements.
The need for a CON adds additional time to the process of developing new ASCs, Burke said. This delay can be a disadvantage in rapidly growing markets where speed to market is crucial, potentially slowing down expansion efforts.
“When we build out the network strategy, we look at what’s available in the market [already] that can be acquired,” he said. “And there’s, you know, the speed to market benefits in alignment with physicians. So, that’s really the preferred approach.”
Geographic variability in the difficulty of obtaining a CON is another challenge.
While the process in Michigan, for example, is relatively straightforward once volume requirements are met, other states can be more restrictive, Jonathan Dunford, president of the Michigan Ambulatory Surgery Association, told ASC News.
Michigan’s volume requirements, for instance, can act as a barrier for new entrants, limiting growth opportunities for ASCs, particularly in specialized fields like cardiovascular surgery.
“They can’t come in and see significant shifts in rates with the number of ASCs they’re managing because Blue Cross Blue Shield has that fixed rate,” he said. “In terms of seeing larger ASC companies in the area, that’s one of the challenges they face in the Michigan market.”
To successfully navigate the CON process, ASC operators should prioritize building strong relationships with local health systems and thoroughly understand state-specific regulations.
Yet in the long-term, CONs will likely be increasingly phased out, Dentler said.
“[Operators] must prove that there’s a need and that there isn’t another facility similar to what you’re planning to build within a reasonable distance for patients to travel,” she said. “That’s what’s happening now, and this is why surgery centers are growing, too; CONs are being phased out in almost every state because people have realized it doesn’t make sense.”
