Wes Battiste at the ASC Investment Conference.Certificate of need (CON) laws have long shaped the development of health care facilities across the United States, originally enacted to control costs, reduce duplication of services and make sure resources were distributed in line with community needs.
However, these regulations have increasingly come under scrutiny by ambulatory surgery center (ASC) operators who argue the laws restrict growth, limit physician autonomy and stifle free-market competition.
Several states, most recently South Carolina and New Hampshire, have begun repealing or significantly amending their CON requirements, sparking a national conversation about what the future might look like for ASCs.
“ASCs are about the free market, which is why they keep costs contained and have such strong outcomes,” Janet Carlson, executive director of ambulatory surgery centers for Commonwealth Pain & Spine, told Ambulatory Surgery Center News. “I can see why health systems want CON laws, so they can restrict each other’s bed capacities and still compete, but it shouldn’t apply to ASCs.”
Commonwealth Pain & Spine, a health care provider in Louisville, Kentucky, specializes in minimally invasive spinal surgeries.
Currently, more than half of states require CONs for ambulatory surgery centers. Yet even states known for strong CON programs are showing signs of change.
Michael Davis, chief financial officer at Pinnacle GI Partners in Michigan, told ASC News he foresees a future where his state might join those eliminating CON requirements.
Pinnacle GI Partners is the largest GI provider in Michigan.
“I think Michigan will probably fall in that gap of states eliminating their CON laws,” he said. “We have not seen a lot of pushback [yet]. There has been no documentation or evidentiary proof, per se, that CONs actually decrease the cost of care.”
Meanwhile, Danilo D’Aprile, president-elect of the Arizona Ambulatory Surgery Center Association and vice president of business development for Merritt Healthcare, sees pros and cons to elimination.
“The barrier to entry in CON states is high, which can create long-term value for existing centers, but the development process is slower, more expensive and often comes with political challenges,” he told ASC News.
Connecticut-based Merritt Healthcare is an ASC developer.
On the flip side, non-CON states allow ASCs to launch more quickly and adapt to physician demand, albeit in a much fiercer competitive landscape.
“To be successful, operators must stay focused on strong physician relationships, competitive payer contracts, and operational excellence to stand out in crowded markets,” D’Aprile said.
The non-CON environment
For states without CON laws, the expansion of ambulatory surgery centers typically moves at a rapid clip, Wes Battiste, CEO and founder of Florida-based Destin Surgery Center, told ASC News.
“Those hoops aren’t there,” he said. “The volume is there.”
Battiste is based in Florida, a state that does not currently require a CON for building an ASC. Destin Surgery Center is a multi-specialty surgery center.
“The growth for ambulatory surgery centers is just substantial,” he said.
Battiste is also an advisor with Avanza Healthcare Strategies, where he consults operators in states with and without CON requirements. In states that continue to enforce strict CON rules, hospital systems often dominate, he said.
“We have about 23 states that require CONs,” Battiste said. “Three are on the verge of either diminishing those or sunsetting them totally. One state I’m working in right now is North Carolina, where at the end of the year their CON is set to sunset.”
One of the common fears about a non-CON landscape is oversaturation and consequent underutilization, leading to ASC closures, Battiste said. But he finds that the opposite is more common: payers, patients and physicians actively prefer ASC-based care, making closures infrequent.
“Because as long as there’s outpatient volume in your hospital outpatient departments, then that can migrate out [to an ASC], and you have higher-acuity cases, which are still in the hospital, such as joints, spines, cardiovascular, which are now all being approved,” he said.
Payers also increasingly encourage surgical care in outpatient settings by offering more favorable rates than those extended to hospitals, and patients often discover they can expect fewer logistical hassles and lower out-of-pocket costs, he said.
“We have the three Ps: payers, providers [and] patients,” he said. “Payers are pushing for ambulatory surgery center care. Providers want ownership in the governance and a share in the ancillary income. And patients, eventually, will become shoppers as part of the Transparency Act and the No Surprises Act. They’ll look at their out-of-pocket costs and see that an ASC is more cost-effective.”
Despite the benefits, staffing does present challenges. ASCs must remain competitive with hospital systems to secure staff in a labor market where they have more options.
Still, the work-life balance of an ASC is a draw, Battiste said.
“Staffing is an issue across the spectrum, but ASCs tend to offer a similar competitive rate to the hospital systems,” he said. “We usually have a little bit of an advantage: no nights, no calls, no weekends, and usually an environment that’s just a little more people-friendly.”
Looking ahead, more states will move away from their CON laws to accommodate a growing outpatient surgery sector, particularly as legislators become increasingly conscious of value-based health care models, Battiste said.
“As value-based care becomes more prominent in the mindset of legislators, I think the trend is we will see the CONs slowly disintegrate,” he said. “It will take time, because health systems in these states obviously would prefer to maintain the CONs. But the momentum is there.”
The realities of operating under CON
While non-CON states can rapidly scale ambulatory services, providers in states with strict CON processes contend with additional layers of bureaucracy, expense and scrutiny, Liz Hunt, director of finance and operations at Green Mountain Surgery Center in Vermont, told ASC News.
Green Mountain Surgery Center is the only still multi-specialty ASC in Vermont.
To obtain its CON, Green Mountain Surgery Center navigated what is called an implementation period. During this time, the ASC was required to submit quarterly implementation reports, which involved gathering documents up to 100 pages in scope.
“That was an administrative burden, for sure,” Hunt said. “Gathering data from all these independent physicians, who are already overburdened, about payer mix, case volume and more. But there were some pros, because it gave us better insight into what we could potentially provide more of.”
Although collecting data can yield valuable information for center operations, Hunt said the statewide approach to regulation makes it difficult for new ASCs to launch successfully. The lengthy process of developing a CON application can take anywhere from six to sixteen months of research, plus legal review and formal hearings.
By the time a CON is granted, market and construction costs may have dramatically changed, threatening the viability of the project, she added.
“That lag time really can put a serious hindrance on project development,” she said. “The conditions didn’t allow financial feasibility of the project, which I then retracted. That’s really at the disadvantage of Vermonters. … It takes a long time to write a certificate of need application. There’s a lot of research.”
For Hunt, the main drawback of a CON-based environment is the limited ability for small facilities to open, or to update their technology, facilities and service lines in real time.
While some of the oversight can be beneficial, the process remains too heavily politicized, and reliant on gubernatorial appointees rather than public voting.
Ultimately, Vermont’s strict process impedes access to care and affordability, two goals that ASCs are typically well positioned to address, Hunt said.
“Hospitals have their place,” she said. “Of course, we are just, in the name of ASCs, making sure the right care is at the right location for the right cost.”
